Thursday Watch

Evening Headlines
Bloomberg:

• Greece Parliament Approves Pension, Health Cuts in Race for Second Bailout. Greece’s parliament approved cuts in pensions and health care a day after ratifying a 3.2 billion euro ($4.3 billion) package of spending reductions to move closer to a rescue package to avert financial collapse. Lawmakers voted 213-58 in favor of the law, Acting Parliament Speaker Grigoris Niotis said early today in remarks on state-run Vouli TV. Approval in parliament allows Prime Minister Lucas Papademos to meet with euro-area partners this week having met most of the conditions demanded by the European Union and International Monetary Fund for Greece to get a lifeline of 130 billion euros. Finance ministers from the region will discuss the second Greek rescue program in Brussels today. “This government will do its utmost to implement fully and effectively both the program and the complementary actions,” Papademos said in the Belgian capital yesterday. There is an “urgent need” for the reforms to be twinned with concrete measures, he said.
• Papademos Rejects Call for Special EU Official to Oversee Greece's Economy. Greek Prime MinisterLucas Papademos rejected a call to appoint a special European Union official to oversee Greece’s economy, hours before euro-area finance chiefs are due to discuss the nation’s rescue package. Luxembourg’s Jean-Claude Juncker, who leads the group of finance ministers from the 17-nation region, called yesterday for an EU commissioner to take charge of rebuilding the Greek economy. The priority is the success of the second bailout for the indebted nation, he told the European Parliament in Brussels. “We welcome the support of the European Commission,” Papademos said at a Brussels press briefing with the president of the commission, Jose Barroso. “This is sufficient -- our own work with the coordination of the commission -- to ensure the effective and full implementation of the program.” Barroso said that the Greek crisis is a “priority for the commission; not only for one commissioner.” The “crucial part” of implementing reforms is in the hands of the Greek authorities, he said. “It is an illusion to think that someone outside Greece is going to solve the problems of Greece,” Barroso said. Euro-area finance ministers will discuss the second Greek rescue program at a gathering led by Juncker today in Brussels. That meeting, which will precede a summit of the 27 EU leaders, probably will finalize the 130 billion-euro ($174 billion) package, a European official said yesterday on condition of anonymity. Greece committed to 3.2 billion euros of extra austerity measures and negotiated terms for the biggest debt restructuring in history to secure the new financing. Papademos said the program for Greece “would be implemented by the Greek government and the Greek authorities.”
• MF Global Collapse Prompts Clash Over Collateral. CME Group Inc. (CME) sparred with the Vanguard Group Inc. and other derivatives buyers over whether U.S. regulators should extend collateral-protection rules designed for the swaps market to the futures industry following the collapse of MF Global Holdings Ltd. Speaking today at the opening of a two-day roundtable organized by the U.S. Commodity Futures Trading Commission, derivatives buyers including Tudor Investment Corp. and Fidelity Investments urged the commission to add the new collateral- segregation standards to the futures market. “We know it’s going to cost more. We know it might increase margining. There are a bunch of buy-side participants who are willing to pay more,” said John Torell, Tudor’s chief financial officer. Tim Doar, managing director at CME, the world largest futures exchange, said the agency shouldn’t “rush to judgment” with regulatory changes.
• BOE's Weale Says There May Not Be Case For Further U.K. Stimulus This May. Bank of England policy maker Martin Weale said that U.K. inflation may prove more persistent than expected, making it unlikely the economy will require further stimulus once the current round of bond purchases ends. Higher oil prices and potential wage pressures as the economy recovers “suggest a risk that there may be more persistence to inflation than one might expect at a time of rising unemployment and weak demand,” Weale said in a speech in London late yesterday. “I do not think there is likely to be a further case once our current program is complete” in early May for more bond purchases.
• Goldman(GS), JPMorgan(JPM) Post Identical Swap Exposure to Europe Nations. JPMorgan Chase & Co. and Goldman Sachs Group Inc., two of the largest derivatives dealers, posted identical gross notional amounts of credit-default swaps bought and sold on five troubled European nations. JPMorgan purchased single-name contracts protecting $147.3 billion of debt and sold $142.4 billion related to the so-called GIIPS nations of Greece, Ireland, Italy, Portugal and Spain, the bank said in its annual filing today. Goldman Sachs disclosed the exact same figures in a filing yesterday. In both cases, the numbers were as of Dec. 31.
• Dan Zwirn's Hedge-Fund Fall Is a Horror Story of Doing Right.
• China's Holding of Treasuries Dropped in '11. China, the largest foreign U.S. creditor, reduced its holdings of U.S. government securities last year for the first time since the Treasury Department began compiling the data in 2001. The world’s second-largest economy held $1.15 trillion Treasuries as of Dec. 31, down from $1.16 trillion at the end of 2010, according to Treasury data released yesterday. The U.S. revised the figures to show that China held about $51 billion more than reported earlier last month. The revision shows nation’s holdings peaked at $1.3149 trillion in July.
• Rising Crude Prices Tap Into a Barrel of Nonsense: Caroline Baum. In some circles, including the current administration, higher oil prices are a goal -- except not in an election year and not when prices are high to begin with. Before he became President Barack Obama’s energy secretary, Steven Chu was an advocate of higher oil prices as a means of curbing the public’s consumption of fossil fuels and increasing the viability of alternative energy. In a September 2008 interview, Chu told the Wall Street Journal, “Somehow we have to figure out how to boost the price of gasoline to the levels in Europe.” I suspect Chu will refrain from advocating European-style gas prices -- two or three times U.S. prices, courtesy of a hefty value-added tax -- until he returns to academia.
• Gold Falls as Bernanke Damps Stimulus Bets. Gold futures fell as much as $100 to below $1,700 an ounce on signs that that the Federal Reserve will refrain from offering more monetary stimulus to bolster the U.S. economy. In testimony before Congress today, Fed Chairman Ben S. Bernanke gave no signal that the central bank will take new steps to boost liquidity. The dollar rose as much as 0.8 percent against a basket of major currencies, eroding the appeal of the precious metal as an alternative investment. Yesterday, gold reached $1,792.70, a three-month high, even as coin sales by the U.S. mint slumped in February .
• China's February Home Prices Fall Most in 19 Months on Curbs, SouFun Says. China’s February home prices posted the biggest decline in 19 months as the government pledged to maintain curbs on property, according to SouFun Holdings Ltd. (SFUN), the nation’s biggest real-estate website owner. Home prices dropped 0.3 percent last month from January, according to SouFun, which began compiling the figures in July 2010 when housing values fell 1.3 percent. Residential prices slid in 72 of 100 cities tracked by the company last month, 12 more than in January, it said in an e-mailed statement today.

