Stocks Slightly Lower into Final Hour on Rising Global Growth Fears, Profit-Taking, More Shorting, Technical Selling

Broad Market Tone:

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

Equity Investor Angst:

• VIX 19.48 +.41%
  
• ISE Sentiment Index 90.0 -15.01%
  
• Total Put/Call .88 -5.38%
  
• NYSE Arms 1.41 -.56%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 102.58 -.79%
  
• European Financial Sector CDS Index 184.41 -3.21%
  
• Western Europe Sovereign Debt CDS Index 345.57 +.49%
  
• Emerging Market CDS Index 268.87 +.04%
  
• 2-Year Swap Spread 30.0 -3 bps
  
• TED Spread 49.0 -1 bp
  
• 3-Month EUR/USD Cross-Currency Basis Swap -71.50 +1.5 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .05% unch.
  
• Yield Curve 158.0 -4 bps
  
• China Import Iron Ore Spot $142.40/Metric Tonne +1.79%
• Philly Fed ADS Real-Time Business Conditions Index .0250 unch.
  
• Citi US Economic Surprise Index 53.20 -10.3 points
  
• 10-Year TIPS Spread 2.10 +1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating +9 open in Japan
• DAX Futures: Indicating +31 open in Germany

Portfolio:

• Slightly Higher: On gains in my Biotech, Medical and Tech 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 slightly lower, but near session highs, despite falling Eurozone debt angst, falling energy prices and gains in overseas equities. On the positive side, HMO and Disk Drive shares are especially strong, rising more than +.75%. Financial and Tech shares are outperforming. Oil is falling -.45% and Lumber is jumping +4.2%. Oil continues to trade poorly given the stock rally, euro rally, rising interest from speculators, falling euro debt angst, subsiding emerging market hard-landing fears, improving US data and soaring Mid-east tensions. Major Asian indices rose around +.75%, led by a 1.96% gain in India shares. Major European equity indices rose around +.5%, led by a +1.04% gain in France shares. Spanish stocks fell slightly and remain Europe’s worst-performers, dropping -.31% ytd. The Portugal sovereign cds is falling -3.0% to 1,480.63 bps and the Italian/German 10Y Yld Spread is falling -3.1% to 416.70 bps. Moreover, the European Investment Grade CDS Index is falling -2.45% to 131.84 bps. On the negative side, Coal, Alt Energy, Hospital, Homebuilding and Retail shares are under pressure, falling more than -1.0%. Copper is falling -.81%, the UBS-Bloomberg Ag Spot Index is up +.74% and Gold is rising +.55%. The France sovereign cds is gaining +2.55% to 181.17 bps, the Japan sovereign cds is gaining +1.4% to 138.25 bps and the Russia sovereign cds is rising +1.22% to 224.67 bps. The Portugal sovereign cds is up +37.9% in 12 days and just off its all-time high. Lumber has declined -9.0% 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 1.80% and remains a large concern considering the recent stock rally, falling Eurozone debt angst and improvement in US economic data. Weekly retail sales rose +2.7% this week versus a +2.9% gain the prior week. This is now a sub-par pace for a recovery and the slowest growth since the week of April 5th of last year. 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, 2Y Euro Swap Spread, 3M Euribor-OIS spread and Libor-OIS spread have improved, but are still at stressed levels. China Iron Ore Spot has plunged -21.3% since Sept. 7th of last year. Shanghai Copper Inventories are up over +300.0% ytd to the highest level since March of last year. I still believe that a more cautious approach is warranted in the short-term given that several key investor sentiment gauges are registering too much complacency, stocks are technically extended, global growth is still slowing and Eurozone debt angst could flare again at any time. 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-higher into the close from current levels on falling Eurozone debt angst, more financial/tech sector optimism, short-covering and falling energy prices.

