Stocks Lower into Final Hour on Rising Eurozone Debt Angst, Less Financial Sector Optimism, Global Growth Fears, Profit-Taking

Broad Market Tone:

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

Equity Investor Angst:

• VIX 19.40 +4.70%
  
• ISE Sentiment Index 103.0 -25.90%
  
• Total Put/Call .94 +6.82%
  
• NYSE Arms 1.23 -28.41%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 103.40 +2.24%
  
• European Financial Sector CDS Index 190.50 +7.50%
  
• Western Europe Sovereign Debt CDS Index 345.0 +4.08%
  
• Emerging Market CDS Index 267.88 +.88%
  
• 2-Year Swap Spread 33.0 +1 bp
  
• TED Spread 50.0 unch.
  
• 3-Month EUR/USD Cross-Currency Basis Swap -73.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .05% unch.
  
• Yield Curve 162.0 -7 bps
  
• China Import Iron Ore Spot $139.90/Metric Tonne +.07%
• Philly Fed ADS Real-Time Business Conditions Index .0250 -4.21%
• Citi US Economic Surprise Index 63.50 -1.9 points
  
• 10-Year TIPS Spread 2.09 -1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating -41 open in Japan
• DAX Futures: Indicating +27 open in Germany

Portfolio:

• Slightly Lower: On losses in my Biotech, Medical and Retail sector longs
  
• Disclosed Trades: Added to my (IWM), (QQQ) hedges and then covered some of them
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish, as the S&P 500 trades lower, but near session highs, on more global growth fears, profit-taking, high energy prices, less financial sector optimism and rising Eurozone debt angst. On the positive side, Oil Tanker, Computer Service and Airline shares are especially strong, rising more than +.5%. The UBS-Bloomberg Ag Spot Index is falling -1.65%, gold is declining -.54%, Lumber is gaining +1.89% and Oil is down -.70%. Oil continues to trade poorly given the recent uptick in saber-rattling from Iran, escalating violence in the Mid-east, better US economic data and euro bounce. On the negative side, Bank, REIT, Coal, Alt Energy, Oil Service, Steel, Semi, Networking, Hospital, Construction, Homebuilding and Education shares are under pressure, falling more than -1.0%. (XLF) has underperformed throughout the day. Copper is falling -1.52%. The Germany sovereign cds is rising +7.1% to 91.50 bps, the France sovereign cds is gaining +6.45% to 176.33 bps, the Spain sovereign cds is rising +7.66% to 381.67 bps, the Italy sovereign cds is jumping +7.4% to 427.67 bps, the Belgium sovereign cds is rising +3.89% to 249.83 bps, the UK sovereign cds is gaining +2.94% to 80.33 bps and the Japan sovereign cds is rising +3.0% to 136.33 bps. The Portugal sovereign cds is up +5.2% to 1,510.0 bps(+39.6% in 11 days to new record high). The Portugal 10Y Yld is soaring +217 bps to 17.39%. The Italian/German 10Y Yield Spread is rising +5.2% to 424.89 bps. Lumber has declined -11.5% since its Dec. 29th high and is still near the lower end of its recent range(near a multi-year low) despite the better US economic data, more dovish Fed commentary, improving sentiment towards homebuilders, equity rally and decline in eurozone debt angst. Moreover, the Baltic Dry Index has plunged over -60.0% from its Oct. 14th high and is now down over -50.0% ytd. The 10Y T-Note Yield is falling -5 bps to 1.84% and remains a large concern considering the recent stock rally, falling Eurozone debt angst and improvement in US economic data. The Philly Fed’s ADS Real-Time Business Conditions Index has stalled over the last 3 weeks after showing meaningful improvement from mid-Nov. through year-end. The Western Europe Sovereign CDS Index is still near its Jan. 9th all-time high. The TED spread is near the highest since May 2009. The 2Y Euro Swap Spread is near the highest since Nov. 2008. The 3M Euribor-OIS spread is near the highest since February 2009. The Libor-OIS spread is still very near the widest since May 2009, which is also noteworthy considering the equity surge off the recent lows. Overall, the improvement in credit gauges appears to be stalling at still stressed levels, which is liklely related to rising concerns surrounding Portugal. China Iron Ore Spot has plunged -22.8% since Sept. 7th of last year. Shanghai Copper Inventories are up over 300.0% ytd to the highest level since March of last year. Major Asian indices were down around -1.5% overnight, led lower by a -2.15% decline in India shares. The Shanghai Composite re-opened from the holidays and fell -1.5%, led lower by a -2.75% decline in the Shanghai Property Index. Major European indices fell around -1.25%, led down by France’s -1.6% decline. As well, the Bloomberg European Bank/Financial Services Index fell -3.15%. The market’s focus is rapidly moving from Greece to Portugal, which appears headed for another bailout. Many are suggesting that the issues in Europe are priced into stock prices at current levels, however recent history suggests otherwise. Furthermore, given that several key investor sentiment gauges are registering too much complacency and stocks are technically extended, a more cautious approach is warranted. For an intermediate-term equity advance from current levels, I would still expect to see further European credit gauge improvement, subsiding hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices and higher-quality stock market leadership. I expect US stocks to trade mixed-to-lower into the close from current levels on rising Eurozone debt angst, less financial sector optimism, more shorting, profit-taking, high energy prices and global growth fears.

