Today's Headlines

Bloomberg: 

• China Spurs Market Rout Blamed on Fed, Goldman Sachs AM Says. China’s policy shifts are a bigger driver of the selloff in emerging markets than the Federal Reserve’s decision to dial back stimulus, according to Goldman Sachs Asset Management. Volatility will rise toward its long-term average and that means an increase in risk premiums, said Philip Moffitt, head of fixed income in Sydney for Asia and the Pacific at Goldman Sachs Asset Management, which had $991 billion of assets under supervision worldwide as of September. The risks for different emerging economies will become more idiosyncratic and Mexico presents a buying opportunity following the rout, he said.

• Turkey Outlook Cut by S&P Citing ‘Hard Landing’ Risk. Turkey’s credit rating outlook was cut to negative from stable by Standard & Poor’s, which said there’s a growing risk of a “hard economic landing” as reserves decline and policy makers spar over interest rates. The move by S&P, the only one of the three main credit rating companies that doesn’t classify Turkish debt as investment grade, comes after the country’s central bank reversed policy and raised interest rates to halt a currency slump. The government has been calling for borrowing costs to be kept low, and says it has alternative plans to revive the economy and the lira.

• German Industrial Output Unexpectedly Fell in December: Economy. German industrial output unexpectedly fell in December, signaling that Europe’s largest economy remains vulnerable to weakness in the rest of the region. Production (GRIPIMOM), adjusted for seasonal swings, decreased 0.6 percent from November, when it rose a revised 2.4 percent, the Economy Ministry in Berlin said today. Economists predicted a gain of 0.3 percent, according to the median of 40 estimates in a Bloomberg News survey. 

• European Stocks Climb as Investors Assess U.S. Employment. European stocks advanced, following their biggest rally in seven weeks, as investors assessed a report that showed the U.S. economy created fewer new jobs last month than forecast. Statoil ASA (STL) added 5.7 percent after saying it will cut spending to increase cash flow. EMS-Chemie Holding AG advanced 3.8 percent after posting better-than-expected profit in 2013 and saying it will pay an extraordinary dividend. SBM Offshore NV, the Dutch supplier of floating oil and gas rigs, tumbled 12 percent for its largest decline since November 2012. The Stoxx Europe 600 Index increased 0.7 percent to 325.09 at the close of trading, taking its advance this week to 0.8 percent.

• Gold Futures Advance After U.S. Payrolls Rise Less Than Expected. “Gold definitely got a bid to it from the weaker numbers,” Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, said in a telephone interview. “What remains to be seen is if this is a one-off thing or the economy is showing signs of weakness.” Gold futures April delivery added 0.5 percent to $1,263.50 an ounce at 10:54 a.m. on the Comex in New York. This week, the metal has risen 1.9 percent this week, the most since Jan. 3.

• Homeland Chief Says U.S. Responding in ‘Real Time’ to Threats. Recent warnings and restrictions on air travelers heading to Russia are a “real time” response to threats associated with the Winter Olympics, which opened today, Homeland Security Secretary Jeh Johnson said. “DHS monitors world events in real time and takes action, when necessary, to confront and respond to threats,” Johnson said, according to excerpts of a speech he planned to deliver today at the Woodrow Wilson International Center for Scholars in Washington. “In support of Russian authorities, we are keeping a close eye on the Sochi Olympics.”

• Google(GOOG) Passes Exxon to Become Second-Most Valuable U.S. Company.

Wall Street Journal: 

• Hilsenrath Analysis: Fed Likely to Stay Course on Rates and Bond Buying. 

• As the Winter Olympics Open, Putin Showcases a Defiant Russia. Games Highlight Hostility to Russian President's New Political Creed. On Friday night, Russian President Vladimir Putin will entertain world leaders at a reception under soaring, Corinthian-style columns and a giant, sparkling chandelier in the Atrium ballroom of the Stalin-era Rus Sanatorium. It will be one of the most exclusive events of the Winter Olympics here, but Mr. Putin's guest list has some big gaps. Few of the Western world's most prominent leaders will be there, declining entreaties to attend, according to diplomats and government officials.