Wall Street Journal:

• Hushed Up: Secret Panel Holds Fate of Greek CDS. A secretive panel of representatives from 15 large banks, hedge funds and investment houses holds the key to potential multibillion-dollar payouts to investors as a Greek default looms. The group meets Thursday morning to rule whether Greece's debt restructuring should trigger payments on insurance-like contracts known as credit-default swaps, or CDS. The impact of their decision will reverberate beyond the narrow confines of the Greek debt market and could affect investors across other European bond markets and the holders of $2.9 trillion in CDS on government debt around the world.
• Relieved Republicans Seek to Keep Focus on Economy. Mitt Romney's twin victories in Michigan and Arizona Tuesday sent a wave of relief through the ranks of his supporters and anxious members of the party establishment, but still left him facing a multistate battleground to the Republican presidential nomination that includes some difficult territory.

MarketWatch:

• China Manufacturing Survey Rise But Still Weak. Rival Chinese manufacturing surveys released Thursday indicated mild improvement in February, though underling data showed surging input prices and deteriorating new orders, suggesting further weakening in the nation’s economy. The closely watched manufacturing Purchasing Managers’ Index (PMI) for February rose to 51.0 on the 100-point scale, up from 50.5 in January, according to the government-backed China Federation of Logistics & Purchasing. The result, just above the 50 mark that separates expansion from contraction, matched the median of economist forecasts polled by Dow Jones Newswires. However, HSBC’s own China manufacturing PMI sat below the key 50 level, even though it also showed improvement, with a rise to 49.6 from the 48.8 recorded in the prior month.

Zero Hedge:

• Complete Paulson 2011 Letter.
• Art Cashin And Europe's Clashin' Culture.
  

CNBC:

• Fannie Mae Seeks $4.6 Billion in Aid After 4Q Loss. Fannie Mae, the biggest source of money for U.S. home loans, said on Wednesday it would seek $4.6 billion in additional federal aid after reporting a fourth-quarter loss.
• Need to Ease 'Goes Away' as Economy Improves: Fed's Plosser. The case for further quantitative easing "goes away" as the U.S. economy improves, Philadelphia Federal Reserve chief Charles Plosser told CNBC Wednesday.
• Greek Default Payouts May Bring Some Costly Surprises.
  