Today's Headlines

Bloomberg:

• Greece Fights for Second Bailout as EU Leaders Seal Accord. Greece pledged a last-ditch effort to prevent the collapse of a second rescue package from creditors, aiming to complete talks this week on a financial lifeline that’s been in the works for six months. Greek Premier Lucas Papademos said he would try to meet German-led demands for a bigger debt writedown by investors and deeper budget cuts by his government. Stocks rose after European Union leaders endorsed key planks of a strategy to fight the financial crisis, agreeing to accelerate the setup this year of a full-time 500 billion-euro ($659 billion) rescue fund and backing a deficit-control treaty. EU and International Monetary Fund officials are in Athens thrashing out budget measures that would unlock the aid needed to keep the government functioning. Leaders left a Brussels summit late yesterday with no accord over how to plug Greece’s widening budget hole -- and no announcement of how deep the need is. German Chancellor Angela Merkel voiced frustration with the Greece’s failure to carry out an economic makeover. “Greece’s debt sustainability is especially bad,” Merkel told reporters. “You have to find a way through more action by the Greek government, more contributions by private creditors, for example, in order to close this gap.”
• Italy's Jobless Rate Rose to Highest Since 2004 in December. Italy’s jobless rate rose to the highest in eight years in December as austerity measures meant to fight the debt crisis helped push the region’s third-largest economy toward a recession. Unemployment climbed to 8.9 percent, the highest since the data series began in January 2004, from a revised 8.8 percent in November, national statistics institute Istat said in a preliminary report today in Rome. Economists had expected a rate of 8.7 percent, according to the median of 9 estimates in a Bloomberg News survey. Prime Minister Mario Monti last month pushed through 20 billion euros ($26 billion) in tax increases and spending cuts that have further choked growth. The economy shrank 0.2 percent in the third quarter and the government has forecast another contraction in the final three months of last year, meaning Italy may already be in its fourth recession since 2001. “We are seeing all the predictable signs of Italy’s deepening recession -- rising unemployment, non-performing loans trending up, and credit standards getting tighter,” Vladimir Pillonca, an economist at Societe Generale SA in London, said in an e-mail. “We are barely at the initial phase of Italy’s recession, and it will get much worse.”
  