• Fitch Downgrades Ukraine to Triple-C on Political Uncertainty. Ukraine's Currency Has Weakened To Its Lowest Level in Years in Recent Weeks.

Barron's:

• The Singularity: Hedge Funds Become One with the S&P 500. Hedge funds appear to be facing their own singularity in the form of the S&P 500. They’re slowly but surely becoming one with the large-cap stock index.

MarketWatch:

• Severe unemployment overwhelms meager job gains. Opinion: Failure to extend jobless benefits is most recent harmful policy error.

CNBC: 

• Hijacker Who Tried to Divert Flight to Sochi in Custody.

• Moody's downgrades Puerto Rico GO debt rating two notches to 'junk' status. Turkish security officials searched a passenger plane at an Istanbul airport after a bomb threat was made and a passenger demanded to fly to Sochi, Russia, where the Winter Olympics got underway Friday. The Pegasus Airline flight with 110 passengers from Kharkov, Ukraine, landed safely at Istanbul’s Sabiha Gokcen airport.

• These big hedge funds got crushed in January.

ZeroHedge: 

• Goldman's(GS) Payroll Postmortem: "Confusing", "Disappointing", "Little Negative Weather Impact".

• Scandal: Bank Of England Encouraged Currency Manipulation By Banks.

• Bitcoin Crashes 25% As Mt.Gox Halts Withdrawals. (graph)

• Turkish Lira Dumps After S&P Warns, Cuts Turkish Outlook. (graph)

• Blythe Masters Withdraws From CFTC : Furious Twitter Backlash Blamed.

Business Insider:

• All American Credit Cards Will Disappear In 2015 And Be Replaced With This New Tech.

• Detroit Is Losing Money On Its Bizarre 'People Mover' Train That No One Ever Rides.

• THE SCARIEST JOBS CHART EVER.

Reuters:

• U.S. oil hits 2014 high as widespread cold lifts heating demand. Oil rose by more than $1 to one-month highs on Friday, fueled by a sharp rally in gasoline and heating oil as supplies tightened and refiners started to shut down plants for maintenance. 

• Apple(AAPL) shareholders should reject Icahn's buyback proposal -proxy advisor.

• TREASURIES-Yields fall as jobs data disappoints.

• Brazil power failures may trigger fiscal short circuit. Brazil's fiscal accounts, already under close scrutiny by rating agencies, could suffer a new blow this year as the government picks up the bill for rising energy prices. A blackout in large swathes of the country this week raised serious questions about the capacity of the power system to cope with rising consumption and a drop in supply as low water reservoir levels sap output at hydroelectric plants. 

• Fed is not swayed by any single number, Fisher tells CNBC. The U.S. central bank is unlikely to reverse its decision to wind down its bond-buying program in reaction to the weaker-than-expected January jobs report released on Friday, a top Federal Reserve official suggested. "I will say this about the rest of our committee, is they are not swayed by a single number. They are thoughtful people," Dallas Federal Reserve Bank President Richard Fisher said on CNBC, referring to the Fed's policy-setting Federal Open Market Committee.

Telegraph:

• German court warns there are 'important reasons to assume' ECB bond-buying is illegal. Germany's constitutional court "inclined" to rule ECB's eurozone crisis backstop is illegal. 

• Webchat: Are we entering the third phase of the Great Financial Crisis? Ambrose Evans-Pritchard answers your questions about the global economy amid tightening in the US and China, ECB inaction and emerging markets turmoil.

Les Echos:

• French 2014 Industrial Investment Seen 10% Below 2007. Investment by French industrial companies is being held back by low margins, citing several research institutes.