Today's Headlines

Bloomberg:

• EU Stumbles as Merkel Signals Greece Debt Deal Delay. European leaders sparred with Greece over a second rescue program, clouding progress toward a permanent aid fund and tougher budget rules designed to stabilize the euro. Greece faced criticism that its economic makeover is faltering, and it fended off German-led calls for a European overseer to take command of its budget after its deficits surpassed targets for two years. “What the Greeks have to do is show they are ready to implement the package,” Dutch Prime Minister Mark Rutte told reporters as he arrived for a European Union summit in Brussels today. “We can help Greece through this difficult phase, but then Greece has to execute all agreements they made with us.” Bargaining with Greece over a debt writedown and its economic management threatened to overshadow a summit meant to point the way out of the financial crisis by speeding the setup of a full-time 500 billion-euro ($654 billion) rescue fund and signing off on a German-inspired deficit-control treaty. A start-of-year respite from market pressures continued today when Italy raised 7.5 billion euros, close to its maximum target, in preparation for its biggest redemption of 2012. At least five more countries plan bond sales this week. The euro slipped 0.9 percent to $1.3160 at 5:30 p.m. in Brussels, snapping a five-day rally.
• Stocks in Europe Fall Most in Six Weeks; BNP Paribas Tumbles on French Tax. European stocks dropped the most in six weeks as Portuguese bonds sank amid concern a meeting of the region’s leaders will fail to draw a line under the sovereign- debt crisis. BNP Paribas SA (BNP) tumbled 7.1 percent, leading French banks lower, as President Nicolas Sarkozy said he will unilaterally impose a financial-transaction tax. Royal Philips Electronics NV (PHIA) fell 2.2 percent after reporting a larger-than-estimated loss. Hochtief AG (HOT) slid 5.8 percent after saying it will post a wider annual loss than previously anticipated. The Stoxx Europe 600 Index retreated 1.1 percent to 252.52 at the close of trading, the largest slide since Dec. 14.
• Portugal Likely to Get Scant Relief From Greek Debt Agreement: Euro Credit. The Greek debt swap negotiations that may produce relief for Athens are fueling concerns in Lisbon where an agreement would make it more likely Portuguese investors would be next in line to accept a loss. European leaders have said a Greek accord where investors take a 50 percent writedown in the face value of their bonds is unique and won’t be applied to other nations struggling to tame rising debts. Holders of Portuguese securities are skeptical, with the yield on the nation’s 10-year bonds rising today to a euro-era record of 16.45 percent. “Portugal’s debt and lack of growth is very similar to Greece,” Yannick Naud, who manages $150 million at Glendevon King Asset Management, said in a Jan. 23 interview in London. “Its bonds are falling because it’s very obvious to everyone that if there’s a haircut for Greece, there might well be a haircut for Portugal too.”
• Corporate Bond Risk Rises in Europe, Credit-Default Swaps Show. The cost of insuring against default on European corporate debt rose, according to traders of credit- default swaps. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings increased 13.5 basis points to 618.5 basis points, according to JPMorgan Chase & Co. at 7:30 a.m. in London. An increase signals worsening perceptions of credit quality. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was up 3.25 at 144.75 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers added 4.5 basis points to 215 and the subordinated gauge was up six at 375.
  
• MF Global Said 'Never Been Stronger' a Week Before Failure. A week before MF Global Holdings Ltd. collapsed, its chief financial officer told Standard & Poor’s in an e-mail that the futures broker had “never been stronger.” S&P provided the House Financial Services Subcommittee on Oversight and Investigations with an excerpt of the e-mail from MF Global CFO Henri Steenkamp. S&P also informed the panel that Jon Corzine, then MF Global’s chief executive officer, met with its analysts on Oct. 20 to reassure them that his $6.3 billion bet on European sovereign debt was no threat to the firm, according to a Jan. 17 letter obtained by Bloomberg News.
• Canada's Subprime Crisis Seen With U.S.-Styled Loans: Mortgages. Canadian lenders are loosening standards on mortgages that are similar to U.S. subprime loans, posing an "emerging risk" to financial institutions, according to the country's banking regulator. Banks and other lenders are becoming "increasingly liberal" with mortgages and home-equity credit lines that don't require individuals to prove their income, according to documents obtained by Bloomberg News under freedom of information law from the Office of the Superintendent of Financial Institutions. The mortgages, typically granted to the self-employed and recent immigrants, "have some similarities to non-prime loans in the U.S. retail lending market," the documents show. "Non- income qualified" lending has been added to a list of issues to be considered by OSFI's "emerging-risk committee," the documents show. "It just speaks to the general easing in lending standards, which has contributed to a booming housing market," said David Madani, an economist in Toronto with Capital Economics, which estimates that Canadian housing prices may fall 25 percent over the next few years. "The problem is sort of baked in now, so I'm not sure there's a way to prevent a weakening of the housing market."
• Corn, Soybean Futures Decline as Rain May Boost Crops in Argentina, Brazil. Corn fell for the first time in eight sessions and soybeans dropped on speculation that rain in South America will boost crop potential, reducing demand for supplies from the U.S., the world’s biggest exporter.
• Consumer Spending in U.S. Stalls. Consumer spending stalled in December as Americans took advantage of a jump in incomes to restore depleted savings, indicating households remain focused on repairing finances. Purchases were little changed after rising 0.1 percent the prior month, Commerce Department figures showed today in Washington. The median estimate of 77 economists surveyed by Bloomberg News called for a 0.1 percent increase in sales. Incomes climbed by the most in almost a year, pushing the savings rate to a four-month high.