Washington Post:

• For Greece, A Critical Conference Call Between London And New York. After months of riots, high-level summits and geopolitical drama, a part of Greece’s fate will be settled Thursday in an arena far from the public eye: a transAtlantic videoconference. On the call, 15 bankers and hedge fund investors will convene to determine whether Greece has triggered a “credit event” — in essence, a violation of the bonds it has sold to investors.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows that 25% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty percent (40%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -15 (see trends).

Reuters:

• Syrian Rebels Say They Face 7,000 Government Troops. Syrian rebels defending the besieged Baba Amro district of the city of Homs reported further fighting overnight and said they faced at least 7,000 troops loyal to President Bashar al-Assad.

Financial Times:

• Portuguese Bond Yields Climb On Default Fears. Portugal’s cost of borrowing leapt on Wednesday because of growing worries that the country will follow Greece and head towards a possible default on its debt. Portuguese 10-year bond yields jumped to 13.75 per cent, a rise of 73 basis points, after a report from the troika of the European Union, European Central Bank and the International Monetary Fund unsettled the markets.
• Bundesbank at Odds With ECB Over Loans. The head of Germany’s Bundesbank has launched a powerful attack on Mario Draghi, president of the European Central Bank, in a sign of mounting concern in Europe’s biggest economy at measures being taken to try to contain the eurozone financial crisis. Jens Weidmann’s warning of increasing risk stemming from some ECB policies highlights fears of potential costs for Germany from its role as the eurozone’s biggest creditor nation and may spark fresh doubts about the eurozone’s ability to deal with the long-running banking and sovereign debt crisis.

Telegraph:

• European Central Bank's Cheap Money Has Just Turned Toxic Banks Into Zombie Banks.
• ECB's Mario Draghi Raises The Stakes With Trillion Euro Gamble. Mario Draghi’s latest half-trillion blast of credit averts a funding crunch for crippled banks and crippled EMU states, but raises the ultimate cost to catastrophic levels if the underlying crisis in southern Europe drags on into the middle of the decade.

Sky News:

• Diageo shareholders expect the company to be making contingency plans in the event of a default or withdrawal of any country from the euro, CEO Paul Walsh said in an interview.

Handelsblatt:

• Marc Faber said the European Central Bank's latest loans to European banks will only calm markets short-term, lead to inflation in the long-term and push banks' funding problems into the future, citing the fund manager.
  

21st Century Business Herald:

• The central government has asked the finance ministry and the national tax bureau to as soon as possible give a timetable for expanding a property tax trial nationwide. Shanghai and Chongqing are the only two cities to have started property tax trials so far.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -1.0% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 160.5 -.5 basis point.
  
• Asia Pacific Sovereign CDS Index 129.0 -2.5 basis points.
• FTSE-100 futures -.02%.
  
• S&P 500 futures -.17%.
  
• NASDAQ 100 futures -.02%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (DIN)/.87
• (KR)/.49
• (FL)/.51
• (ESL)/.75
• (KCP)/.37
  

Economic Releases
8:30 am EST

• Personal Income for January is estimated to rise +.4% versus a +.5% gain in December.
• Personal Spending for January is estimated to rise +.4% versus unch. in December.
• PCE Core for January is estimated to rise +.2% versus a +.2% gain in December.
• Initial Jobless Claims are estimated to rise to 355K versus 351K the prior week.
• Continuing Claims are estimated to rise to 3418K versus 3382K prior.
  

10:00 am EST

• Construction Spending for January is estimated to rise +1.0% versus a +1.5% gain in December.
• ISM Manufacturing for February is estimated to rise to 54.5 versus 54.1 in January.
• ISM Prices Paid for February is estimated to rise to 58.0 versus 55.5 in January.
  

Afternoon

• Total Vehicle Sales for February are estimated to fall to 14.0M versus 14.13M in January.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Bernanke speaking, Fed's Pianalto speaking, Fed's Sarah Bloom Raskin speaking, Fed's Lockhart speaking, Fed's Kocherlakota speaking, Fed's Williams speaking, ICSC Chain Store Sales for February, RBC Consumer Outlook Index for March, weekly EIA natural gas inventory report, RBC Restaurant/Leisure Conference, (ANSS) Investor Day and the (LSTR) Mid-Quarter Update could also impact trading today.
  

