Thursday Watch

Late-Night Headlines
Bloomberg:

- Hong Kong property developers are cutting prices to boost sales of unsold apartments, the South China Morning reported today. Asia Standard International Group has cut asking prices at its Jadewater project in the city’s Aberdeen district by 46 percent, the Hong Kong-based newspaper said, citing executive director Phileas Kwan. New World Development Co. said it would lower prices at its Prince Ritz and Harbour Place projects by up to 20 percent, the newspaper said, citing the company. Chinese Estates Holdings Ltd. may also slash prices at its York Place project in the Wanchai district on Hong Kong island by about 30 percent, the Morning Post said, citing people it didn’t identify.

- More than 80 percent of Asian hedge funds won’t be able to charge their investors performance fees after finishing 2008 below their peak net asset values, according to data provider Eurekahedge Pte. About a third of the 1,000 regional hedge funds tracked by Eurekahedge had positive returns last year, compared with 82 percent in 2007, the data provider said, citing figures from Jan. 30 when about 90 percent of funds had disclosed December returns. “When you are down 40, 50 percent, it’s hard to get back,” said Richard Johnston, Hong Kong-based Asia head of hedge fund consulting firm Albourne Partners Ltd. “A lot of managers are not going to see performance fees for a couple of years.”

- The cost of protecting Japanese corporate bonds from default rose to a record as the world’s second-largest economy battles a worsening economic recession. The Markit iTraxx Japan index of credit-default swaps on the debt of 50 investment-grade borrowers rose 25 basis points from Feb. 10 to 455.0 at 9:52 am in Tokyo, BNP Paribas SA prices show.

- U.S. congressional negotiators may drop $7.7 billion that had been planned for renewable-energy grants in the economic stimulus legislation they’ll send to President Barack Obama. Democrats are likely to accept the Senate’s removal of aid for wind and solar energy investments from the final bill to be delivered to Obama, said Kevin Book, a senior analyst for Friedman Billings Ramsey & Co. in Arlington, Virginia. The House legislation included the grants.

- Former presidents of Brazil, Mexico and Colombia said the U.S.-led war on drugs has failed and urged President Barack Obama to consider new policies, including decriminalizing marijuana, and to treat drug use as a public health problem. The recommendations by former Brazilian President Fernando Henrique Cardoso, along with Ernesto Zedillo of Mexico and Cesar Gaviria of Colombia, were made in a report today by the Latin American Commission on Drugs and Democracy. Among the group’s proposals ahead of a special United Nations ministerial meeting in Vienna to evaluate global drug policy is a call to decriminalize the possession of cannabis for personal use.

- House and Senate negotiators all but eliminated the biggest tax cut for businesses in the compromise agreement on an economic stimulus bill, Senator Max Baucus of Montana said. The provision, a top priority of business groups including the National Association of Manufacturers and the U.S. Chamber of Commerce, would let companies convert losses into tax refunds. Baucus said today that the provision, under which companies could have claimed an estimated $67.5 billion in tax refunds this year and next, was sacrificed to help keep the final package under $800 billion.

- European Central Bank Vice President Lucas Papademos said officials will probably cut interest rates to a record low next month and indicated he would support the use of unconventional tools at any time.

- The Bank of Korea cut its benchmark interest rate to a record-low 2 percent to revive an economy headed for the first recession in more than a decade as exports and spending cool. Governor Lee Seong Tae and his board pared the seven-day repurchase rate by a half point in Seoul today, the sixth reduction since early October. The decision was expected by six of nine economists surveyed by Bloomberg.

- Aluminum Corp. of China plans to invest $19.5 billion in Rio Tinto Group, gaining access to copper and iron ore resources in the nation’s largest overseas acquisition, according to two people involved in the transaction. Chinalco, as the state-owned company is known, will buy $7.2 billion of bonds that can be converted into Rio shares and acquire stakes in at least eight projects for $12.3 billion, said the people who declined to be identified before an announcement scheduled for today. Chinalco will own 18 percent of London-based Rio should it convert the debt.