Wall Street Journal:

• Germany Warns Greece on Aid Funds. Germany's finance minister issued an unusually blunt warning that the euro zone might refuse to grant Greece a fresh bailout, pushing Athens into default unless it persuades Europe it can overhaul its state and economy. "Greece needs to decide," Wolfgang Schäuble said in an interview with The Wall Street Journal, when asked whether the euro zone would grant or withhold the second bailout package for the country since 2010, expected to be in excess of €130 billion ($172 billion).
• CFTC to Step Up Focus on High-Frequency Trading. The Commodity Futures Trading Commission is planning to take a closer look at high-frequency trading, with an eye on getting a clearer understanding of how electronic trading affects commodity markets and participants.
• Fed Survey Finds Banks Still Cautious to Lend. Banks in the U.S. kept credit fairly tight in the final months of 2011 even as demand for loans increased, putting a brake on the slow economic recovery. The Federal Reserve's quarterly survey showed that credit standards on commercial and industrial loans were little changed for the 56 domestic banks that were interviewed, after the banks stopped relaxing credit in the third quarter.
• Syrain Forces Battle Ahead of U.N. Talks. Syrian forces heavily shelled the restive city of Homs on Monday and troops pushed back dissident troops from some suburbs on the outskirts of Damascus in an offensive trying to regain control of the capital's eastern doorstep, activists said. President Bashar al-Assad's regime is intensifying its assault aimed at crushing army defectors and protesters, even as the West tries to overcome Russian opposition and win a new U.N. resolution demanding a halt to Syria's crackdown on the 10-month-old uprising. Activists reported at least 28 civilians killed on Monday.
  

CNBC.com:

• Why Even 20-Somethings Are Worried About Retirement.
• Pay Up-Front Portugal Slides Towards Bond Pariah Greece.
• Rates May Need to Rise Sooner: Philly Fed's Plosser. "If the economy evolves as I think it might, then it’s likely it might have to be sooner than that," he said of a mid-2014 increase. "I’ve said previously that I thought it possible rate hikes would have to come before mid-2013. I was unhappy with the calendar date in the statement. I’m still uphappy with the statement. I don’t think it’s the right way to convey policy." He said it is "clear" from the Fed's statement the mid-2014 date "is contingent on the evolution of the economy. It is not a commitment and shouldn’t be interpreted as a commitment. It’s a conditional statement." He acknowledged "we are punishing savers" by keeping rates at near zero. "The policy is to get people to quit saving and start spending," he said. The problem is, when they start liquidating assets "it's gonna be gone" for the next generation. He also acknowledged low interest rates are forcing some investors to take "unwise risks" in the search for yield from stocks, Plosser said.

Business Insider:

• China Has Begun Buying Up Germany's Family-Owned Industrial Backbone.
• The Most Bullish Number From Today's Big Dallas Fed Manufacturing Report. (graph)
• Bubble Watching: My Trip To The 'Hawaii Of China'. (pics)
  

Zero Hedge:

• European Elections And Tolstoy's Portugal.
• Everything You Need To Know About Europe In Three Charts.
• Youth Unemployment Across Europe. (chart)
• Japanese Population to Shrink by One Third, Size of Workforce to Plunge in Under 50 Years.
  

The Detroit News:

• Treasury Ups Auto Bailout Loss Estimate. The U.S. Treasury Department boosted its estimate of government losses in the $85 billion auto bailout by $170 million. In the government's latest report to Congress this month, the Treasury upped its estimate to $23.77 billion, up from $23.6 billion. Last fall, the government dramatically boosted its forecast of losses on the rescues of General Motors Co., Chrysler Group LLC and their finance units from $14 billion to $23.6 billion. Much of the increase in losses is due to the sharp decline of GM's stock price over the last six months. GM was trading at noon today at $24.24. It's down 35 percent over its 52-week-high of $37.23, but the Detroit automaker has rebounded from a low set last year of $19.05.

The Daily Ticker:

• Freddie Mac Betting Against Homeowners Is Latest GSE Outrage. (video)

Reuters:

• Gulf Arabs Have Plans Against Hormuz Closure - Official. Coastguards and naval forces of the Gulf Cooperation Council (GCC) group of Arab countries have contingency plans for a possible attempt by Iran to shut the Strait of Hormuz, a Kuwaiti maritime official said on Monday.
• Oil Slips in Choppy Trade. Oil prices slipped on Monday in volatile trading a day after Iran postponed a parliamentary debate on a proposed halt to crude sales to the European Union. The dollar index .DXY strengthened and the euro fell from a six-week high against the U.S. currency as talks on a Greek debt agreement continued, keeping investors cautious about the outlook for the economy and oil demand. The possibility Iran may yet halt exports to the EU, along with data showing improved European economic sentiment and a successful bond auction in Italy, helped limit oil's losses."Oil is lower because Iran didn't cut off sales to Europe and the dollar index is stronger, and there still isn't a deal on Greece," said Phil Flynn, analyst at PFGBest Research in Chicago.Brent March crude fell 46 cents to $111 a barrel by 12:45 p.m. EST, having traded from $110.80 to $111.78. That intraday peak was in sight of front-month Brent's 200-day moving average of $111.89.U.S. March crude fell 36 cents to $99.20 a barrel, having swung from $98.50 to $100.05, seesawing either side of the front-month 50-day moving average at $99.27.
• Rajoy Says Spain Won't Make 2012 Growth Target. Prime Minister Mariano Rajoy said on Monday Spain was not going to meet its existing growth target for 2012, but wouldn't go into detail about what that may mean for its plans to cut its budget deficit sharply.