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

Stocks Reversing Lower into Final Hour on Eurozone Debt Angst, Less Dovish Fed Commentary, Less Tech Sector Optimism, Rising Energy Prices

Broad Market Tone:

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

Equity Investor Angst:

• VIX 17.59 -2.06%
  
• ISE Sentiment Index 148.0 +39.62%
  
• Total Put/Call 1.01 +29.49%
  
• NYSE Arms 1.0 +15.95%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 93.64 -.34%
  
• European Financial Sector CDS Index 167.50 -.37%
  
• Western Europe Sovereign Debt CDS Index 348.04 +.69%
  
• Emerging Market CDS Index 249.85 -.34%
  
• 2-Year Swap Spread 26.0 -2.5 bps
  
• TED Spread 40.75 +1.75 bps
  
• 3-Month EUR/USD Cross-Currency Basis Swap -67.0 -.5 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .08% -2 bps
  
• Yield Curve 169.0 +4 bps
  
• China Import Iron Ore Spot $143.0/Metric Tonne unch.
  
• Citi US Economic Surprise Index 49.90 +2.3 points
  
• 10-Year TIPS Spread 2.28 +1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating +71 open in Japan
• DAX Futures: Indicating +23 open in Germany

Portfolio:

• Slightly Lower: On losses in my Retail, Medical and Tech sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges
  
• Market Exposure: Moved to 50% Net Long

BOTTOM LINE: Today's overall market action is bearish, as the S&P 500 reverses opening gains on Eurozone debt angst, less dovish-than-expected Bernanke commentary, rising energy prices, less tech sector optimism, global growth fears, technical selling and profit-taking. On the positive side, Homebuilding shares are especially strong, rising more than +2.0%. Gold is plunging -4.2%. Major Asian indices rose around +.75% overnight, with the exception of Shanghai which fell -.95%. The Germany sovereign cds is falling -2.6% to 78.33 bps, the UK sovereign cds is falling -1.4% to 68.93 bps, the Italy sovereign cds is falling -1.5% to 380.90 bps and the France sovereign cds is dropping -1.5% to 176.12 bps. On the negative side, Coal, Alt Energy, Steel, Semi, Networking and Construction shares are under meaningful pressure, falling more than -1.5%. Small-caps are relatively weak. Tech shares have also traded poorly throughout the day. Oil is rising +.22%, Lumber is falling -.61% and Copper is falling -1.13%. The 10Y T-Note Yield at 1.98% remains a concern considering the recent stock rally, falling Eurozone debt angst and improvement in US economic data. Despite the recent positive US economic data, the Philly Fed/ADS Real-Time Business Conditions Index has declined -6.04% over the last 6 days and continues to trend lower from its peak in mid-December. As well, the ATA For-Hire Truck Tonnage SA Index fell -4.0% in January. While this is off of a surge in 4Q, it bares monitoring. Lumber is -4.1% since its Dec. 29th high despite the better US economic data, more dovish Fed commentary, improving sentiment towards homebuilders, equity rally and decline in eurozone debt angst. Moreover, the weekly MBA Purchase Applications Index has been around the same level since May 2010. The Baltic Dry Index has plunged over -60.0% from its Oct. 14th high and is now down over -50.0% ytd. The Western Europe Sovereign CDS Index is still fairly close to its Jan. 9th all-time high. Overall, credit gauge improvement has stalled over the last few weeks and these gauges are still at stressed levels. China Iron Ore Spot has plunged -21.0% since Sept. 7th of last year. Shanghai Copper Inventories are up +692.0% ytd and are still very near their recent all-time high. I still think this is more of a red flag for falling demand rather than the intentional hoarding, which many suggest. Alternative Energy shares are getting hit again today(Wilderhill Clean Energy Index -9.2% in 3 weeks). This group continues to trade very poorly considering $100+ oil and the recent broad market rally. I suspect many of these companies will not survive the next global economic downturn. The euro is under pressure on better US economic data, less dovish-than-expected Bernanke commentary, worries over Ireland/Portugal and profit-taking. This is helping to push gold and silver down -4.5% and -6.2%, respectively. Given that hedge funds have recently increased equity market exposure and that gold/gold stocks play a big part in many portfolios, I suspect this could be fueling some of the reversal lower in the broad equity market today. US stocks are extended short-term and still near intermediate-term resistance. As well, the MS Tech Index is flat over the last 9 days, despite the ongoing surge in shares of Apple(AAPL), which is another red flag. For an intermediate-term equity advance from current levels, I would still expect to see further European credit gauge improvement, a further subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices and higher-quality stock market leadership. I expect US stocks to trade modestly lower into the close from current levels on Eurozone debt angst, less dovish-than-expected Bernanke commentary, rising energy prices, less tech sector optimism, global growth fears, technical selling and profit-taking.