- Chipotle Mexican Grill Inc.(CMG), the burrito chain spun off from McDonald’s Corp. in 2006, reported fourth-quarter profit that fell less than analysts estimated as menu price increases tempered higher food costs. Shares climbed 11 percent to $52.47 at 4:18 p.m. in trading after U.S. markets closed.

Wall Street Journal:

- General Motors Corp.(GM) is offering retirement incentives to 22,000 of its 62,000 United Auto Workers union members as part of a turnaround plan it must present to the U.S. government by Tuesday. The company would be pleased to see half of them take the offer, said a person familiar with GM's thinking.

- Congress and the White House reached accord on a $789.5 billion economic-recovery package that would shower hundreds of billions of dollars in tax relief on individuals and businesses and spark an infrastructure building boom from the nation's ports and waterways to its schools and military bases. The deal all but clinches passage of one of the largest economic rescues since Franklin Roosevelt launched the New Deal. President Barack Obama, speaking at a Northern Virginia construction site, hailed an "endeavor of enormous scope and scale." The cost of the package dwarfs the nation's military budget and exceeds the cost of the entire Iraq war since the invasion of 2003. Ending two decades of mostly Republican-led efforts to diminish federal authority and focus on lifting the economy through tax cuts, the legislation would expand unemployment insurance, tilt federal assistance to the poor, launch major efforts to streamline health care delivery, and give Washington a larger hand in local education spending. Both Mr. Obama and Democratic leaders lowered their work-creation expectation Wednesday night. They had originally said their goal was to create, or save, 4 million jobs. Last night, they cut that to 3.5 million. The final package includes a controversial provision that has spurred criticism from trading partners around the world, requiring funds used under the bill to purchase materials to be U.S.-made. But the measure has been softened from the original versions, and now includes a requirement that the provision be implemented consistent with U.S. international trade obligations, according to individuals familiar with the bill.

BusinessWeek:

- India-China Trade Tensions Rise. China threatens to bring its opposition to India’s toy import ban to the WTO, while India seems poised to restrict other Chinese producuts.

Washington Post:

- Members of an influential Washington think tank today recommended major changes in the nation's immigration policy, including freezing construction of a security fence along the U.S.- Mexican border and suspending "zero-tolerance" prosecution programs against all people caught crossing segments of the border. The Migration Policy Institute, a non-partisan group whose presenters included former U.S. immigration chiefs under both parties, recommended 36 steps the Obama administration can take without congressional approval to alter policies developed during the Bush administration. The policy experts also urged withdrawing a plan to pressure employers to fire workers with suspect Social Security numbers.

Politico:

- House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid played a little high-stakes chicken with each other at the tail end of Wednesday’s shotgun stimulus talks. It’s not clear who won – or who blinked. According to a half dozen Congressional aides and members, Reid went before the cameras Wednesday to announce a stimulus deal before Pelosi had agreed on all the details of school construction financing. “It’s ruffled feathers, big time,” said a House Democrat speaking on condition of anonymity. “The speaker went through the roof.” Added one House Democratic aide: “He tried to roll her and she knew it.”

AppleInsider:

- Apple(AAPL) is believed to be wrapping up a new feature in iTunes 8 that will allow users to stream their iTunes video purchases directly from the company's servers for playback anywhere, anytime without eating up local storage. Dubbed iTunes Replay, the service would allow iTunes shoppers to build out their digital video collection without worrying about the space needed to store the often hefty media files. It's unclear whether Apple plans to charge for the service, which is said to support both iTunes Movie and TV show purchases.

Dow Jones:

- Repsol YPF SA, Spain’s largest oil company, said the Santos Basin BM-S-9 oil block in Brazil may hold recoverable reserves of between 2 billion and 6 billion barrels of oil equivalent, citing Nemesio Fernandez-Cuesta, Repsol’s head of exploration and production.