Financial Times:

• Portugal Yields Jump On Default Fears. Portugal’s bond yields reached new euro-era highs as many investors priced in a Lisbon default amid fears its debt holders could suffer heavy losses once a restructuring deal with Greece is agreed. At one point the yield on benchmark 10-year Portuguese debt rose as much as 204 basis points to 17.26 per cent. Portuguese credit default swaps, meanwhile, rose to record levels as the market priced in about a 70 per cent chance the country would default over the next five years.
• Eurozone Crisis: Live Blog.
  

Telegraph:

• European Venture Capital Deals at 10-Year Low.

Financial Times Deutschland:

• Kloeckner says steel demand in Europe may drop 5% or more, citing CEO Gisbert Ruehl. Insecurity in the markets is at the moment probably higher and more threatening than during 2008 with no end in sight for the debt crisis.

Bild:

• Greece should be closely monitored by the European Union if it won't manage itself, German Economy Minister Philipp Roesler said in an interview. Greece also shouldn't receive any more aid until it implements reforms, Roesler said, adding that Germany opposes adding money to the European Stability Mechanism.

Shanghai Daily:

• New Home Sales in Shanghai Fall to Lowest in 7 Years. NEW home sales in Shanghai during the week-long Lunar New Year holiday fell to the lowest in seven years on a sluggish buying sentiment. More than 1,700 square meters of new homes, or 16 units, excluding government-funded affordable housing, were sold across the city during the holiday which ended on Saturday, the lowest since 2006 when the city's housing data were first tracked, said a report released yesterday by Shanghai Deovolente Realty Co. The sales by area fell 33.3 percent from the Lunar New Year holiday in 2011, and the unit number shed 27.9 percent.

Bear Radar

Style Underperformer:

• Mid-Cap Value -.71%

Sector Underperformers:

• 1) Homebuilders -2.0% 2) Hospitals -1.90% 3) Steel -1.50%

Stocks Falling on Unusual Volume:

• CHU, LFC, ABB, ESIO, MPEL, NTRI, CPHD, VIVO, GSM, SPLS, ABFS, Z, PMTC, RVBD, ABCO, SNCR, ACAT, RDEA, FSLR, CREE, QCOR, YPF, BNS, ICB, GCI, SCCO, CFX and PMC
  

Stocks With Unusual Put Option Activity:

• 1) FCN 2) RENN 3) KRE 4) RDN 5) MTG
  

Stocks With Most Negative News Mentions:

• 1) SPLS 2) CF 3) CCL 4) BAC 5) BLK
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth -.50%

Sector Outperformers:

• 1) Airlines +.39% 2) Computer Services +.29% 3) Oil Tankers +.19%

Stocks Rising on Unusual Volume:

• TNB, AMLN, BVSN, PLCM, PBY, CIB, NRGY and INVN
  

Stocks With Unusual Call Option Activity:

• 1) RENN 2) ONTY 3) AMLN 4) FTR 5) MDVN
  

Stocks With Most Positive News Mentions:

• 1) NOC 2) RTN 3) PBY 4) GD 5) AMLN
  

Charts:

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

Monday Watch

Weekend Headlines
Bloomberg:

• Greek Debt Talks Risk Derailing EU Summit's Crisis-Fighting Plan. European Union leaders gather for their first summit of 2012 as a deteriorating economy and struggle to complete a Greek debt writeoff risk sidetracking efforts to stamp out the financial crisis. EU chiefs arrive in Brussels about 2 p.m. today to put the finishing touches on a German-led deficit-control treaty and endorse the statutes of a 500 billion-euro ($661 billion) rescue fund to be set up this year. Greece and its private creditors said Jan. 28 they expect to complete a deal in coming days after bondholders signaled they would accept European government demands for a bigger cut in their debt holdings. Efforts to hold the 17-member euro area together with bolstered fiscal rules and a stronger firewall are colliding with stalled progress in Greece, where the crisis began in 2009. To prevent a financial collapse, Greek bondholders have been pushed to cede more ground after agreeing in October to take a 50 percent cut in the face value of more than 200 billion euros ($263 billion) of debt. “The fact we’re still at the beginning of 2012 talking about Greece is a sign this problem hasn’t been dealt with,” U.K. Chancellor of the Exchequer George Osborne said at the World Economic Forum in Davos, Switzerland. The summit follows warnings at the gathering that ended yesterday in Davos that it’s time to end the region’s debt crisis and that measures aimed at simply containing the turmoil are no longer enough. The euro economy is set to contract by 0.5 percent this year, according to the median of 19 economist forecasts compiled by Bloomberg.
• Euro-Area Debt Sales Top $29 Billion in Week as Fitch Threatens Sentiment. European nations including Italy, Belgium and Spain sell no less than 22 billion euros ($29 billion) of securities this week as credit-rating cuts risk upending optimism the region’s debt crisis is being contained. Italy auctions as much as 6 billion euros of five- and 10- year debt today, along with securities due in April 2016 and March 2021. Belgium sells as much as 3 billion euros of bills tomorrow, with Spain, Portugal, Germany and France issuing 13 different maturities in the five days.
• Ackermann Says Greek Default Would Be 'Playing With Fire'. The economic and political consequences of Greece defaulting instead of reaching a voluntary debt-restructuring deal are being underestimated, Deutsche Bank AG Chief Executive Officer Josef Ackermann said. “Default risk is much higher than what people normally take into account,” Ackermann said today in an interview at the World Economic Forum in Davos, Switzerland. “You see already that some markets are nervous about certain countries,” he said. “That is playing with fire if you think that a default will have no impact.” As Greece's creditors continue negotiations with the country's government as well as the International Monetary Fund, European Union, and European Central Bank over the terms of a restructuring, some investors and financiers are downplaying the consequences of a default. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said this week that it would not be a “disaster,” Dow Jones reported, citing an interview with CNBC. “They are underestimating the collateral damages and they are underestimating the risk of contagion,” Ackermann, 63, said today. “If we have a default in the euro zone going forward, this will reduce somewhat the trust and confidence in the euro system and so, in that sense, we should do everything also from a historic and political perspective to prevent a default.”
  
