Thursday Watch

Late-Night Headlines
Bloomberg:

• S&P May Downgrade Greece Within a Month on Risks to Budget Plan. Standard & Poor’s may downgrade Greece’s credit rating again by the end of March as a weak economy and political opposition threaten the country’s ability to cut the European Union’s largest budget deficit. “We believe that a further downgrade of Greece of one to two notches is possible within a month,” S&P analysts led by Marko Mrsnik in London said in a statement released late yesterday. The warning may further undermine Greece’s standing in financial markets. The premium investors demand to hold the nation’s 10-year securities instead of those of Germany rose yesterday to the most in more than two weeks as unions staged a strike to resist budget cuts. The euro has fallen almost 10 percent against the dollar in the past two months on concern Greece’s fiscal woes may spread to other nations. “A downgrade would make it much more difficult for Greece to turn things around,” said Andrew Brenner, managing director at Guggenheim Capital Markets LLC, a New-York based brokerage for institutional investors. “It would also continue to put pressure on the euro.” S&P said the country’s willingness to keep funding itself in the commercial bond market is a key part of the assessment. The rating could be pressured by lower profitability at the country’s banks or a decline in public support for the budget plan, it said. “Downside risks for Greece’s real and nominal growth are likely to increase the size of needed fiscal consolidation, raising questions about the feasibility of the country’s ambitious budget goals,” S&P said. “Political risks for the timely implementation of the entirety of fiscal reforms continue to be material.”
• China Property May Correct, Gains Are Unsustainable, S&P Says. China’s property market will probably go through a correction this year because the price gains in 2009 are not sustainable, Christopher Lee, corporate ratings director at Standard & Poor’s, said.
• Deutsche Bank Subprime Trader Greg Lippmann May Leave. Greg Lippmann, the Deutsche Bank AG trader whose bets against subprime securities helped Germany’s largest lender weather the financial crisis, may leave to join a new investment firm, three people with knowledge of the talks said. The company is being started by Fred Brettschneider, Deutsche Bank’s head of global markets in the Americas, according to the people, who declined to be identified because the discussions are private. Lippmann, 41, helped create the market for betting against subprime mortgage bonds in 2005 and then profited along with hedge funds when home prices declined and defaults soared to records two years later, sparking the worst financial crisis since the 1930s. After Lippmann’s team made almost $2 billion for Deutsche Bank in 2007, he complained to his bosses that his $50 million bonus for the year was too small a reward and interviewed with hedge funds and other firms, according to “The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History” (Broadway Books, 2009) by Greg Zuckerman, a Wall Street Journal reporter.
• New York May Get 13 Inches of Snow Starting Tomorrow Morning. The National Weather Service boosted its forecast for tomorrow’s snowstorm in New York City, saying that as much as 13 inches may fall and that travel in the region may be “very hazardous or impossible.” A winter storm warning goes into effect at 6 a.m. tomorrow. It calls for 7 to 13 inches (18 to 33 centimeters), up from earlier predictions of 5 to 10 inches, according to a weather service bulletin. The storm may be accompanied by wind gusts as high as 30 mph before it abates about 36 hours later.
• Japan at Tipping Point as Debt Approaches Assets. Japan's total public debt is nearing the value of household wealth, a sign the government bond market is approaching a "tipping point," according to Mizuho Securities Co. Net assets dropped to 1,065 trillion as of September and the Finance Ministry projects public borrowings will reach a record 973.2 trillion yen by March 2011. "There's a lot of nervousness in the markets that these two numbers are converging," said Hajime Takata, Tokyo-based chief strategist at Mizuho. "Looking at the deficit, household assets and limited room the government has for issuing new debt, people think we're getting closer to a tipping point." The narrowing gap is especially alarming for Japan, where more than 90% of public debt is held by domestic investors.
• The euro will fall another 8% and become a favorite funding currency for carry trades as concerns about Greece's finances weigh on regional interest rates, according to Deutsche Bank AG. "Greece's crisis has highlighted political and structural weakness in the euro-zone," said Koji Fukaya, a senior currency strategist for Deutsche Bank in Tokyo. "First, it remains unclear whether any aid will be available. And even if any rescue plan comes out, it will take time to see if it'd work."
• GM to Wind Down Hummer as Sichuan Tengzhong Sale. General Motors Co. said it will close Hummer, the maker of military-inspired sport-utility vehicles, after Sichuan Tengzhong Heavy Industrial Machinery Co. couldn’t win Chinese approval to buy the unit. Winding down the brand will take several months, Nick Richards, a spokesman, said yesterday. Some of the 3,000 people now employed at Hummer work on other vehicles, so GM doesn’t know how many jobs will be lost, Richards said.
• Commodity Investor Demand May Wane on Economy, Allianz Says. Investment demand for commodities, especially metals, may wane in the next three months because of concerns that the global economic recovery may be slower than expected, according to Allianz Investment Management. “There could be a lot of unwinding” of bets that raw materials will advance, Nikhil Srinivasan, who oversees about $30 billion of assets as chief investment officer for Asia and the Middle East, said in an interview yesterday. “That will keep them from having a strong year.”