- China Banking Regulatory Commission official Luo Ping sees few real alternatives to holding US Treasury securities, citing comments he made in NY. US government debt is the “safe haven for investment,” the news agency cited Luo as saying. “Except for US Treasuries, what else can you hold?,” he said.

Reuters:

- Global credit markets are unlikely to revive as long as the U.S. government continues to dangle the vague prospect of a toxic asset purchase plan in front of distressed banks, some lawmakers warned on Wednesday. The chance that taxpayers could be made to overpay for underperforming assets is making bankers, whose balance sheets are saddled with them, reluctant to sell to lower bidders, suggested Texas Republican Rep. Randy Neugebauer. "People are afraid to buy and afraid to sell because they're afraid the government is going to sweeten the deal," he told Reuters in an interview. "The markets are just waiting to see when we're going to be done."

La Tribune:

- UK Chancellor of the Exchequer Alistair Darling said the government doesn’t plan to drop the pound to adopt the euro, citing an interview with the British finance chief.

Munhwa Ilbo:

- North Korea may test its longest-range missile as early as next eek, citing experts. Vehicles carrying equipment for the launch are converging on the Musudan-ri base, citing a South Korean official.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (ATVI), target $14.

- Reiterated Buy on (AZO), target $146.

- Reiterated Buy on (GOOG), target $450.

Night Trading
Asian Indices are -2.50% to +.75% on average.
S&P 500 futures -.23%.
NASDAQ 100 futures -.31%.

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Earnings of Note
Company/EPS Estimate
- (PTEN)/.55

- (MAR)/.40

- (MLM)/.83

- (ALXN)/.15

- (LH)/1.09

- (FCL)/.56

- (KO)/.61

- (STRA)/1.70

- (AET)/.94

- (BWA)/-.09

- (VIA/B)/.79

- (CEPH)/1.37

- (PNRA)/.83

- (MFE)/.53

Economic Releases

8:30 am EST

- Advance Retail Sales for January are estimated to fall .8% versus a 2.7% decline in December.

- Retail Sales Less Autos for January are estimated to fall .4% versus a 3.1% decline in December.

- Initial Jobless Claims for last week are estimated to fall to 610K versus 626K the prior week.

- Continuing Claims are estimated to rise to 4800K versus 4788K prior.

10:00 am EST

- Business Inventories for December are estimated to fall .9% versus a .7% decline in November.

Upcoming Splits
- (LPHI) 5-for-4

Other Potential Market Movers
- The (ATW) annual meeting, (ISIL) analyst day, (QGEN) analyst day, Deutsche Bank Growth Conference, BB&T Transports Conference and the Goldman Sachs Consumer Leveraged Finance Conference could also impact trading today.

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

Stocks Finish Slightly Higher, Boosted by Financial, REIT and Homebuilding Shares

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In Play

Stocks Higher into Final Hour on Less Financial Sector Pessimism, Short-Covering, Lower Energy Prices

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs, Education longs and Commodity shorts. I covered some of my (IWM/QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 75% net long. The tone of the market is mildly positive as the advance/decline line is slightly higher, most sectors are gaining and volume is above average. Investor anxiety is above average. Today’s overall market action is neutral. The VIX is falling 3.81% and is very high at 44.85. The ISE Sentiment Index is below average at 119.0 and the total put/call is about average at .91. Finally, the NYSE Arms has been running around average most of the day, hitting .97 at its intraday peak, and is currently .71. The Euro Financial Sector Credit Default Swap Index is rising .59% today to 111.67 basis points. This index is up from a low of 52.66 on May 5^th, but down from 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is rising .64% to 192.73 basis points. The TED spread is rising 2.27% to 93 basis points. The TED spread is now down 374 basis points in under four months. The 2-year swap spread is falling 1.17% to 63.25 basis points. The Libor-OIS spread is rising .72% to 96 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 12 basis points to 1.12%, which is down 158 basis points in under seven months. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is yielding .30%, which is down 1 basis point today. The bears are unable to gain any traction today and the financial sector is recouping some of yesterday’s steep losses. Last night, Senator Dodd said that adjusting mark-to-market accounting rules eventually 'may be' part of the Obama administration's plan to stabilize financial markets. I think this would help financials a great deal and would be a large broad market positive. The most heavily shorted sectors are up the most. Tech, Commodity and Transportation shares are lower on the day. While I am not long (RIMM), investor reaction to its lowered guidance appears overdone and is a broad market negative. Any market rally without tech participating is likely unsustainable. Nikkei futures indicate a -120 open in Japan and DAX futures indicate a -3 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower energy prices and less financial sector pessimism.