Bear Radar

Style Underperformer:

• Small-Cap Value +.23%

Sector Underperformers:

• 1) HMOs -3.47% 2) Coal -2.01% 3) Hospitals -.62%

Stocks Falling on Unusual Volume:

• ATHL, G, MONT, THR, BTE, ECHO, MDSO, ABCO, LNKD, CI, WYN, ACET, BRS, FTI, NCR, MTRX, EGOV, EXXI, FLDM, BYI, MWIV, VRSN, TPX, DATA, DO, CALD, FLIR and NCR

Stocks With Unusual Put Option Activity:

• 1) OUTR 2) CHRW 3) LNKD 4) SCHW 5) CZR
  

Stocks With Most Negative News Mentions:

• 1) BBBY 2) G 3) DO 4) IRPT 5) MMS
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Growth +.77%

Sector Outperformers:

• 1) Biotech +3.34% 2) Gold & Silver +2.19% 3) Airlines +1.18%
  

Stocks Rising on Unusual Volume:

• OUTR, AAN, GWPH, ATVI, EXPE, ARWR, UBNT, ATHN, MCO, NWSA, GPS, TRIP, ATHN, LQDT, LCI, ARWR, MYGN, GTAT, PBH and TWTR

Stocks With Unusual Call Option Activity:

• 1) ATVI 2) OUTR 3) CXO 4) LGF 5) NCR

Stocks With Most Positive News Mentions:

• 1) FB 2) PTEN 3) AAN 4) AAPL 5) GOOG
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Friday Watch

Evening Headlines 
Bloomberg:   

• Mobius Says Emerging Selloff to Deepen. The worst isn’t over for emerging markets after the benchmark stock index sank to a five-month low and the nations’ currencies tumbled, said Templeton Emerging Markets Group’s Mark Mobius. “The negative sentiment is pretty much in place so you can expect a lot more selling,” Mobius, 77, who oversees more than $50 billion in developing nations as an executive chairman at Templeton, said in an interview from Rio de Janeiro today. “We are looking but actually not buying at this stage. Prices can come down or take time to stabilize.” 
• Asian Stocks Pare Weekly Loss on Jobless Claims, Earnings. Asian stocks rose, with the regional benchmark index paring its sixth straight weekly loss, as U.S. jobless claims fell and investors weighed company earnings. Honda Motor Co., the Japanese carmaker that gets almost half its revenue in North America, added 2 percent. Sony Corp. climbed 2.3 percent in Tokyo after the electronics maker announced job cuts and a reorganization. Aurora Oil & Gas Ltd. surged 56 percent in Sydney after Baytex Energy Corp., a Canadian producer of heavy crude oil, agreed to buy the company. GS Engineering & Construction Corp. slumped 13 percent in Seoul after the contractor said it’s considering a share sale. The MSCI Asia Pacific Index added 1.1 percent to 132.95 as of 12:48 p.m. in Tokyo with all 10 industry groups rising. The measure has pared its weekly drop to 1.4 percent. 
• Hedge Funds Lose Less Than Stocks in Month as Dalio Gains. Hedge funds held up better than stocks in January, falling an average of 0.1 percent as global equities slumped amid a selloff in emerging-market currencies and signs of weakness in China.

Wall Street Journal: 

• Treasury’s Charge Sees Iran Enabling al Qaeda in Syria. The Obama administration charged that Tehran has allowed senior al Qaeda members operating from Iranian soil to facilitate the movement of Sunni fighters into Syria. The Obama administration charged that Tehran has allowed senior al Qaeda members operating from Iranian soil to facilitate the movement of Sunni fighters into Syria. The allegation by the Treasury Department on Thursday would suggest that elements of Iran’s government or military were at least tacitly supporting the opposing sides of Syria’s civil war. 
• Charles Schwab(SCHW) to Move 1,000 Jobs Out of San Francisco. 
• Speed Traders Get an Edge. Paying for Direct Access to News Releases Can Give a Lucrative Time Advantage.
• What to Watch for in January’s Jobs Report. 
• Europe Central Bank Ready for New Stimulus. Some Analysts Had Forecast Cut.
• Jay Pelosky: Ominous Signs for the Global Recovery. U.S. growth may be ready to cool, Europe faces a serious deflation risk, and emerging markets are in disarray. As the feel-good talk emanating from the World Economic Forum gathering at Davos last month fades and equity investors contemplate the possibility of a major market correction, a combination of factors suggests that something ominous may be afoot.