Wall Street Journal:

• A Better Way to Reform Health Care. The critical problem is rising costs. The solution is more competition and greater individual control over health spending. Here's how:
• What the GOP Should Say at the Health Summit.
  
• Coca-Cola(KO) Nears Deal to Buy Bulk of Its Largest Bottler. As part of the deal, Coke would buy Coca-Cola Enterprises Inc.'s(CCE) North American operations, the people said. The rest of the bottler, which consists of operations in several European countries, would remain independent and acquire Coke bottling operations in Scandinavia and Germany.
• Obama Readies a Fallback Health-Care Proposal. Scaled Down Plan Would Expand Insurance to About Half as Many People as Pending Bill Envisions. It would do that by requiring insurance companies to allow people up to 26 years old to stay on their parents' health plans, and by modestly expanding two federal-state health programs, Medicaid and the Children's Health Insurance Program, this person said. The cost to the federal government would be about one-fourth the price tag for the broader effort, which the White House has said would cost about $950 billion over 10 years.
• The Euro's Next Battleground: Spain. Greece set off the crisis rattling the euro zone. Spain could determine whether the 16-nation currency stands or falls. The euro zone's No. 4 economy, Spain has an unemployment rate of 19%, a deflating housing bubble, big debts and a gaping budget deficit. Its gross domestic product contracted 3.6% in 2009 and is expected to shrink again this year, leaving Spain in its deepest and longest recession in a half-century.

BusinessWeek:

• Hedge Funds Lure More Cash From Pensions as Benefit Gap Looms. Florida’s state pension system, manager of $112 billion for a million firefighters, teachers and garbage collectors, is set to decide next week on the size of its first investment in hedge funds. Executives of the fourth-largest state retirement program in the U.S., who have considered putting money into the private pools of capital since 2007, will make the move amid a 7 percent shortfall in its ability to pay future benefits, the first in 13 years. Wisconsin’s pension also plans its initial allocation this year, while Boeing Co.’s probably will raise its holdings. Public and private pensions are increasing hedge-fund commitments after slowing the flow of cash at the end of 2008. About 15 percent of U.S. institutions plan to boost their allocations, and 80 percent will keep them steady, according to a survey by SEI Investments Co. The investors are seeking to accelerate returns after losses during the financial crisis. Not all retirement plans are convinced that the funds are for them. “We’re a conservative investor and hedge funds are too risky and flashy for our portfolio,” Ricardo Duran, a spokesman for the $134 billion California State Teachers’ Retirement System in West Sacramento, California, said in a telephone interview. Calsters is the second-largest state retirement program after the $200 billion California Public Employees’ Retirement System.
• Euro 'Mortally Wounded' as Index Indicates Drop. The euro’s decline against the currencies of Group of 10 countries suggests that its slump against the U.S. dollar may accelerate, Bloomberg Correlation- Weighted Currency Indexes indicate. “A rescue package will give the euro a short-term reprieve, but it’s mortally wounded,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “The euro’s peak against the G-10 currencies occurred many, many months before the euro-dollar’s did. It’s come down a long way lately, but the euro’s still exceptionally overvalued.” Ballooning debt problems in the ‘P.I.I.G.S.’ nations -- Portugal, Ireland, Italy and Spain -- have dimmed the outlook for the euro zone’s economic recovery, increasing the likelihood the European Central Bank will likely keep its target interest rate at a record low for longer. “Sovereign funds used to pile into the euro as a good way to diversify from the dollar, but they’re doubting the merits of buying the euro,” Franulovich said. “There still a lot of question marks surrounding the euro. It’s having an existential crisis.”

CNBC:

• 5 VIP Stocks New Hedge Fund Favorites, Says Goldman.

IBD:

• Alaska Air Group (ALK) took off like a rocket last year as the economic downturn sent many airlines into a tailspin.