Today's Headlines

Bloomberg:

- Near-zero inflation will end a global bond rout and “protect” government securities amid record supply, analysts at Goldman Sachs(GS) said. “Very depressed inflation should protect bonds against supply concessions,” Michael Vaknin, a fixed-income strategist in London at Goldman, wrote. “Expectations of both policy rates and inflation have more room to fall.” Inflation among the Group of Seven economies may slow to .3% by the end of 2010, allowing policy makers to keep benchmark borrowing costs lower, Goldman said. Vaknin said US Treasury yields may behave as Japanese bond yields did during the late 1990s, when they fell even as government spending rose.

- Most Expensive Gasoline Fetches $4.899 in New Jersey for Exxon(XOM).

- Copper fell in London on speculation that China, the world’s biggest user of the metal, will import less of the metal. Chinese imports of copper and copper products dropped 19 percent in January from a 20-month high in December, the Beijing- based customs office said today. LME copper stockpiles jumped 2,025 tons to 516,450 tons, the most since Oct. 31, 2003, according to the exchange today. They have climbed 52 percent this year.

- Treasury Secretary Timothy Geithner told Congress he needs time to work out the details of his strategy to shore up the financial industry, a day after stock traders punished the initial outline.

- European Central Bank policy makers signaled they are likely to lower interest rates further next month to combat the region’s worst recession since World War II.

“It’s very probable that in the next session we will cut,” ECB council member Miguel Angel Fernandez Ordonez said today in Zaragoza, Spain. “Given the prospects of significantly deteriorating activity and low inflation, I am absolutely ready” to reduce rates again, council member Guy Quaden said in Brussels. Their comments were echoed by ECB Executive Board member Jose Manuel Gonzalez Paramo.

- OpenTable Defies Technology Turmoil in Plan for $40 Million IPO. OpenTable’s sales rose 41 percent to $41.3 million in the first nine months of 2008, according to regulatory filings. While the San Francisco-based company posted a net loss of $149,000 because of costs to expand into Europe, its U.S. operating profit more than doubled to $6.77 million.

- Unions Win Fast Under Obama, Target Financial, Organizing Rules. After contributing more than $100 million to Obama and congressional Democrats for their 2008 election campaigns, unions appear determined to cash in their chips, and are laying plans to go after their top goal: legislation that would make it easier for workers to organize.

- Nike, VF May Accelerate Acquisitions in Recession.

- The International Energy Agency cut its global oil demand forecast for 2009, projecting consumption will decline by 1 million barrels a day as the worldwide recession deepens, the biggest drop since 1982. It’s the agency’s sixth consecutive reduction of its 2009 crude demand estimate, now forecast to shrink 1.1 percent from 2008. The biggest revision was made to the world’s most developed economies in the Organization for Economic Cooperation and Development. The IEA cut demand expectations there 340,000 barrels a day to 46 million barrels a day, implying a contraction of 1.5 million barrels a day, or 3.2 percent. Estimates for oil consumption this year among developing nations were lowered by 230,000 barrels a day to 38.7 million a day, with the outlook for Asia and the former Soviet Union “particularly grim,” it said.