• Greek Debt Deal May Mean Little Relief for Portugal: Euro Credit. The Greek debt swap negotiations that may produce relief for Athens are fueling concerns in Lisbon where an agreement would make it more likely Portuguese investors would be next in line to accept a loss. European leaders have said a Greek accord where investors take a 50% writedown in the face value of their bonds is unique and won't be applied to other nations struggling to tame rising debts. Holders of Portuguese securities are skeptical, with the yield on the nation's 10-year bonds rising 42 basis points to a euro-era record of 15.22% on Jan. 27. "Portugal's debt and lack of growth is very similar to Greece," Yannick Naud, who manages $150 million at Glendevon King Asset Management, said in an interview. "Its bonds are falling because it's very obvious to everyone that if there's a haircut for Greece, there might well be a haircut for Portugal too."
  
• Merkel Stopped by Kauder on ESM, EFSF Merger Plan, BamS Says. Volker Kauder, the floor leader for German Chancellor Angela Merkel’s Christian Democrats, blocked a plan to put unused funds from the euro region’s financial backstop into its permanent successor, Bild am Sonntag reported. Merkel wanted to endorse combining the lending power of the European Financial Stability Facility and the 500 billion-euro ($659 billion) European Stability Mechanism, the euro region’s future permanent financial backstop. Christian Democrat members of parliament opposed the move because Germany then would be liable for more than the 211 billon euros originally approved, prompting Merkel to drop the plan, BamS said, citing parliament members it didn’t name.
• Issing Doesn’t Rule Out Euro-Zone Exits, Neue Zuercher Reports. Otmar Issing, the former chief economist of the European Central Bank, said he wouldn’t rule out exits from the euro area, Neue Zuercher Zeitung reported, citing an interview. “The Greek case is obvious,” Issing told the newspaper. He added that the risk of contagion has fallen because countries like Ireland and Spain escaped “the line of fire” because of reforms. For the highly-indebted nations there is “no alternative” to fiscal consolidation, he said, Neue Zuercher reported.
• German Lawmakers Reject Increasing Aid for Greece, Spiegel Says. Lawmakers from German Chancellor Angela Merkel’scoalition rejected increasing aid for Greece, Der Spiegel said, citing members of the parliament in Berlin. There can be no further aid if Greece doesn’t implement the agreed adjustment programs, the magazine said, citing Horst Seehofer, chairman of the Christian Social Union, the Bavarian sister party of Merkel’s Christian Democratic Union. Greece must show evidence that it’s serious about implementing structural reforms, the magazine cited Rainer Bruederle, head of the Free Democratic Party’s group in parliament, as saying. All Greek parties must show the desire for fundamental change because there is increasing “annoyance” in Berlin, Der Spiegel said, citing CDU lawmaker Gunther Krichbaum, head of the European Affairs committee.
• Asian, Middle Eastern Holders Cut EFSF Bond Purchases, FT Says. Asian and Middle Eastern money managers have reduced purchases of new European Financial Stability Fund bonds at a faster pace than other investors, the Financial Times reported, citing data from CreditSights Inc. The proportion of the bonds bought by investors including central banks and sovereign wealth funds has fallen to 17 percent this month from 54 percent in June, the FT said. Asian and Middle Eastern investors purchased 12 percent of the bonds compared with 50 percent in June, according to the report.
• France May Raise EU1 Bln From Tax on Stock Trades, Figaro Says. France may raise 1 billion euros ($1.3 billion) annually from a transaction tax on stock trades, Le Figaro reported, without saying where it got the information. The 0.1 percent tax would also cover the most standardized derivatives products, while bonds and transactions on capital instruments would not be taxed, Le Figaro said. The tax project will be presented at a Feb. 8 French government cabinet meeting, according to the report.
• China Signals Limited Loosening as PBOC Bucks Forecast. China (CNGDPYOY) signaled caution toward more monetary loosening by holding off on a reduction in bank reserve requirements that some economists had predicted would come before a week-long holiday ending Jan. 28. “The central bank aims to ease policies prudently and pace loan growth at the beginning of the year so as to avoid a replay of the credit explosion in 2009 and 2010 and prevent inflation from rebounding,” said Lu Zhengwei, a Shanghai-based economist at Industrial Bank. Lu now sees a reserve-ratio cut in February to add liquidity and spur growth after the reverse-repurchase contracts expire.
• China's Stocks Decline After Weeklong Holiday. China’s stocks fell after the government signaled caution toward further easing of monetary policy by holding off on a cut in bank reserve requirements and the U.S. economy expanded less than forecast. China Vanke Co. (000002) and Poly Real Estate Group Co., the nation’s biggest developers, slid more than 2 percent after the Beijing Morning Post said home sales in the capital dropped during the weeklong Chinese New Year holiday. Liquor maker Kweichow Moutai Co. (600519) paced declines for consumer stocks after retail sales growth slowed last week. Zijin Mining Group Co. led gains for gold producers after bullion prices jumped. “There was no reserve-ratio cut during the holiday so liquidity will still be tight,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “It looks like the government isn’t in a hurry to release too much liquidity into the market as opposed to the market expectation of an immediate and aggressive relaxation.”