NY Times:

• Banks Bet Greece Defaults on Debt They Helped Hide. Bets by some of the same banks that helped Greece shroud its mounting debts may actually now be pushing the nation closer to the brink of financial ruin. Echoing the kind of trades that nearly toppled the American International Group, the increasingly popular insurance against the risk of a Greek default is making it harder for Athens to raise the money it needs to pay its bills, according to traders and money managers. These contracts, known as credit default swaps, effectively let banks and hedge funds wager on the financial equivalent of a four-alarm fire: a default by a company or, in the case of Greece, an entire country. If Greece reneges on its debts, traders who own these swaps stand to profit. “It’s like buying fire insurance on your neighbor’s house — you create an incentive to burn down the house,” said Philip Gisdakis, head of credit strategy at UniCredit in Munich. As Greece’s financial condition has worsened, undermining the euro, the role of Goldman Sachs and other major banks in masking the true extent of the country’s problems has drawn criticism from European leaders. But even before that issue became apparent, a little-known company backed by Goldman, JPMorgan Chase and about a dozen other banks had created an index that enabled market players to bet on whether Greece and other European nations would go bust. Last September, the company, the Markit Group of London, introduced the iTraxx SovX Western Europe index, which is based on such swaps and let traders gamble on Greece shortly before the crisis. Such derivatives have assumed an outsize role in Europe’s debt crisis, as traders focus on their daily gyrations. A result, some traders say, is a vicious circle. As banks and others rush into these swaps, the cost of insuring Greece’s debt rises. Alarmed by that bearish signal, bond investors then shun Greek bonds, making it harder for the country to borrow. That, in turn, adds to the anxiety — and the whole thing starts over again. Trading in Markit’s sovereign credit derivative index soared this year, helping to drive up the cost of insuring Greek debt, and, in turn, what Athens must pay to borrow money. The cost of insuring $10 million of Greek bonds, for instance, rose to more than $400,000 in February, up from $282,000 in early January. On several days in late January and early February, as demand for swaps protection soared, investors in Greek bonds fled the market, raising doubts about whether Greece could find buyers for coming bond offerings. “It’s the blind leading the blind,” said Sylvain R. Raynes, an expert in structured finance at R&R Consulting in New York. “The iTraxx SovX did not create the situation, but it has exacerbated it.” The Markit index is made up of the 15 most heavily traded credit-default swaps in Europe and covers other troubled economies like Portugal and Spain. And as worries about those countries’ debts moved markets around the world in February, trading in the index exploded. In February, demand for such index contracts hit $109.3 billion, up from $52.9 billion in January. European banks including the Swiss giants Credit Suisse and UBS, France’s Societe Generale and BNP Paribas and Deutsche Bank of Germany have been among the heaviest buyers of swaps insurance, according to traders and bankers who asked for anonymity because they were not authorized to comment publicly. That is because those countries are the most exposed. French banks hold $75.4 billion worth of Greek debt, followed by Swiss institutions, at $64 billion, according to the Bank for International Settlements. German banks’ exposure stands at $43.2 billion. Trading in credit-default swaps linked only to Greek debt has also surged, but is still smaller than the country’s actual debt load of $300 billion. The overall amount of insurance on Greek debt hit $85 billion in February, up from $38 billion a year ago, according to the Depository Trust and Clearing Corporation, which tracks swaps trading.

Forbes:

• SEC's New Circuit Breaker Falls Short Of Uptick Rule. Short sellers have another hurdle to overcome after the Securities and Exchange Commission on Wednesday voted 3-2 to adopt new rules to limit their ability to short stocks in a downturn. But the vote was split down party lines, with the two dissenting Republican commissioners saying the new circuit-breaker restrictions are merely placebos that make the SEC look like it's doing something when in fact, it's not really doing much at all. The new circuit breaker is a far more limited restriction on short selling. It only applies to stocks that have already fallen 10% or more. During a public hearing Wednesday, the SEC commissioners said that would typically apply to just 1.3% of stocks in any given day during normal market conditions. This will not likely put an end to calls to bring back the uptick rule, Casey added. And sure enough, two senators, from both sides of the aisle, put out a joint statement Wednesday calling for just that, along with other curbs on manipulative trading like naked short selling, where the trader doesn't borrow the stock before selling it short. "This circuit breaker/bid test rule is a step forward. But in our view it will be of limited use," said the statement by Sens. Ted Kaufman (D-Del.) and Johnny Isakson (R-Ga). "The SEC has not yet brought a single enforcement case in the 2008 naked short selling incidents that helped take down Bear Stearns and Lehman Brothers. Today's rule does not address that glaring problem."

Mineweb:

• Listed Gold Stocks Lose Their Mojo. Prices are back to year-ago levels and in some notable bases, to levels first seen in 2003.
  

Rasmussen Report:

• Twenty-nine percent (29%) of U.S. voters say the country is heading in the right direction, according to the latest Rasmussen Reports national telephone survey.