• EU, IMF Demand 20% Cut in Greece's Minimum Wage, Ta Nea Reports. A mission to Greece by the European Commission, the European Central Bank and the International Monetary Fund wants the country’s minimum wage cut to 600 euros ($791) a month, from 751 euros, Ta Nea reported, without saying how it got the information. The delegation from the three institutions, known as the troika, is setting conditions for a new financing package for Greece that include reforms such as abolition of special labor agreements at state enterprises and banks, the Athens-based newspaper said. The troika officials rejected a proposal from Greece’s Labor Ministry to freeze private-sector salaries for three years and is demanding that twice-yearly holiday bonus payments are reduced or abolished, Ta Nea said.
• Fed's Inflation Goal May Raise Issues, Bini Smaghi Writes in FT. The Federal Reserve’s decision to set a numeric inflation goal over the longer run may raise communication issues, former European Central Bank Executive Board (EURR002W) Member Lorenzo Bini Smaghi wrote in the Financial Times. Monetary policy produces its effects with two or three-year lags, meaning a longer-term inflation objective makes the inflation forecasts and the policy decision “unclear,” as the long-run isn’t a “policy-relevant” time frame, Bini Smaghi wrote in an article posted on the newspaper’s website today. The publication of the 17 Federal Open Market Committee members’ expectations of the Fed funds rate over the next few years may also raise “several questions,” he said. The market needs to know what forecasting model is used by FOMC members to update their interest-rate expectations, as they are conditional on the state of the U.S. economy, he wrote. “The suspicion may arise that the interest rate forecasts are ultimately dictated by the members’ short-term policy preferences, rather than by their ability to predict prices over the long-term,” Bini Smaghi said. The concept of a conditional interest-rate forecast may also not be understood by the public and politicians, which may lead to misunderstandings, the Italian economist wrote. “To be effective, central bank communication needs to be well understood not only by sophisticated market participants but also by the public,” Bini Smaghi said. “As they are currently designed, the new tools might turn out to be too complex, and risk creating confusion, for both groups.”
• Confidence Decline Points to Cooling U.S. Growth. Consumer confidence unexpectedly dropped in January and a gauge of business activity fell, underscoring forecasts that the U.S. economy will cool after expanding at the fastest pace since the second quarter 2010. The New York-based Conference Board’s confidence index decreased to 61.1, lower than the most pessimistic forecast in a Bloomberg News survey of economists, from a revised 64.8 reading the prior month. The Institute for Supply Management-Chicago Inc. said its business barometer declined to 60.2 from 62.2 in December. Readings above 50 signal growth. Employers aren’t hiring fast enough to drive bigger gains in wages and consumer spending, while higher gasoline prices are cutting into household budgets. Another report today showed home prices fell more than forecast in November, eroding the wealth of families as they seek to rebuild savings.
• UPS(UPS) Profit Forecast Tops Estimates. United Parcel Service Inc. (UPS), the world’s largest package-delivery company, forecast a 2012 profit that exceeded analysts’ estimates as shipping demand increases. Annual earnings, excluding some items, will be in the range of $4.75 to $5 a share, the Atlanta-based company said today in a statement. That topped the average estimate of $4.78 in a Bloomberg survey of 25 analysts.
• Exxon(XOM) Drops After Fourth-Quarter Sales Are Lower Than Estimates. Exxon Mobil Corp., the world’s largest energy company by market value, declined after fourth- quarter sales fell short of analysts’ estimates and oil production slumped on five continents. Revenue rose 16 percent to $121.6 billion during the quarter, less than the $124.4 billion average of five analysts’ estimates compiled by Bloomberg. Exxon fell 1.9 percent to $83.90 at 1:42 p.m. in New York after earlier declining as much as 2.4 percent, the biggest intraday drop since Dec. 12.
• Iron Ore Set for Worst Month Since October on Slowdown Concerns. Iron ore headed for the worst monthly performance since October amid concern that slowing global economic growth and Europe’s sovereign-debt crisis may curb demand for the raw material used in steelmaking. Iron ore with 62 percent content delivered to the Chinese port of Tianjin was little changed at $139.90 per metric ton yesterday, data from The Steel Index showed. The price is up 1 percent this month after falling 31 percent in October and rebounding 11 percent in November and 5.8 percent last month. China, the largest steelmaker, boosted annual output by the slowest pace in three years in 2011 as the nation’s economy cooled last quarter, cutting demand from makers of houses and autos. European leaders are sparring with Greece over a second rescue program, leaving a Brussels summit yesterday with no accord over how to plug the nation’s widening budget deficit. “World growth is going to be a bit subdued, and very anemic in Europe, so there’s not going to be any push for stronger iron ore prices,” said Michael Heffernan, a Melbourne- based client adviser at Austock Securities Ltd. “You’re not going to see iron ore prices skyrocket.”
• Iran Stepping Up Spying, Support for Terror, Clapper Says. Iran is stepping up its support for international terrorism and its intelligence operations against the U.S., the Director of National Intelligence told Congress. “The 2011 plot to assassinate the Saudi ambassador to the United States shows that some Iranian officials -- probably including Supreme Leader Ali Khamenei -- have changed their calculus and are now more willing to conduct an attack in the United States in response to real or perceived actions that threaten the regime,” James Clapper said in a statement today to the Senate Intelligence Committee.