• Simpson Says 'Terrified' Obama Walked Away From Deficit Issue. President Barack Obama “walked away” from his bipartisan U.S. deficit-cutting commission’s plan “because he knew he’d be torn to bits,” said former Republican Senator Alan Simpson, who was co-chairman of the panel. Obama is “terrified” of the deficit issue, Simpson said in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend. “He didn’t deal with it” in his annual State of the Union address to Congress on Jan. 24.
• SEC Probes Deutsche Bank CDO Deal With Paulson, Spiegel Says. The U.S. Securities and Exchange Commission is investigating a collateralized debt obligation transaction in which Deutsche Bank AG (DBK) allowed U.S. hedge fund Paulson & Co. to select mortgage-backed securities, Der Spiegel reported. For a CDO called “START,” the bank allowed Paulson to bet against the securities without telling other investors, the German magazine said on its website. Goldman Sachs settled a suit by the SEC for $500 million over a similar transaction, according to Der Spiegel. Like other lenders, Deutsche Bank is faced with lawsuits brought forward by retail and institutional clients who have lost money in the financial crisis, Deutsche Bank spokesman Frank Hartman said when contacted by Bloomberg News. The lender look into the claims carefully and, if they prove wrong, will defend itself vigorously, he said.
• Oil Drops a Second Day Before European Leaders Meet for Debt Discussions. Oil declined for a second day in New York before a meeting of European Union leaders to discuss the region’s debt crisis, which has slowed the economy and threatened to curb fuel consumption.
• ABB Nears Deal for Thomas & Betts for About $4B. ABB Ltd. (ABBN) is near an agreement to buy Thomas & Betts Corp., a maker of electrical connectors, for about $4 billion in cash, a person with knowledge of the plan said. ABB, based in Zurich and the world’s largest provider of power-transmission gear, may announce a deal as soon as today, said the person, who spoke on condition of anonymity because the negotiations are private. The talks for Thomas & Betts, whose market value was $3.02 billion based on its Jan. 27 closing price of $57.95 a share, may still break down.
• StanChart's Bindra Sees Hong Kong Hyperinflation Risk. The U.S. Federal Reserve’s pledge to keep interest rates low through at least late 2014 creates a risk of hyperinflation in Hong Kong, said Jaspal Bindra, Standard Chartered Plc (STAN)’s chief executive officer for Asia. A currency peg to the dollar means the city won’t be able to raise benchmark borrowing costs as China’s expansion fuels growth and price gains, Bindra told journalists on Jan. 27 at the World Economic Forum in Davos, Switzerland. “It will have a very profound impact in Hong Kong,” he said. “If you have near-zero interest rates when their inflation is at over 6 or 7 percent given the China effect, and their growth is, also thanks to China, at 6 or 7 percent, you’re looking for hyperinflation.”
• If Carried Interest Irks You, You Don't Get It: William Dantzler. Do we really want a tax law in which only people who already have money can earn a capital gain? And, if earning a capital gain requires an investment, then how much? Does it have to be a big investment? Can it be borrowed from the other partners? Isn’t a carried interest in effect just a loan from the moneyed partners? These are difficult questions that affect the entire structure of capital-gains taxation -- not just carried interest. It would be very hard to draw a fair line between the type of private-equity investment that is deserving of capital gain treatment and that which is not. It is perhaps not an accident that the carried interest discussion is taking place in the political arena -- over Mr. Romney’s tax returns -- rather than the worlds of tax law or tax policy, and that the advocates of taxing carried interest at higher rates are not tax experts who understand the complexity of the issue and the difficulty of drawing fair lines.
• Goldman Sachs(GS) Among Banks Fighting to Exempt Half of Swaps Books. More than half of the derivatives- trading business of Goldman Sachs Group Inc. (GS), Morgan Stanley and three other large banks could fall largely outside the Dodd- Frank Act if they succeed in lobbying regulators to exempt their overseas operations, government records show. The banks have met with regulators, testified to Congress and filed dozens of letters contending that they will suffer a competitive disadvantage if the regulations apply to their foreign arms. Banking lobbyists have been gaining traction with their argument that a combination of U.S. supervision of their holding companies and foreign supervision of their operations abroad is sufficient to oversee risk to the financial system. While the banks haven’t publicized how much of their swaps business is overseas, they file quarterly statements to the Federal Reserve. A Bloomberg News analysis of the filings shows that Goldman Sachs had 62 percent of its $134 billion in fair- value derivatives assets and liabilities in non-U.S. branches or subsidiaries for international banking as of Sept. 30, while 77 percent of Morgan Stanley (MS)’s $101 billion was in non-U.S. operations. If overseas operations aren’t subject to U.S. rules or equivalent regulation by other nations, it could impede the goal of preventing another credit crisis, Darrell Duffie, professor at Stanford University’s Graduate School of Business, said in a telephone interview. “Not only is that neglectful from a viewpoint of systemic risk as it sits today, but it’s also an incitement to move the risk abroad,” Duffie said.