Politico:

• White House Punts on Containing Health Costs. At Thursday’s health summit, President Barack Obama is almost certain to highlight the importance of reining in skyrocketing health care costs. But in his own health care bill, it’s a different story. Obama has put off a tax on high-cost health plans until 2018 — long after he’s out of office, even if he’s a two-termer.And in doing so, he’s essentially neutered the last significant Democratic push to control health costs. When Obama launched his health care project, the case for reform rested on two pillars. One was helping people who had no insurance or were otherwise struggling with the current system. The other was taking dramatic steps to halt the growth in costs. As the debate lurches toward a close, the emphasis in Obama’s plan now rests overwhelmingly on the first pillar — with only the most modest and preliminary measures being embraced for cost control. “They thought [the tax] was a major part of their ability to slow the growth in private-sector premiums. And now, at least until after 2017, it doesn’t look like they will bend the cost curve,” said Ken Thorpe, an Emory University professor and Democratic health policy adviser. In fact, the delay raises questions about whether the tax will ever return. Obama’s punted the decision to some future president and some future Congress that would have to let a brand-new tax come into effect on their watch. Chalk it up to politics. Some of Obama’s biggest supporters, labor unions, hate the tax because it hits their members with so-called Cadillac plans. Liberals don’t like it either. And Obama badly needs their support if he still hopes to get his $950 billion health care plan through Congress after Thursday’s summit.
• Evan Bayh's Exit Comments Irk Democrats. Sen. Evan Bayh handed Republicans plenty of ammunition to use against Democrats when he announced his retirement last week — and some of his colleagues are none too happy about it. In explaining his decision not to seek reelection, the Indiana Democrat has complained publicly about legislative gridlock, saying that Congress hasn’t done enough to prop up the economy and hasn’t created a single private-sector job in the past six months. While many Senate Democrats share Bayh’s frustration with Washington partisanship and stalling on major bills, some are angry that he’s stepping all over their 2010 message: that the 111th Congress has been one of the most productive in a generation, that the stimulus stemmed the tide of job losses and that Republicans, not Democrats, deserve most of the blame for the paralysis afflicting Capitol Hill. “I just have no idea what he’s doing,” said one Democratic senator, whose face turned red as he threw up his hands after being asked about Bayh. “It almost seems like he’s siding with” Republicans, said one top Democratic aide. What especially infuriated Democrats was Bayh’s contention on CBS last week that if he could “create one job in the private sector by helping to grow a business, that would be one more than Congress has created in the last six months.”

Reuters:

• Cisco(CSCO) to Unveil Network Boost for Internet. Cisco Systems Inc (CSCO) will announce in March new technology for communications service providers to offer more advanced, high-speed Internet connections, a source familiar with the plan said on Wednesday.
• China's Military Warns Washington, Denies Hacking. China's military warned the United States on Thursday to "speak and act cautiously" to avoid reigniting tensions between the two powers, denying the People's Liberation Army played a part in Internet hacking. Huang Xueping, spokesman for the Chinese Ministry of Defence, said his government would not reverse its decision to suspend "bilateral military plans" with Washington after it said in late January that it would sell $6.4 billion of arms to Taiwan, the self-ruled island Beijing claims as its own.
• Express Scripts 4th Quarter, 2010 Outlook Top Street View. Pharmacy benefit manager Express Scripts Inc (ESRX) on Wednesday reported better-than-expected fourth-quarter profit and issued a 2010 earnings forecast that exceeded Wall Street estimates, and its shares rose 9 percent.
• Salesforce.com(CRM) Raises Revenue Outlook.
  

Telegraph:

• Greek Rescue in Danger as Deputy Prime Minister Attacks 'Nazi' Germany. Greece has greatly damaged its chances of an EU bail-out by lashing out at Germany over war-time atrocities and accusing Italy of cooking its books to hide public debt. The escalating dispute came as a general strike in Greece spilled over into violent clashes between hooded youths and riot police in Athens. Chants of "burn the banks" are a foretaste of tensions once austerity measures bite in earnest later this year. Public and private sector unions joined forces to bring the country to a standstill for 24 hours, halting flights, trains, and shipping, and shutting schools and hospitals.
• Private Companies are Being Taxed to Near Destruction to Pay for Public Debts.
  

China Business News:

• China's banking regulator has ordered lenders to review all loans granted to local governments' financing arms and ensure they can be repaid. Borrowing by some local governments using vehicles set up to finance projects has "reached an extreme" and the governments face huge repayment pressure for the coming years. Some local governments used loans to pay taxes or fund projects different from those banks had agreed to finance. Some loans were invested in property and shares and there have been cases where money was borrowed for projects that had no capital, cash flow or guarantees, according to the report. The regulator has told lenders to complete an analysis of these loans and projects by the end of June, the report said. Loans to industries with overcapacity should be repaid as soon as possible and banks should stop lending to projects that are guaranteed only by local governments, according to the report. China's local governments had more than 8,000 so-called financing platforms with bank borrowings of $732.3 billion, the report said, citing comments by Yin Zhongqing, deputy director of the National People's Congress Finance and Economic Affairs Committee, in January.
  