Wall Street Journal:

• CBO: TARP Spending Will Be $61 Billion More in Fiscal 2012. The federal government will spend roughly $61 billion more in fiscal 2012 than it did in fiscal 2011 on its continuing emergency rescue fund instituted at the height of the 2008 financial crisis, the nonpartisan Congressional Budget Office said. This is largely due to declines in share prices of two companies in which the government still holds substantial shares: American International Group Inc.(AIG) and General Motors Co(GM). The two were among dozens of firms that received hefty bailouts from the federal government at the end of 2008 or early 2009. Between them, the Treasury and New York branch of the Federal Reserve still control a 77% stake in AIG. The firm received a total of $184 billion in loans and guarantees from the Treasury and Fed as it stood on the brink of collapse in 2008. The federal government owns a 32% stake in GM.
• Deficit Again Expected to Top $1 Trillion. The federal budget deficit likely will top $1 trillion for the fourth consecutive year in fiscal 2012 as the economy continues to grow at a sluggish pace, the nonpartisan Congressional Budget Office predicted Tuesday. Congress's official budget scorekeeper projected a sober outlook in its semi-annual report Tuesday, forecasting that the unemployment rate will remain above 8% both this year and next year and above 7% until 2015. The economy will see a "continued slow recovery" as real gross domestic product grows 2% this year, measured from the fourth quarter of the previous calendar year, and by 1.1% next year.

CNBC.com:

• S&P Warns of Cuts; Another Downgrade Coming? Concerns over the size of United States debt reared their head once again as ratings agency Standard & Poor’s warned that health care costs for a number of highly-rated Group of 20 countries, including the U.S., could hurt growth prospects and harm their sovereign creditworthiness from the middle of this decade.
• Europe's Central Bank Can't Fix 'Dysfunctional' EU: Gross. The European Central Bank won't solve the euro zone's debt crisis as long as the European Union behaves like a "dysfunctional" family, Bill Gross, Pimco founder and co-chief investment officer, told CNBC on Tuesday.

Business Insider:

• 5 Debt and Unemployment Charts From The CBO Report.
• The World's First Sports-Betting Hedge Fund Has Collapsed After Losing $2.5 Million.

Zero Hedge:

• Latest Congressional Budget Outlook For 2012-2022 Released, Says Real Unemployment Rate Is 10%.
• Why An Outsized LTRO Will Actually Be Bad For European Banks.
  

Chicago Tribune:

• Insight: Borrowing Spree Pushes Canadians to Edge of Debt Cliff. The growth of household debt in Canada to levels approaching those seen in the United States before the 2008-2009 crash seems to be keeping a lot of people awake - from central bankers to economists, lenders, real estate agents and the indebted consumers. Bank of Canada Governor Mark Carney has warned that the ratio of debt to income will rise from the already alarming 153 percent record reached last year, and many think it will approach the landmark 160 percent hit by the United States before the U.S. tipped into crisis more than three years ago.

AppleInsider:

• Foxconn to Build 5 New Brazilian Factories to Help Make Apple(AAPL) Products.

Politico:

• Poll: Public Says Keystone XL Pipeline Would Be Jobs Creator. Congressional Republicans and proponents of TransCanada's Keystone XL pipeline have successfully put the issue on the map, as 78 percent of Americans believe the pipeline would create a “significant amount of jobs,” according to a late December poll by GOP pollster David Winston.

The Week:

• Obama's 5 Biggest Mistakes.

Financial Times:

• US Reits Are Drawn to Subprime Securities. Real estate investment groups in the US are set to raise more funds to buy subprime and other private mortgage-backed securities, aided by attractive returns and rising share prices. Real estate investment trusts, or Reits, have already been big buyers in the market for packages of mortgages backed by Fannie Mae, Freddie Mac and other government agencies, creating what some have termed a “shadow” financing system for US mortgages.

Telegraph:

• The Perils of Mario Draghi's €1.5 trillion blitz. A disturbingly large number of credit experts warn that the ECB life-line is not the "game-changer" that the markets seem to think, cannot in itself can save Euroland, and may prove counter-productive – perhaps soon.
• Germany has every right to impose a gauleiter on Greece.

La Tribune:

• French new car registrations fell 27% from Jan. 1 to Jan. 27 versus the year-earlier period. Renault SA's new French car registrations fell 45% in the period while PSA Peugeot Citroen had a 37% decline.

El Economista:

• Spanish Prime Minister Mariano Rajoy expects forthcoming labor reforms in Spain to provoke strikes among workers.