Wall Street Journal:

• Japanese Debt Concerns Rise. Default-Insurance Costs Climb as Raters Weigh Downgrades; 'Absurdly Unsustainable'. Jitters from Europe's sovereign-debt crisis are now touching Japan, a country with a long-calm bond market despite fiscal deficits far larger than those of Greece or Italy. In recent weeks, the cost of insuring against default on Japanese government bonds—a measure of perceived credit risk—has increased sharply, nearing the historic peak at the height of the Greek debt crisis in October. The price for default insurance, through derivatives known as credit-default swaps, exceeds levels seen last March, immediately after natural disasters and a nuclear crisis darkened Japan's outlook.
• Law Firms Keep Squeezing Associates. Law firms are finally starting to recover from the recession, but they aren't taking their young lawyers along for the ride.
• Citi(C) Chairman Parsons Considers a Departure. Richard D. Parsons, who as chairman of Citigroup Inc. helped steer the bank through its near-death experience in the financial crisis, is considering stepping down after three years in the post, said people familiar with the situation.
• Money From MF Global Feared Gone. Nearly three months after MF Global Holdings Ltd. collapsed, officials hunting for an estimated $1.2 billion in missing customer money increasingly believe that much of it might never be recovered, according to people familiar with the investigation. As the sprawling probe that includes regulators, criminal and congressional investigators, and court-appointed trustees grinds on, the findings so far suggest that a "significant amount" of the money could have "vaporized" as a result of chaotic trading at MF Global during the week before the company's Oct. 31 bankruptcy filing, said a person close to the investigation.
• The Solyndra Rule. Another green subsidy favorite goes belly up. President Obama keeps pushing the (Warren) Buffett rule that nobody making more than $1 million a year should pay less than 30% in taxes. He'd do better by the economy if he adopted a Solyndra Rule, in which no company touting unproven and expensive technology should receive millions in taxpayer subsidies.

Business Insider:

• The Hot New Worry In The Eurozone...
• A Eurozone Bailout May Be Getting Too Big For Germany To Handle.
• The Pentagon Says Even Its Biggest Bomb Isn't Enough To Reach Iran's Nuclear Labs.
• The Report That Will Blow Up The Eurozone.
• Here Are All The iPad 3 Rumors We Know About So Far.
  

Zero Hedge:

• It's Official: German Economy Minister Demands Surrender Of Greek Budget Policy, Says It Is First Of Many Such Sovereign "Requests".
• Cost Of Second Greek Bailout Raised To €145 Billion.

CNBC:

• India Won't Cut Iranian Oil Imports: Finance Minister. India, the world's fourth-largest oil consumer, will not take steps to cut petroleum imports from Iran despite U.S. and European sanctions against Tehran, its finance minister said on Sunday during a visit to Chicago. The United States wants buyers in Asia, Iran's biggest oil market, to cut imports to put further pressure on Tehran to rein in its nuclear ambitions. Washington suspects Iran of trying to make nuclear weapons, but Tehran says its nuclear program is for peaceful means. India, which imports 12 percent of its oil from the Islamic Republic, cannot do without Iranian oil, the official said. "It is not possible for India to take any decision to reduce the imports from Iran drastically, because among the countries which can provide the requirement of the emerging economies, Iran is an important country amongst them," India Finance Minister Pranab Mukherjee told reporters in Chicago at the end of a two-day visit aimed at wooing U.S. investment.
• With $100 a Barrel Oil, Why Isn't Green Tech Better? The demand for energy is expected to double in the next 40 years globally, as populations grow and access to electricity increases, yet a large-scale, safe alternative to fossil fuels has yet to be built.
• China's Wen Says Government Debt Risk 'Controllable'. China's Premier Wen Jiabao said the nation's government debt is at an "overall safe and controllable" level, that funding for key projects would be ensured and that applying the brakes to the problem would be done in a way to avoid systemic risks. Investors have been worried by the scale of the debts built up by China's local governments, which some fear could threaten the stability of the banking system.

IBD:

• Air Lease's(AL) Growth Reflects Airline Industry Trends.

LA Times:

• Occupy Oakland Arrests Reach 400; City Hall Vandalized. Officials surveyed damage Sunday from a volatile Occupy protest that resulted in hundreds of arrests the day before and left the historic City Hall vandalized after demonstrators broke into the building, smashed display cases, cut electrical wires and burned an American flag. Police placed the number of arrests at about 400 from Saturday's daylong protest — the most contentious since authorities dismantled the Occupy Oakland encampment late last year. Mayor Jean Quan condemned the local movement's tactics as "a constant provocation of the police with a lot of violence toward them" and said the demonstrations were draining scarce resources from an already strapped city. Damage to the City Hall plaza alone has cost $2 million since October, she said, about as much as police overtime and mutual aid. Oakland has logged five homicides since Friday, and Police Chief Howard Jordan said the law enforcement "personnel and resources dedicated to Occupy reduce our ability to focus on public safety priorities."
• Syrian Army Cracks Down on Protests in Damascus Suburbs. Syrian tanks and troops moved Sunday to crush resistance in the rebellious suburbs of Damascus, opposition groups reported, bringing the bloody battle that has ravaged the nation for months to the doorsteps of the nation's capital. The fierce fighting reported outside Damascus was the latest sign that Syria's armed insurgency — long concentrated in provincial hotbeds of revolt like Homs, Hama and Dara — has now reached the edge of the city from which the Assad family has ruled Syria in autocratic fashion for more than 40 years. That reign now appears threatened as never before, raising the prospect of a revamped geopolitical alignment in the heart of the volatile Middle East. More than 250 people have been killed in clashes nationwide since Thursday, according to the Local Coordination Committees, an opposition coalition. The group reported at least 64 deaths on Sunday alone.