Commercial Times:

• LCD Prices May Fall From Second Quarter. Liquid-crystal display prices may fall from the second quarter because of speculation China television sales are worse-than-expected, citing David Hsieh, President of Greater China for DisplaySearch, an industry research company.

Economic Daily:

• Mediatek may have cut orders to Taiwan Semiconductor Manufacturing Co. and United Microelectronics Corp. by between 10% and 20%.

Evening Recommendations
Citigroup:

• Reiterated Buy on (ESRX), target $112.

Night Trading

• Asian indices are -1.25% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 112.50 -1.5 basis points.
• S&P 500 futures -.76%
• NASDAQ 100 futures -.74%

Morning Preview

• BNO Breaking Global News of Note
• Google Top Stories
• Bloomberg Breaking News
• Yahoo Most Popular Business Stories
• MarketWatch News Viewer
• Asian Financial News
• European Financial News
• Latin American Financial News
• MarketWatch Pre-Market Commentary
• U.S. Equity Preview
• TradeTheNews Morning Report(9:30 am EST)
• Briefing.com In Play
• SeekingAlpha Market Currents
  
• Briefing.com Bond Ticker
• CNN US AM Market Call
• NASDAQ 100 Pre-Market Indicator/Heat Map
• Pre-Market Stock Quote/Chart
• WSJ International Market Performance
• Commodities Futures
  
• IBD New America
• Economic Preview/Calendar
  
• Earnings Calendar
• Conference Calendar
• Who's Speaking?
• Upgrades/Downgrades
• Politico Headlines
• Rasmussen Reports Polling

Earnings of Note
Company/Estimate

• (FWLT)./65
• (BX)/(.20)
• (MYL)/.30
• (DYN)/-.02
• (IRM)/.24
• (DPS)/.43
• (CRI)/.55
• (KSS)/1.37
• (GPS)/.50
• (OVTI)/.19
• (FGR)/.88
• (CEC)/.25
• (MHK)/.33
• (SPW)/1.32
• (SWY)/.53
• (NEM)/.86
• (CVC)/.35
• (DECK)/4.27
• (WYNN)/.14
• (HGSI)/-.10

Economic Releases
8:30 am EST

• Durable Goods Orders for January are estimated to rise +1.5% versus a +.3% gain in December.
• Durables Ex Transports for January are estimated to rise +1.0% versus a +.9% gain in December.
• Initial Jobless Claims for last week are estimated to fall to 460K versus 473K the prior week.
• Continuing Claims are estimated to rise to 4570K versus 4563K prior.

10:00 am EST

• The House Price Index for December is estimated to rise +.4% versus a +.7% gain in November.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Pianalto speaking, Fed Chairman Bernanke testifying before the Senate Banking Committee, Fed's Bullard speaking, Treasury's $32B 7-Year Note Auction, weekly EIA natural gas inventory report, Morgan Stanley Basic Materials Conference, (SFY) analyst day, (TW) analyst meeting, (IMGN) investment meeting, (JPM) investor day, (Q) analyst meeting, CSFB Paper Conference, Goldman Sachs Tech Conference, Keefe Bruyette Regional Bank Conference, Lazard Medical Device Conference and the UBS Industrial Conference could also impact trading today.

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

Stocks Finish Near Session Highs, Boosted by Bank, Education, Retail and Semi Shares

Evening Review

• BNO Breaking Global News of Note
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• StockCharts Market Performance Summary
• WSJ Data Center
• Sector Performance
• ETF Performance
• Morningstar Style Performance
• Commodity Futures
• S&P 500 Gallery View
• Timely Economic Charts
• Most Recent Guru Picks
• CNN PM Market Call
• After-Hours Stock Commentary
• After-Hours Movers
• After-Hours Stock Quote
• After-Hours Stock Chart

Stocks Higher into Final Hour on Short-Covering, Dovish Bernanke Comments, Less Financial Sector Pessimism