Shanghai Daily:

• Chinese Banks See Top 3 Risks to System. CHINESE banks have listed credit and macro-economic risks as well as liquidity to be the top three threats to the country's banking industry, a latest industry survey showed yesterday. Their overseas peers picked macro-economic risk as the top threat, according to the survey conducted by the London-based think tank, Centre for the Study of Financial Innovation, which interviewed 700 bankers in 58 countries and regions. Chinese bankers ranked the quality of risk management their No. 4 concern, compared with the global ranking of No. 10. The survey said Chinese bankers were worried that the current risk management system may not be strong enough to address global economic changes, especially as there didn't seem to be an end in sight for the eurozone debt crisis. Chinese bankers were concerned about asset quality due to China's cleanup of local government financing vehicles. They also worried about challenges in the property market and doubts about the macro-economy. Jimmy Leung, a PwC partner, said Chinese banks face risks as "the resulting credit risks may lead to liquidity challenges and impact the pace of business growth."
  

China National Radio:

• The size for the official manufacturing PMI survey will be increased to about 3,000 samples from the current 820, citing Meng Qingxin, a director in the service industry survey dept. at the National Bureau of Statistics. The sample size for the non-manufacturing PMI survey will rise to about 8,000 from 1,200.

Bear Radar

Style Underperformer:

• Large-Cap Value -.30%

Sector Underperformers:

• 1) Alt Energy -1.90% 2) Homebuilders -1.80% 3) Retail -1.76%

Stocks Falling on Unusual Volume:

• YOKU, CSGP, XOM, CLMT, BMA, CEVA, GNTX, ANGO, ALGN, RCII, OTEX, ICUI, PCH, TECH, CSGP, FARO, CENX, ANDE, THOR, NDAQ, NFLX, SCHN, PETD, BIDU, MNRO, CNH, MTH, AVY, LEG, AXE, AAN, OFG, WDR and PPO
  

Stocks With Unusual Put Option Activity:

• 1) LXK 2) RSH 3) RIO 4) ITW 5) KRE
  

Stocks With Most Negative News Mentions:

• 1) RSH 2) PCL 3) CVX 4) ADM 5) WDR
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth -.32%

Sector Outperformers:

• 1) HMOs +1.47% 2) Utilities +.06% 3) Defense +.05%

Stocks Rising on Unusual Volume:

• PRXL, VRTX, CNC, RTEC, MAT, PCAR, HOLX, WPRT, PAY, EW and MCK
  

Stocks With Unusual Call Option Activity:

• 1) RSH 2) MAT 3) ZAGG 4) LNC 5) ENDP
  

Stocks With Most Positive News Mentions:

• 1) LMT 2) PRXL 3) MAT 4) FWLT 5) BA
  

Charts:

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

Tuesday Watch

Evening Headlines
Bloomberg:

• EU Nears Greek Confrontation as Portugal Poses Looming Risk. European governments moved toward a confrontation over a second rescue package for Greece, just as a dimming fiscal outlook in Portugal opened a new front in the debt crisis. Euro leaders left a Brussels summit late yesterday with no accord over how to plug Greece’s widening budget hole and German Chancellor Angela Merkel voicing frustration with the Athens government’s failure to carry out an economic makeover. “Greece’s debt sustainability is especially bad,” Merkel told reporters. “You have to find a way through more action by the Greek government, more contributions by private creditors, for example, in order to close this gap.” Bargaining with Greece over a debt writedown and its economic management overshadowed efforts to point the way out of the financial crisis. EU chiefs agreed to speed the setup of a full-time 500 billion-euro ($654 billion) rescue fund and signed off on a German-inspired deficit-control treaty. The summit was the 16th in the two years since the Greek debt emergency provoked a Europe-wide drama, leading to unprecedented aid packages for Greece, Ireland and Portugal and shattering European faith that the common currency was indestructible. After the gathering of European leaders, EU President Herman Van Rompuy convened a smaller group, including Greek Prime Minister Lucas Papademos and European Central Bank Executive Board member Joerg Asmussen, to weigh the next steps on Greece.
  