MarketWatch.com:

• Apple(AAPL) buys back $14 billion in shares: WSJ.

CNBC:

• Aetna(AET) may pull out of Obamacare: CEO. (video) There is so much uncertainty about Obamacare that Aetna, the U.S.'s third-largest insurance provider, may be forced to double its rates or opt out of the program, the company's CEO, Mark Bertolini, told CNBC on Thursday. 
• Why the dollar stays steady as America declines.
• TSA: No Liquids on U.S. Flights to Russia.

Zero Hedge: 

• Why Warren Buffett Is Worried About Stocks. (graph)
• Obama Considering Three Year Extension To Obamacare.
• Why The Next Global Crisis Will Be Unlike Any In The Last 200 Years.
• The Farce Is Complete: Blythe Masters Joining CFTC.
• Socialism Works - In One Chart.
• Retail Panic: Largest Equity/[Bond] Fund Outflow/[Inflow] In History. (graph)  
• 28 Signs That The Middle Class Is Heading Towards Extinction.

ValueWalk:

• Jim Grant: The world Has Never Seen The likes of China’s Credit Frenzy.

Business Insider: 

• CHART OF THE DAY: The Stunning Rise Of Disability, Food Stamp And Welfare Benefits.
• Disturbing Study Suggests China Is Becoming Way More Repressive. 

Washington Examiner:

• CBO director: Falling work force participation --- including Obamacare --- will be 'central factor' in slowing economic growth.

Reuters:

• IBM(IBM) explores sale of semiconductor business - Financial Times.
• LinkedIn's(LNKD) outlook misses Wall Street estimates. LinkedIn Corp delivered revenue forecasts that fell short of Wall Street's expectations, deflating hopes that the high-flying professional social network can sustain its growth streak and sending its stock 8 percent lower. 
• Fed balance sheet would shrink quickly without sales -Rosengren. Simply letting purchased bonds mature in the years ahead would shrink the Federal Reserve's swollen balance sheet fairly quickly without the need to actively sell them, a top U.S. central banker said on Thursday. "Our intention is to get back to a more normal size balance sheet," Boston Fed President Eric Rosengren said at a Florida conference, acknowledging the risk that interest rates are likely to rise in the future, leading to possible losses on the balance sheet that is now worth $4 trillion and growing. 
• Carlyle to buy Illinois Tool Works(ITW) unit for $3.2 billion.
• U.S. retailers' sales chilled by weather, low consumer confidence. January was a tough end to the most competitive holiday season for U.S. retailers since the 2007-2009 recession. Retail sales figures reported on Thursday showed shoppers continue to pinch pennies, seeking out bargains and paying fewer visits to stores in a month when consumers typically wrap up their holiday shopping and redeem gift cards.
• Big bets on Green Mountain ahead of Coke stake raise eyebrows. A surge in bets that shares of Green Mountain Coffee Roasters would rise sharply by the end of the week has raised suspicions, coming as it did just hours before news of a partnership deal with Coca-Cola. GreenMountain said late Wednesday Coca-Cola bought a 10 percent stake for $1.25 billion and would help launch Green Mountain's new cold-drink machine, planned for release as soon as October.

Telegraph:

• Split ECB paralysed as deflation draws closer, tightening job vice in southern Europe. Mario Draghi said the ECB’s council had discussed a wide range of measures but needed more information.

Evening Recommendations
Stifel Nicolaus:

• (NFLX) raised to Buy, target $475.

Night Trading

• Asian equity indices are +.50% to +1.0% on average.

• Asia Ex-Japan Investment Grade CDS Index 144.0 -5.0 basis points.

• Asia Pacific Sovereign CDS Index 111.75 -2.5 basis points.

• FTSE-100 futures +.25%.

• S&P 500 futures +.11%.