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Technology longs, Financial longs and Retail longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is around average. Investor angst is very high. Today's overall market action is mildly bullish. The VIX is falling -3.04% and is above average at 20.72. The ISE Sentiment Index is below average at 110.0 and the total put/call is slightly above average at .86. Finally, the NYSE Arms has been running around average most of the day, hitting .99 at it intraday peak, and is currently .92. The Euro Financial Sector Credit Default Swap Index is rising +.20% to 92.41 basis points. The North American Investment Grade CDS Index is rising +.87% to 93.74 basis points. The TED Spread is down -1 basis point to 14.0 basis points. The 2-Year Swap Spread is down -19.41% to 22.94 basis points. The Libor-OIS Spread is unch. at 9.0 basis points. The 10-Year TIPS Spread is down -1 basis point to 2.20%. The 3-Month T-Bill is yielding .11%, which is unch. today. Hospital, Homebuilding, Disk Drive, Ag and Oil Service shares are all lower on the day. Market leading stocks are mixed. I am seeing an abnormal number of conflicting moves today in various stocks and sectors. The Western Europe Sovereign CDS Index is rising another +3.2%. Portugal and Greece sovereign cds are both rising around +5.0%, which is also a large negative. The euro continues to trade heavy, giving up most of today's Bernanke-related comment gains. On the positive side, Education, Retail, Bank, Semi and Oil Tanker shares are all rising +1.25%+ today. (XLF) has traded well throughout the day. Given the negative economic data again today out of Europe/US and another rise in key CDS indices, I am very surprised by the market's strength. This resiliency is a big positive. Nikkei futures indicate an +32 open in Japan and DAX futures indicate an up +7 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less financial sector pessimism and diminishing Fed rate hike concerns.

Today's Headlines

Bloomberg:

• New-Home Sales Unexpectedly Fall to Record Low. The median sales price dropped 2.4 percent from January 2009 and the supply of unsold homes increased. The median price of a new home in the U.S. decreased to $203,500 in January, the lowest since December 2003, from $208,600 in the same month last year. The supply of homes at the current sales rate increased to 9.1 months’ worth, the highest since May 2009.
• German Aid to Greece Would Prompt 'Spiral,' CSU Says. Germany must resist any moves to provide financial aid for Greece because any assistance would provoke a “spiral without end,” said a ruling coalition lawmaker who sits on the finance committee in parliament. “We must have the principle that financial aid is legally not possible,” Hans Michelbach a lawmaker for Chancellor Angela Merkel's CSU Bavarian allies, told reporters in Berlin today. The government must “massively” assert that Germany “cannot assume responsibility out of principle,” he said. Otherwise, “Where do you start and where do you end?”
• German Consumers and Companies Put Brake on Recovery. German consumers and companies cut spending in the final quarter of 2009, putting a brake on the economic recovery. Private consumption dropped 1 percent from the third quarter and capital investment fell 0.7 percent, the Federal Statistics Office in Wiesbaden said today.
• Emerging Stocks Drop Most in 3 Days on Turkey Military Tension. Turkey led declines in emerging- market stocks after tensions escalated between the country’s military and its government, while a bigger-than-expected drop in U.S. consumer confidence damped the earnings outlook for exporters in developing economies. Turkey’s ISE National 100 Index fell to the lowest in more than two months, dropping 3.4 percent, after military leaders said the arrest of more than 40 retired officers over an alleged coup plot was a “serious situation,” deepening strains with Prime Minister Recep Tayyip Erdogan. The opposition Nationalist Action Party called for snap parliamentary elections. “Turkish politics have moved center stage and the markets are becoming increasingly nervous,” Matteo Ferrazzi, an economist at UniCredit SpA in Milan, wrote today in a client note. “The news is clearly a negative in terms of market confidence.”
• Germany May Curb 'Dangerous' Swaps Over Greek Crisis. German Chancellor Angela Merkel's government is looking at limiting the use of credit-default swaps, joining France in targeting financial instruments linked to Greece’s debt crisis. “We’re considering ways to tighten up rules for CDSs,” as credit-default swaps are known, Leo Dautzenberg, finance spokesman for Merkel’s Christian Democratic Union, said in Berlin today. “But this has to be internationally agreed.” France is studying CDSs as they become “disconnected” from the real economy in an effort to “draw some lessons from this crisis,” Finance Minister Christine Lagarde said Feb. 17.
• Gold Falls to One-Week Low as Inflation Outlook May Curb Demand. Gold futures declined to a one-week low on speculation that a sluggish economic recovery will curb the metal’s appeal as an inflation hedge. Sales of new homes in the U.S. unexpectedly declined in January to a record low, government data showed today. Consumer confidence in February fell to the lowest level in 10 months, a report showed yesterday. Before today, the Reuters/Jefferies CRB Index of 19 raw materials fell 3.9 percent this year. “The main driver for gold is as an inflation hedge,” said Jesper Dannesboe, a senior commodity strategist at Societe Generale SA in London. “If people are worried about economic growth, then they are less worried about inflation.”
• India Seeks Lowest Potash Price in Four Years. India, the world’s biggest potash importer, may offer the lowest price in four years in annual talks with suppliers after Chinese buyers secured reduced terms, said three industry officials with direct knowledge of the plan.
• April, May Are Cruelest Months for Greek Funding. A Greek bond sale, which borrowing chief Petros Christodoulou said this week is "not on the cards," will need to come soon as debt repayments add to the country's financial burdens in coming months. The nation, which has the biggest budget deficit in Europe, must find more than $22 billion to repay investors in April and May, with maturing bonds split about evenly between those two months. Greece then has a repite until March 2011, when almost 9 billion euros of debt is scheduled for payment. Greece said earlier this month that it would sell 10-year bonds by the end of February or in early March. Christodoulou, who was appointed head of the Public Debt Management Agency on Feb. 18, said this week that he won't comment on bond sales "even one minute" before an official announcement because the country had "lost control of the communication game."
• Silver, the worst-performing precious metal this year, may drop as much as 11% to $14 an ounce, according to technical analysis by Barclays Capital. Prices formed a so-called "head and shoulders top" and then failed to hold above a 27-moth pivot line, which the bank says is a bearish signal.
• Goldman Sachs Closes Copper Bet on Recovery Outlook. Goldman Sachs Group Inc. ended its recommendation to bet on higher copper prices because of concern that economic recovery in developed markets is not “yet on solid footing.” Stockpiles in warehouses monitored by the bourse have more than doubled since July and prices dropped 3.5 percent this year on speculation that mines will expand supply faster than gains in demand. Demand from China, the world’s biggest copper consumer, for global supplies may weaken because prices on the Shanghai Futures Exchange are now close to those in London, discouraging arbitrage trading, the bank said.
• Greece Holds Back Bond Sale in Game of 'Chicken,' Ignis Says. Greece may be playing “a game of chicken” over a planned 10-year bond sale as it negotiates with European Union officials on budget targets, according to Ignis Asset Management. The longer Greece delays the note issue, the more likely it can win concessions on the severity of spending cuts demanded by its neighbors to reduce the region’s largest deficit, said Stuart Thomson, who helps oversee more than $100 billion at Ignis in Glasgow. The Greek debt agency said Feb. 2 the country will probably sell bonds by March. “There’s a game of chicken going on,” said Thomson, who is “underweight” Greek bonds. “If Greece turns up at the next European finance ministers’ meeting and says it’s about to run out of money, it can avoid demands for further budget cuts.”
• Freddie Mac to Resume Treasury Aid as Accounting Rules Change. Freddie Mac, the mortgage-finance company that tapped $50.7 billion in federal aid, said it may resume draws from a taxpayer-funded bailout package this quarter as new accounting rules reduce its net worth. Net worth will drop by about $11.7 billion in the first quarter, requiring the company to go back to the U.S. Treasury Department for more aid, Freddie Mac said in a regulatory filing today as it reported a $6.5 billion net loss for the fourth quarter. The McLean, Virginia-based company’s last request for federal help was for the first quarter of 2009. Capping a “trying and turbulent year” with $7.1 billion in credit losses and foreclosure-related expenses, as well as $5.2 billion in annual dividends owed to the Treasury, Freddie Mac said there can be “no assurances regarding when, or if, we will return to profitability.” Regulators seized the company, along with Fannie Mae, in 2008 as mortgage delinquencies rose. “Starting in the first quarter again, they’re going to start having pretty material draws on their Treasury line, which they haven’t done” in a year, said Bose George, an equity analyst at Keefe Bruyette & Woods in New York. “We’re assuming pretty meaningful increases in delinquencies, and partly that’s driven by the whole negative equity problem.” George is predicting overall delinquency rates to rise to about 18 percent for 2010 from 15 percent last year, which will deepen Freddie Mac’s losses as will rising interest rates.
• Bernanke Says 'Nascent' Recovery Requires Low Rates.
• U.S. Imposes Preliminary Duties on Chinese Steel Pipe.
  

Wall Street Journal:

• Toyota President Apologizes.

The Business Insider:

• Hedge Funds Shorting The Pants Off Of Tech. Goldman's David Kostin highlights how hedge funds, in aggregate, seem to have switched out of Tech and into Industrials during the fourth quarter of 2009 (latest data).
• A Simple Guide To How Algorithms Are Manipulating The Market Right Now.
• Why China's Declining Population Will Take 100 Years To Fix.
  

Naked Capitalism:

• A Banker's Perspective of the Greece Derivatives Debt Dodge.

Chicago Tribune:

• Restructuring of Fannie Mae, Freddie Mac Highly Likely, Says Former Treasury Secretary Henry Paulson. After market settle, those companies should be scaled way back, he tells University of Chicago audience.