• Coal-Carrier Rates Seen at Decade-Low as Glut Expands: Freight. The greatest number of coal cargoes in history still won’t be enough to eliminate a glut of Panamax vessels, driving charter rates to the lowest in a decade. Shipments will rise 3.6 percent to 956 million metric tons this year, according to London-based Clarkson Plc, the world’s biggest shipbroker. Rates for Panamaxes, each about 750-feet long, will average $12,744 a day in 2012, the lowest since 2002, the median of 10 analyst estimates compiled by Bloomberg shows. While that implies losses for ship owners, investors may profit by buying forward freight agreements, traded by brokers and used to bet on future costs, which anticipate $10,107. Panamax charter costs already tumbled 53 percent since Jan. 1, the worst start to a year since at least 1999, as the fleet expanded for a 35th consecutive month. “Demand looks good, but it’s just going to be massively outweighed by new vessels,” said Will Fray, a senior analyst at Maritime Strategies International Ltd., a London-based research company. “There’s unlikely to be enough mining output to soak up the enormous new capacity.”
• Wind Purchases, Deals to Fall in 2012 as Sinovel Profits Halved. Purchases of wind turbines and other equipment will decline 18 percent this year and won’t return to 2011 levels for five years, reducing profits at companies including Sinovel Wind Group Co. (601558), according to Bloomberg New Energy Finance. Capital investment in wind-power assets worldwide will be $60.8 billion in 2012, down from $74.6 billion last year, as oversupply and waning government support in the U.S. and Europe cut demand. Total installations will decrease 13 percent to 47 gigawatts and will remain little changed until 2019, said Justin Wu, head of wind analysis at New Energy Finance. Sinovel, China’s top turbine maker, said yesterday it expects 2011 profit to decrease by more than half from 2.86 billion yuan ($451.6 million) in 2010. Vestas Wind Systems A/S (VWS) this month cut 10 percent of its staff after twice reducing sales forecasts since October.
• S&P's Ogawa Says Japan Can't Conquer Debt Woes With Doubled Tax. Doubling Japan’s sales tax by 2015 won’t be enough to contain the nation’s growing debt load and the government needs to outline how it will pay for swelling social-welfare expenses, a Standard & Poor’s analyst said. “There’s no way that would be enough,” Takahira Ogawa, director of sovereign ratings at S&P in Singapore, said in a phone interview yesterday, referring to the plan to raise the levy by 5 percentage points. “No matter how high the sales tax is raised, there’s no point unless the government does something with the social-welfare system.” Japan’s government said last week that it will probably miss its goal of balancing the budget by fiscal 2020 even with the sales tax increase, yet to be approved by opposition lawmakers. Social-security expenses have more than doubled over the past two decades and will account for 52 percent of general spending in the year starting April, Finance Ministry data show.
• BlackRock's(BLK) Doll Says QE3 Unlikely in Contrast to Pimco's Gross. BlackRock Inc., the world’s biggest asset manager, says the Federal Reserve will refrain from conducting a third round of debt purchases as the economy grows. The outlook contrasts with that of Bill Gross, who runs the largest bond fund at Pacific Investment Management Co. and says the Fed may buy several more times. The central bank has purchased $2.3 trillion of debt in two rounds of quantitative easing known as QE1 and QE2 as it seeks to support the world’s biggest economy. Chairman Ben S. Bernanke said Jan. 25 that he’s considering another program of purchases. “QE3 will be seen only if the U.S. economy flags,” Bob Doll, chief equity strategist at BlackRock, which oversees $3.51 trillion, said today on Bloomberg Television’s “First Up” with Susan Li. “Ben Bernanke will use it if we have a rainy day and only then,” said Doll, who is based in Princeton, New Jersey.

Wall Street Journal:

• Florida Vote Sets Stage for Final Push.
  