NY Times:

• U.S. Banks Tally Their Exposure to Europe's Debt Maelstrom. After a hurricane, homeowners check nervously to see if their insurance will cover all of their damages. With the European financial crisis still threatening a trail of defaults, United States banks are betting that their insurance is going to pay out. Five large American banks, including JPMorgan Chase and Goldman Sachs, have more than $80 billion of exposure to Italy, Spain, Portugal, Ireland and Greece, the most economically stressed nations in the euro currency zone, according to a New York Times analysis of the banks’ financial disclosures.

USA Today:

• Apple(AAPL) Makes Move Into Offices. Microsoft's(MSFT) corporate Windows business is losing ground to Apple. Apple is hiring sales executives across the U.S. to get more of its products into Fortune 1000 companies.

Reuters:

• Iran Vows to Stop "some" Oil Sales as Inspectors Visit. Iran sent conflicting signals in a dispute with the West over its nuclear ambitions, vowing to stop oil exports soon to "some" countries but postponing a parliamentary debate on a proposed halt to crude sales to the European Union. The Islamic Republic declared itself optimistic about a visit by U.N. nuclear experts that began on Sunday but also warned the inspectors to be "professional" or see Tehran reducing cooperation with the world body on atomic matters.

Financial Times:

• Successful Short Selling - An Effective But Rare Skill. Returns from short bias funds over the past few years do not make particularly happy reading as shorting only works in particularly dire years. In 2008, for instance, the strategy returned 28 per cent to investors, according to HFR. But it lost investors 24 per cent in 2009 and 18 per cent in 2010, compared with 10 per cent gains for the average hedge fund investor. It is little wonder that, despite the common perception that hedge funds are obsessed with shorting, in reality there are few specialists on the short side.
• Deutsche Bank Targets Problem Assets. Deutsche Bank is preparing to launch a fund to snap up investors’ illiquid or damaged holdings in hedge funds that have failed to recover since the financial crisis. The bank estimates that, three years after the collapse of Lehman Brothers, investors are sitting on between $80bn and $100bn of hard-to-sell hedge fund assets that could prove lucrative in the coming years.
• Western Industrials Feel A Chinese Burn. Western industrial companies have seen a slowdown in some markets in China as efforts to cool the world’s second largest economy have hit demand for capital goods and products linked to the construction industry. China was until recently a source of rapid growth for US and European manufacturers, helping to offset weak sales in developed countries.

Telegraph:

• Barack Obama is Trying to Make the US a More Socialist State. The ideas the President outlined in the State of the Union are based on the very model that is causing the EU to implode. Barack Obama is now putting the United States squarely a decade behind Britain. Listening to the President’s State of the Union message last week was like a surreal visit to our own recent past: there were, almost word for word, all those interminable Gordon Brown Budgets that preached “fairness” while listing endless new ways in which central government would intervene in every form of economic activity.
• Britain Should Be Preparing to Make the Most of the Euro Break-Up.
• We're On The Brink, Warns Greece Ahead Of Summit. Greece faces “the spectre of bankruptcy and all the dire consequences that entails”, the Greek prime minister warned last night.

Le Monde:

• French President Nicolas Sarkozy plans to announce tomorrow the value-added tax will be increased by 1.6 percentage points to 21.2%.
  

Xinhua:

• China has no plans to invest local pensions in the market "temporarily," citing Yin Chengji, spokesman of the Ministry of Human Resources and Social Security.

Caixin Online:

• China may impose a 10% tax on profits from stock investment by qualified foreign institutional investors for the first time since the funds were set up nine years ago.

Beijing Morning Post:

• Home sales in China's capital Beijing fell to zero during the week-long Lunar New Year holiday, the first time in three years that no sales were recorded for a week, citing data from the local government. Average home prices dropped 23.6% from a year earlier as of Jan. 27.

Tehran Times:

• Iran said it will install its first 20% nuclear fuel plates at the Tehran Research Reactor within a month, citing Foreign Minister Ali Akbar Salehi.

Weekend Recommendations

Barron's:

• Made positive comments on (YUM), (COH) and (CLF).
• Made negative comments on (JAH) and (SHLD).
  

Night Trading

• Asian indices are -1.50% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 183.50 +3.0 basis points.
• Asia Pacific Sovereign CDS Index 145.75 unch.
• FTSE-100 futures -.28%.
  
• S&P 500 futures -.50%.
• NASDAQ 100 futures -.50%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (WEN)/.04
• (TNB)/.90
• (WWW)/.45
• (GCI)/.68
• (MCK)/1.38
• (GGG)/.51
• (PCL)/.39
• (SLG)/.01
• (HOLX)/.32

Economic Releases
8:30 am EST

• Personal Income for December is estimated to rise +.4% versus a +.1% gain in November.
• Personal Spending for December is estimated to rise +.1% versus a +.1% gain in November.
• The PCE Core for December is estimated to rise +.1% versus a +.1% gain in November.

10:30 am EST

• Dallas Fed Manufacturing Activity for January is estimated to rise to .5 versus a reading of -3.0 in December.
  

Upcoming Splits

• (CMN) 3-for-2
• (TJX) 2-for-1
  

Other Potential Market Movers

• None of note
  

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