Rasmussen:

• 71% Give Congress Poor Rating. Voter unhappiness with Congress has reached the highest level ever recorded by Rasmussen Reports as 71% now say the legislature is doing a poor job. That’s up ten points from the previous high of 61% reached a month ago. Only 10% of voters say Congress is doing a good or excellent job. Nearly half of Democratic voters (48%) now give Congress a poor rating, up 17 points since January. The vast majority of Republicans and voters not affiliated with either party also give Congress poor ratings.

Politico:

• Exclusive: White House Privately Plots 2012 Campaign Run. President Barack Obama’s top advisers are quietly laying the groundwork for the 2012 re-elction campaign, which is likely to be run out of Chicago and managed by White House deputy chief of staff Jim Messina, according to Democrats familiar with the discussions. The planning for now consists entirely of private conversations, with Obama aides at all levels indulging occasionally in closed-door 2012 discussions while focusing ferociously on the midterm elections and health care reform, the Democratic sources said. “The gathering storm is the 2010 elections,” one top official said. But the sources said Obama has given every sign of planning to run again and wants the next campaign to resemble the highly successful 2008 effort.

Reuters:

• Hedge Funds to Invest More in Troubled Companies. Hedge funds will increase their investments in distressed debt and equity this year and expect to make more money doing it, the Reuters HedgeWorld & Dykema 2010 Insolvency Outlook Survey found.
• Russia Says Won't Back "Crippling" Iran Sanctions. Russia will not support "crippling" sanctions against Iran, including any that may be slapped on the Islamic Republic's banking or energy sectors, a senior Russian diplomat said on Wednesday. Israeli Prime Minister Benjamin Netanyahu visited Moscow last week to press the Kremlin to back tougher sanctions against Iran over its suspected nuclear weapons project. This week, Netanyahu called for an immediate embargo on Iran's energy sector. "We are not got going to work on sanctions or measures which could lead to the political or economic or financial isolation of this country," Oleg Rozhkov, deputy director of the security affairs and disarmament department at Russia's Foreign Ministry, told reporters. "What relation to non-proliferation is there in forbidding banking activities with Iran? This is a financial blockade. And oil and gas. These sanctions are aimed only at paralysing the country and paralysing the regime."

Financial Times:

• Show Hedge Funds a Little Love to Keep Them in Britain. Hedge fund managers have been listening to politicians, and they are voting with their feet. Over the past three years, more than 50 London hedge funds have abandoned the UK or – like Brevan Howard and BlueCrest, two of the largest – set up branch offices in low-tax countries so staff can leave. The main reason for quitting the country is obvious: the new 50 per cent top rate of tax. This will attract no sympathy from the rest of the population, facing the prospect of rising taxes and cuts to public services. But tax has always been a reason to leave, as tax exiles from Sir Sean Connery to Lewis Hamilton can testify. Hedge fund managers are more likely than most to be motivated by money, so more are bound to flee. The real danger to London’s position as the hedge fund capital of Europe, though, comes from the feeling in the industry that government and regulators are no longer on its side. It remains unclear whether the trickle of fund managers leaving will turn into a flood. But the danger is serious: not just for the 450 or so remaining managers, and the estimated £5bn they, their staff and their private equity confrères pay in tax (even at the old, lower, rate). If they leave, so will the legions of lawyers, accountants and prime brokers who nurture the industry. Already lawyers have begun to follow their clients to Switzerland.

Bear Radar

Style Underperformer:
Large-Cap Growth (+.82%)

Sector Underperformers:
Disk Drives (-1.47%), Hospitals (-1.41%) and Agriculture (-.81%)

Stocks Falling on Unusual Volume:
HRB, RIG, TSL, STEC, EPIQ, CCOI, GRMN, CSGS, CPTS, PSYS, VRGY, CENX, TTEC, RUSHA, TLCR, MINI, SCHN and CFI

Stocks With Unusual Put Option Activity:
1) SLXP 2) DLTR 3) STEC 4) CADX 5) ADSK

Bull Radar

Style Outperformer:
Small-Cap Growth (+.91%)

Sector Outperformers:
Semis (+2.02%), Banks (+1.94%) and Education (+1.48%)

Stocks Rising on Unusual Volume:
SQNM, TSU, FCS, TLEO, UBS, HBC, PTNR, CENT, SLXP, DLTR, PZZA, ADSK, DWA, RICK, AAWW, NETC, LRCX, GMCR, VPHM, OSIP, SGI, ECLP, HURN, ONXX, BUCY, WABC, ALTR, RRD, WL, MIL, NFP, RCL and FMR

Stocks With Unusual Call Option Activity:
1) CAL 2) SLXP 3) ADSK 4) MBI 5) GRMN