• NYC Shifts On Teacher Evaluations. After months of talks with the teachers union, the Bloomberg administration is asking Gov. Andrew Cuomo to help put an end to the labor dispute by scrapping the state's teacher evaluation law.
• U.S. Gets Tougher on Debt Collecting. The Federal Trade Commission intensified its crackdown on the booming debt-collection industry, announcing a $2.5 million settlement with a company for allegedly coercing borrowers into paying debts they no longer legally owed. The settlement with Asset Acceptance Capital Corp., one of the nation's largest buyers of soured consumer debts, is the second-biggest penalty ever levied by the FTC against a debt collector. Officials said they are investigating other companies for alleged violations of federal law and expect to announce more enforcement actions soon.
• Cutoff Looms on Loan Accord. State attorneys general have until Friday to join a potential national settlement of alleged foreclosure abuses, according to a document reviewed by The Wall Street Journal.
• Group of Americans Takes Shelter at Cairo Embassy. A group of Americans who have been prohibited by Egypt's ruling military from leaving the country have taken refuge at the U.S. Embassy in Cairo in the midst of an Egyptian crackdown on pro-democracy and human-rights organizations and their staff.
• NYC New Construction Slid 31% in 2011. New York City's construction industry was dealt another tough year as the value of construction projects that began in 2011 sank 31% compared with 2010, new data released on Monday said. Reduced government spending on infrastructure and very few new, large commercial buildings contributed to the building industry's poor 2011. The value of construction starts fell by $6.2 billion in 2011 to $13.8 billion, according to the analysis by the New York Building Congress, an association representing real-estate developers and construction companies.

Business Insider:

• Papademos: Greece Could Need More Public Funding. Greece's prime minister says he cannot exclude the possibility that his country will need more help — on top of a new €130 billion ($170.43 billion) bailout and a deal with private investors to slash its debt.
  

Zero Hedge:

• European Bailout Infographic: Presenting The Truckloads Of Cash Needed To Rescue The Insolvent.
• Good Gendarme: Recently Downgraded France Opposes German Demands For Greek "Tutelage".

NY Times:

• Trade Protest Is Planned on Eve of a Chinese Leader's Visit. As the White House prepares for a Washington visit by the man who is expected to run China for the coming decade, trade tensions between the United States and Beijing are on the rise.
• Portugal Suffers as Loss of Confidence in Bonds Sends Yields Higher. Investors fled out of bonds of weaker European countries on Monday, sending yields on Portuguese government bonds to a record high over concerns that the euro zone debt troubles were spreading beyond Greece. The fears of contagion spreading to other periphery countries in the zone that share the euro have grown more intense in recent months, with much of the latest focus on Portugal.

Reuters:

• Greece Needs to Dump Euro "shackles": Commerzbank. Greece must surrender the "shackles" of the euro in order to survive if it does not want to constantly ask for a handout from euro zone governments, the supervisory board chairman of Commerzbank said late on Monday. "What do they need, another 15 billion euros? If you think that is the last 15 billion that they will have miscalculated, then best wishes," Klaus-Peter Mueller told an industry event in Frankfurt."They will come back for more and there will be no end, unless you really see them enact structural reforms, but this won't take just two-three years -- we're talking 20, 30 or 40 years for Greece. "Mueller said it doesn't do any good to Greece were euro zone governments to continue forcing them to wear the "shackles" of a currency that only permits internal adjustments via spending cuts and declining wages."The Greeks need on balance a currency that they can then devalue," Mueller said, adding it would take a long time before the government could build up from scratch functioning structures that restore competitiveness.Athens and its EU partners have long ruled out a euro exit, which could drag the bloc even deeper into crisis. However, earlier in January a Greek government spokesman said the country would have to leave the euro zone if it fails to clinch a deal on a second, 130 billion euro bailout with its international lenders. The chairman of Germany's second largest listed lender disagreed that an exit would prompt "global chaos" and cause investors to dump sovereign debt from other periphery countries like Italy and Spain. "I don't think that markets would react negatively towards the other countries that would then remain in the euro zone after such a decision," he said.
• RadioShack(RSH) Sees Profit Drop on Sprint Weakness. RadioShack Corp (RSH.N) issued a disappointing fourth-quarter earnings forecast on "significant declines" in its Sprint wireless business and the shares of the struggling electronics retailer tumbled more than 18 percent on Monday.