- Russian companies, the biggest emerging-market borrowers during the last three years, are shut out of the international bond market after yields jumped sixfold since August amid plunging energy prices and a weakening ruble. Yields on bonds due next year from Moscow-based Transcapitalbank and JSC AIKB Tatfondbank in the Russian republic of Tatarstan are trading at yields above 80 percent, up from 12 percent in August. “The primary market is dead,” said Stanislav Ponomarenko, a fixed-income analyst at ING Groep NV in Moscow. “I wouldn’t be too surprised if there are no bond deals done by Russian corporates for most of 2009, if not the entire year.”

Wall Street Journal:

- The South Oil Company, an affiliate of the Iraqi Oil Ministry, has issued tenders to drill 40 oil wells in the country's southern fields in a bid to address a sharp fall in southern oil production, the company said on its Web site.

- Eight bank executives told the House Financial Services Committee Wednesday they are lending even in the face of the economic downturn and that government aid has made that possible. "Make no mistake: We are still lending, and we are lending far more because of the TARP program," said Bank of America Corp. Chief Executive Kenneth Lewis at the hearing. Mr. Lewis said Bank of America next week will make its first dividend payment to the Treasury Department of more than $400 million. Over the year, Bank of America will pay the Treasury about $2.8 billion in dividends alone, he added. "The bottom line is that we are lending significantly more with that preferred stock investment than we would be without it," he said. Other CEOs testifying included J.P. Morgan Chase & Co.'s Jamie Dimon, Citigroup Inc.'s Vikram Pandit and Goldman Sachs Group Inc.'s Lloyd Blankfein.

- Congress and the White House have reached a tentative agreement on an economic-recovery package that would have a total cost of $789.5 billion over two years. The sweeping initiative is on track for final votes late this week on Capitol Hill. Details of the plan are still under negotiation, people familiar with the process said.

- For Some, It’s Finally Time to Dive Into Housing Market.

CNBC.com:
- The stock market’s October-November lows may have been the bottom of the current economic cycle, Pequot Ventures investment strategist Byron Wien said. Wien told the financial cable channel that while news may “stay bad” for months, by mid-2009 earnings and stock prices may begin to show rebounds.

- General Electric(GE) has signed a $1 billion contract to supply 40 gas turbines for electric generation in Saudi Arabia, Steve Bolze, senior vp of power generation at GE, said.

NY Times:

- In New Procedure, Artificial Arm Listens to Brain.

- Senior executives at Citigroup’s Alternative Investment division ran up hundreds of millions of dollars in losses last year on their esoteric collection of investments, including real estate funds and private highway construction projects, even as they collected seven-figure salaries and bonuses. Now the Obama administration has turned to that Citigroup division — twice — for high-level advisers. Their shift to the Obama administration from Citigroup has raised questions about the potential for conflicts of interest, and about whether Mr. Obama’s own staff members benefited from the kinds of Wall Street excesses he has criticized. “You sort of have to wonder why it is so smart to put them in charge now, if they helped create the mess that we are in,” said Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington. In the first quarter of last year, the Alternative Investment division lost $509 million and for the whole year, it was part of a larger Citigroup division that lost $20 billion, according to Citigroup.

ABCNews:

- Sin City's mayor wants President Barack Obama to apologize for saying companies shouldn't visit Las Vegas on the taxpayer's dime. Las Vegas tourism officials worry that increased scrutiny on business travel will discourage meetings and conventions — business that would be crucial for the city already suffering economically. The number of visitors to Las Vegas was down 4.4 percent in 2008 compared with a year earlier, and visits in December alone declined nearly 11 percent. Late Monday, Goldman Sachs Group Inc.(GS) said it had moved a three-day conference from the Las Vegas Strip to San Francisco amid what the bank called a broad review of its activities. Goldman Sachs has accepted $10 billion in federal bailout funds. Last week, Wells Fargo & Co.(WFC), which received a $25 billion infusion, canceled a planned employee recognition conference in Las Vegas after an AP story reported on the trip and the bank received criticism from Capitol Hill that it was misusing the funds.