• NASDAQ 100 futures +.16%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AXL)/.49

• (MT)/.09

• (CBOE)/.48

• (CI)/1.49

• (FLIR)/.38

• (LH)/1.65

• (MCO)/.76

• (WYN)/.73

• (CCJ)/.52

Economic Releases
8:30 am EST

• The Change in Non-Farm Payrolls for January is estimated to rise to 180K versus 74K in December.

• The Unemployment Rate for January is estimated at 6.7% versus 6.7% in December.

• Average Hourly Earnings for January are estimated to rise +.2% versus a +.1% gain in December.

3:00 pm EST

• Consumer Credit for December is estimated at $12.0B versus $12.32B in November.

Upcoming Splits

• (MGEE) 3-for-2

Other Potential Market Movers

• The Canadian unemployment rate, (MU) analyst conference, (GLW) investor meeting and (STJ) investor meeting could also impact trading today.

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

Stocks Surging into Final Hour on Less Emerging Markets/Eurozone Debt Angst, Yen Weakness, Short-Covering, Retail/Homebuilding Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Almost Every Sector Rising
  

• Volume: Slightly Below Average

• Market Leading Stocks: Outperforming

Equity Investor Angst:

• Volatility(VIX) 17.34 -13.08%

• Euro/Yen Carry Return Index 144.77 +1.05%

• Emerging Markets Currency Volatility(VXY) 9.52 -1.46%

• S&P 500 Implied Correlation 55.91 -7.89%

• ISE Sentiment Index 87.0 -26.89%

• Total Put/Call .82 -15.45%

• NYSE Arms .57 -30.31% 

Credit Investor Angst:

• North American Investment Grade CDS Index 69.95 -3.93%

• European Financial Sector CDS Index 95.25 -4.15%

• Western Europe Sovereign Debt CDS Index 54.31 -1.25%
• Asia Pacific Sovereign Debt CDS Index 111.95 -2.04%

• Emerging Market CDS Index 327.97 -1.0%

• China Blended Corporate Spread Index 364.68 -1.64%
• 2-Year Swap Spread 13.25 +.5 basis point

• TED Spread 17.0 -1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -4.0 +3.0 basis points

Economic Gauges:

• 3-Month T-Bill Yield .07% +1.0 basis point

• Yield Curve 238.0 +3.0 basis points

• China Import Iron Ore Spot $121.0/Metric Tonne -1.14%

• Citi US Economic Surprise Index 25.50 -4.8 points

• Citi Emerging Markets Economic Surprise Index 9.90 -.3 point

• 10-Year TIPS Spread 2.14 +2.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating +340 open in Japan

• DAX Futures: Indicating +10 open in Germany

Portfolio: 

• Higher: On gains in my tech/medical/biotech/retail sector longs 

• Disclosed Trades: None

• Market Exposure: 75% Net Long

Today's Headlines

Bloomberg:

• Draghi Signals ECB Ready to Wait Until March for Action. European Central Bank President Mario Draghi said the ECB could take action to counter low inflation as soon as next month, when more data on the euro area’s economy will be available. “We are willing and we are ready to act,” Draghi said in Frankfurt today after the ECB left its benchmark interest rate on hold at a record-low 0.25 percent. “The reason for today’s decision not to act has really to do with the complexity of the situation that I described and the need to get more information.”
• German Factory Orders Unexpectedly Decline on Domestic Demand. German factory orders (GRIORTMM) unexpectedly declined in December on weaker domestic demand, signaling that companies in Europe’s largest economy remain hesitant to invest as surrounding nations struggle to sustain a recovery. Orders, adjusted for seasonal swings and inflation, dropped 0.5 percent from November, when they rose a revised 2.4 percent, the Economy Ministry in Berlin said today. Economists forecast a gain of 0.2 percent, according to the median of 39 estimates in a Bloomberg News survey. 
• Ukrainian Opposition Warns Yanukovych as Currency Rattled. Ukraine’s opposition warned President Viktor Yanukovych that the country is running out of time to solve its political crisis after the hryvnia plunged to a five-year low against the dollar this week. Vitali Klitschko, head of the opposition UDAR party, repeated demands yesterday for presidential elections or constitutional change. Acting Prime Minister Serhiy Arbuzov said a failure to compromise was weakening Ukraine. Parliament may meet for a special session Feb. 11 to discuss the issue, Speaker Volodymyr Rybak said today.
• Insurers Slash Specialty Hospitals to Keep Premiums Low. Health insurers under pressure to keep premiums low are eliminating some hospitals from coverage in a cost-cutting strategy that threatens to freeze out centers that provide specialized care, limiting patient options. Left out are hospitals such as Seattle Children’s, excluded from five of seven plans on Washington’s state insurance exchange. The hospital, which has sued the state to be included in more plans, is struggling to get paid for care given to about 125 children since Jan. 1, when Obamacare coverage took effect, said Sandy Melzer, the facility’s strategy officer.
• Jails Enroll Inmates in Obamacare to Pass Hospital Costs to U.S. Being arrested in Chicago for, say, drug possession or assault gets you sent to the Cook County Jail to be fingerprinted, photographed and X-rayed. You’ll also get help applying for health insurance. At least six states and counties from Maryland to Oregon’s Multnomah are getting inmates coverage under Obamacare and its expansion of Medicaid, the federal and state health-care program for the poor. The fledgling movement would shift to the federal government some of the more than $6.5 billion in annual state costs for treating prisoners. Former U.S. Senator Kent Conrad, a Democrat from North Dakota who was on the Senate Finance Committee when the Affordable Care Act passed, said he doesn’t recall discussions about the law’s being used to cover inmates. Conrad said that while he agrees that it’s better to have as many people as possible insured -- including prisoners -- he’s bothered by federal taxpayers picking up the tab for inmate hospital stays. “It starts to look a little like a scheme by the states and local jurisdictions to avoid responsibilities that are really theirs,” Conrad said in a telephone interview.
• Consumer Confidence in U.S. Dropped Last Week to Two-Month Low. Consumer confidence fell last week to the lowest level in more than two months as views on the economy, personal finances and buying climate worsened. The Bloomberg Consumer Comfort Index declined to minus 33.1 in the week ended Feb. 2, the lowest since late November, from minus 31.8 the prior period. The share of Americans saying it’s a good time to shop fell to the lowest since early November. 
• GM(GM) Profit Misses Estimates on Europe Restructuring. General Motors Co. (GM) posted fourth-quarter profit that missed analysts’ estimates as the automaker lost money in Asia outside of China, faced higher taxes and restructured in Europe. Profit excluding one-time items was 67 cents a share, Detroit-based GM said today in a statement, trailing the 87-cent average of 14 analysts’ estimates compiled by Bloomberg. That compares with 48 cents a share a year earlier. GM’s miss follows Ford Motor Co. (F)’s fourth-quarter results last week that exceeded estimates with per-share profit of 31 cents, excluding one-time items.

Wall Street Journal:

• U.S. Public Companies Rise Again. Stock-Market Listings Grow for First Time Since Internet Boom. 

ZeroHedge:

• "Fu*k The EU" - US State Department Blasts Europe; Revealed As Alleged Mastermind Behind Ukraine Unrest.
• Turkish Government Restricts Internet Access; Erdogan Compared To Hitler.
• Ukraine Has Failed Bond Auction As CDS Soar To Pre-Bailout Levels. (graph)

24/7:

• January Spike in Job Cuts From Retailers and Tech Companies. U.S.-based employers announced plans to cut more than 45,000 jobs last month. That was 47% higher than in the previous month, as well as 12% higher than in January of 2013. The retail sector was hit especially hard. Major national retailers like Best Buy and Target were among those that announced more than 11,000 job cuts last month. That was about 71% more than in the same period of last year.

Telegraph:

• SocGen bear growls: deflation shock-wave from Asia to trigger global recession.