Financial Times:

• The Dilemma of German Leadership.
• Banks Set to Double Crisis Loans from ECB. European banks are preparing to tap the European Central Bank’s emergency funding scheme for up to twice as much as the ECB supplied in its debut €489bn auction last month, providing further evidence of the sector’s liquidity squeeze.

Telegraph:

• Portuguese Storm Gathers as EU Leaders Fight Over Greece. Surging borrowing costs in Portugal have raised the spectre of a second full-fledged contagion crisis in the eurozone, eclipsing the latest efforts by European Union leaders in Brussels to agree on Europe's bail-out machinery and a strategy for Greece. Yields on Portuguese 10-year bonds hit a fresh record of 17.38pc on Monday even though the country is already shielded by a €78bn (£65.2bn) package from the EU, European Central Bank (ECB) and International Monetary Fund "troika" and does not have to tap the markets this year. Reports also emerged on Monday night that European banks were gearing up to ask the ECB's emergency funding scheme for up to twice as much in funds as the central bank supplied in its debut €489bn auction last month. The news reveals the extent of the liquidity squeeze on banks – with some chief executives looking to tap the ECB for up to triple the amount they originally borrowed, when the three-year money auction takes place on February 29.

Yonhap News Agency:

• North Korea - China Trade Jumps 62% in 2011: Data. Two-way trade between North Korea and China jumped 62 percent in 2011 from the previous year, with the North doubling its exports of minerals to its major ally, data showed Tuesday.

People's Daily:

• China's textile industry outlook may be "relatively grim" in the first half, citing Wang Tiankai, president of the China National Textile and Apparel Council. Export companies may face increasing lack of demand, competitive pressure and trade friction, Wang said.

Evening Recommendations
Jefferies:

• Rated (WSM) Buy, target $42.

Night Trading

• Asian equity indices are -.25% to +.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 187.0 +3,5 basis points.
  
• Asia Pacific Sovereign CDS Index 149.0 +3.25 basis points.
• FTSE-100 futures +.49%.
  
• S&P 500 futures +.09%.
  
• NASDAQ 100 futures +.18%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (LLL)/2.41
• (VLO)/-.18
• (X)/-.86
• (BIIB)/1.49
• (XOM)/1.98
• (MHP)/.57
• (DHR)/.78
• (MAT)/1.00
• (LLY)/.81
• (PFE)/47
• (PNR)/.54
• (LXK)/1.16
• (ADM)/.76
• (OSK)/.36
• (UPS)/1.26
• (PCAR)/.79
• (ITW)/.88
• (AVY)/.46
• (CHRW)/.68
• (UIS)/1.47
• (AFL)/1.51
• (BXP)/1.19
• (JLL)/2.24
• (BCR)/1.68
• (BRCM)/.65
• (AMZN)/.17
• (AMG)/1.73

Economic Releases
8:30 am EST

• The 4Q Employment Cost Index is estimated to rise +.4% versus a +.3% gain in 3Q.
  

9:00 am EST

• S&P/CS 20 City MoM% SA for November is estimated to fall -.5% versus a -.62% decline in October.

9:45 am EST

• Chicago Purchasing Manager for January is estimated to rise to 63.0 versus 62.2 in December.

10:00 am EST

• Consumer Confidence for January is estimated to rise to 68.0 versus 64.5 in December.
  

Upcoming Splits

• (CMN) 3-for-2
• (TJX) 2-for-1

Other Potential Market Movers

• The NAPM-Milwaukee for January, weekly retail sales reports and the (DLR) analyst day could also impact trading today.
  

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

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.