Fox News:

- North Korea has been moving missile equipment to a launch pad, an indication that the country is taking steps toward conducting a test launch, a news report said Wednesday.

FINalternatives:

- Sometimes there is such a thing as a free lunch in the hedge fund world. HedgeACT has unveiled a new website to improve hedge fund transparency and communication between investors and fund managers by providing investors with free access to hundreds of data points and analytics for more than 7,500 hedge funds. Additionally, hedge funds and hedge fund administrators will have the ability to augment Morningstar Inc.’s data with their own vetted information on fund performance, track record and other important investor criteria. HedgeAct has licensed the data from the Chicago research firm.

Rasmussen Reports:

- The latest Rasmussen Reports national telephone surveys found that the Democrats’ lead is down to just one percentage point. Forty percent (40%) of voters said they would vote for their district’s Democratic candidate while 39% said they would choose the Republican. This marks the lowest level of support for the Democrats in tracking history and is the closest the two parties have been on the generic ballot.

Globe and Mail:
- Environment Minister Jim Prentice hit back yesterday at an environmental campaign pressing Barack Obama to treat Alberta's oil sands as the "world's dirtiest oil," arguing that Canada is only seeking the same treatment that the United States will have to apply to its own coal. Stephen Harper's Conservative government has called for a joint Canada-U.S. pact on greenhouse-gas emissions and energy security, in part to ensure that the oil sands are not hit by punishing U.S. regulations under Mr. Obama's environment-conscious administration. But a campaign by environmental groups urging Mr. Obama to reject "special treatment" for "dirty oil" from the oil sands could serve as a backdrop to the talks when the U.S. President visits Ottawa on Feb. 19. Groups like the Sierra Club and Environmental Defence, working together in a coalition called Obama2Canada, have launched an advertising and lobbying campaign aimed at U.S. policy-makers urging Mr. Obama to stand against the oil sands, which they label "one of the most destructive projects on Earth." "Many people in the United States don't realize that the tar sands are one of the major sources of oil for the United States," said Lisa McCrummen, a Seattle-based co-ordinator for Obama2Canada. "We don't want Harper's climate pact idea of having the tar sands not be part of the emissions equation. The tar sands shouldn't get special treatment."

Emirates News Agency:
- The United Arab Emirates warned of “soaring risks” for its corporate sector because of banks’ reluctance to extend credit amid the global financial crisis. The UAE, the second-largest economy among Arab Gulf states, is suffering from the slump in oil prices and the decline in global demand, WAM cited the central bank and the Federation of Chambers of Commerce and Industry as saying in a joint statement.

Bear Radar

Style Underperformer:
Mid-cap Growth (+.23%)

Sector Underperformers:
Airlines (-3.15%), Oil Service (-1.75%) and Energy (-1.25%)

Stocks Falling on Unusual Volume:
KB, CBST, GXP, RIMM, AYE, EAC, DO, INSU, RIMM, AYE, NRT, WTS and THS

Stocks With Unusual Put Option Activity:
1) UPL 2) AUY 3) GNK 4) DSX 5) RIMM

Bull Radar

Style Outperformer:
Large-cap Value (+.72%)

Sector Outperformers:
Banks (+4.26%), I-Banks (+2.35%) and Homebuilders (+2.03%)

Stocks Rising on Unusual Volume:
STI, BVN, SA, UBS, TKLC, VSAT, HMY, VNUS, NICE, MVSN, HAYN, MICC, LNCE, PAAS, ICLR, CWCO, PEET, SSRI, GOLD, HCSG, VSAT, PNFP, NUAN, DEG, DF, TMB, COO, CCH, DVA, CXW, HGR, CHH and FIS

Stocks With Unusual Call Option Activity:
1) MXIM 2) CDNS 3) NTES 4) TXT 5) LTD