Bear Radar

Style Underperformer:

• Small-Cap Growth -.60%

Sector Underperformers:

• 1) Gold & Silver -3.30% 2) Alt Energy -2.0% 3) Construction -1.30%

Stocks Falling on Unusual Volume:

• FSLR, END, YPF, RIC, EXK, CEVA, RIO, LGCY, NRG, BLX, VOCS, SODA, GNTX, SPLS, DWA, TTEC, GIFI, SGMS, PANL, SYKE, SPRD, APEI, SZYM, PAAS, BCPC, RPXC, LAYN, APOL, KYN, DY, SLV, TAL, RPM, GDX, GLD, PRIM, IAU, DDD, JOY, KYN, CDE, SGY, PCS and NOG
  

Stocks With Unusual Put Option Activity:

• 1) ALU 2) CEDC 3) SPLS 4) GNW 5) GGC
  

Stocks With Most Negative News Mentions:

• 1) FSLR 2) CSTR 3) MRO 4) PCS 5) EA
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth -.20%

Sector Outperformers:

• 1) Homebuilders +.89% 2) Tobacco +.28% 3) Gaming +.19%

Stocks Rising on Unusual Volume:

• EXLS, STEC, VRSK, VVUS, CTCM, CRI, QUAD, AH, QUAD and NUS
  

Stocks With Unusual Call Option Activity:

• 1) ALXA 2) ABC 3) SODA 4) CYH 5) SPLS
  

Stocks With Most Positive News Mentions:

• 1) RDC 2) DDS 3) AZO 4) COST 5) NOC
  

Charts:

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

Wednesday Watch

Evening Headlines
Bloomberg:

• Irish Open New Front in European Debt Crisis as Treaty Vote Plays on Euro. Ireland will hold a referendum on ratifying the European fiscal compact after government ministers sought to frame the campaign as a vote on the nation’s determination to keep the euro. Prime Minister Enda Kenny, speaking in the Dublin parliament, said the government will name a date for the ballot in the coming weeks. In contrast to two previous Irish referendums on European policies, a rejection wouldn’t sink the treaty, which requires support from just 12 of the 17 euro countries to take effect. The vote will give the Irish a chance to reaffirm the nation’s commitment to the euro, Kenny said yesterday. In December, Finance Minister Michael Noonan said a ballot on the treaty would effectively be a vote on Ireland’s membership of the currency, as the government sought to avoid a repeat of 2001 and 2008 rejections by voters of European treaties. “This referendum carries huge risks,” said Thomas Costerg, an economist at Standard Chartered Bank in London, said. “The euro area is already very busy with Greece. Opening another front in Ireland is not good in terms of timing. It may increase nervousness about the future of the euro area’s perimeter.”
• Goldman(GS), Wells Fargo(WFC) May Face SEC Mortgage-Securities Claims. Goldman Sachs Group Inc. and Wells Fargo & Co. were warned by federal regulators that they may face civil claims tied to sales of mortgage-backed securities. Goldman Sachs received a so-called Wells notice Feb. 24 from the Securities and Exchange Commission relating to disclosures for a late-2006 offering of $1.3 billion in subprime residential mortgage-backed securities, the firm said today in an annual financial report. Wells Fargo said it also got an SEC notice as the government examines whether it properly described facts and risks in offering documents.
• China's Stocks Snap Eight-Day Gain on Housing Policy Reversal; Vanke Falls. China’s stocks fell, dragging the benchmark index lower for the first time in nine days, on concern the government will retain measures to curb gains in housing prices this year. China Vanke Co. (000002) led a gauge of developers down the most in four weeks after the China Securities Journal said Shanghai scrapped a plan allowing some non-local residents to buy second homes. “The property policy reversal has damped investors’ expectations that an easing of policies would put the economy back on track,” said Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co. “That will weigh on sentiment given we’ve had a good rally this year.”
• Treasury Yield Descending Since January Seen Signaling Slowing U.S. Growth. The $10 trillion market for U.S. Treasuries is signaling that the economic recovery may be poised to weaken even as consumer confidence rises toward pre-recession levels. Yields (USGG10YR) on 10-year Treasury notes, the benchmark for everything from mortgage rates to corporate bonds, fell as low as 1.89 percent yesterday, down from this year’s high of 2.09 percent on Jan. 23, according to data compiled by Bloomberg. Bond investors are focused on Europe’s sovereign-debt crisis, oil prices that exceed $100 a barrel again and home prices that have dropped to the lowest level since 2003. “You have an economy that’s not yet firing on all cylinders,” Ira Jersey, an interest-rate strategist at Credit Suisse Group AG in New York, one of primary dealers that are required to bid at Treasury auctions, said yesterday in a telephone interview.
• JPMorgan's(JPM) Dimon Assails Newspaper Pay Levels in Bank's Defense. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon assailed the pay practices of the newspaper industry today as he sought to deflect criticism of bank pay as viewed through the compensation ratio. “Obviously our business, in investment banking in particular, all of our businesses, we have high capital and high human capital,” Dimon said today at a presentation in New York, where the bank is based. “Newspapers -- I went and got this one day just for fun -- 42 percent payout ratio, which I just think is just damned outrageous.” Lawmakers and journalists have criticized bankers for the size of their salaries and bonuses and regulators have blamed compensation for fueling the financial crisis. Dimon, who runs the biggest and most profitable U.S. bank, previously cited the media industry during a January investor call in which he sought to show why using compensation payout ratios is wrongheaded. JPMorgan paid the 25,999 employees in the investment bank an average of $341,552 last year, or about 34 percent of the unit’s revenue, according to figures posted Jan. 13. “Worse than that, you don’t even make any money!” Dimon said, directing his comments to those in the media covering the company’s investor day and drawing laughter from his audience. “We pay 35 percent. We make a lot of money.” JPMorgan posted $19 billion in profit last year.
• Sokol Gets $1 Million A Year In Retirement Pay, Berkshire(BRK/A) Says. David Sokol, the executive who left Warren Buffett’s Berkshire Hathaway Inc. amid accusations of violating insider-trading rules last year, is receiving $1 million annually from the company in retirement payments. Sokol, who stepped down from Berkshire’s MidAmerican Energy Holdings Co. in April, collected $750,000 last year tied to the supplemental executive retirement plan, or SERP, MidAmerican said yesterday in its annual statement. Sokol was the unit’s chairman. Sokol, 55, broke company regulations by trading in the stock of one of Buffett’s takeover targets, Omaha, Nebraska- based Berkshire said in April. Sokol bought shares of Lubrizol Corp. in January 2011, less than three months before Berkshire announced a $9 billion agreement to acquire the company.

Wall Street Journal:

• Romney Wins in Michigan, Arizona. Mitt Romney won the Michigan and Arizona primaries Tuesday, giving his campaign a much-needed boost and disappointing supporters of Rick Santorum who had hoped their candidate could prevail in Mr. Romney's native state of Michigan.
• Voters Cite Economy as Top Issue. For all the attention paid to social issues in the run-up to two state primaries Tuesday night, voters in Michigan and Arizona identified the economy as their overriding concern—a preference that turned out to benefit Republican presidential candidate Mitt Romney, who won both contests.
• Wells Fargo(WFC) Will Refinance 20,000 Borrowers Thanks To Settlement. Wells Fargo, the biggest mortgage servicer in the country, says the settlement that mortgage servicers and federal and state regulators reached will cost the bank about $720 million in expected income from refinancings.
• Greece Feels Collateral Damage From Bank. The European Central Bank said it would no longer accept Greece's bonds as collateral for loans after the country was downgraded to a default rating, but added that the move was a temporary one that could be reversed once the new bailout package goes into effect. Until then, the ECB said it would be up to national central banks to decide whether to accept the bonds as collateral for their own emergency lending facilities. Greek banks, which would collapse without the support, would still be able to access loans directly from the Greek central bank, albeit at higher interest rates.
• Banks Rev Up Lending. The lending expansion—detailed in the industry's latest report card from a top regulator—is good news for the U.S. economy at a time when the unemployment rate is 8.3% and investors remain anxious about the prospect of an economic downturn or market shock spurred by Europe's debt crisis.
• New York Fed Spends $207.5 Million To Buy Additional Office Space. The Federal Reserve Bank of New York said Tuesday it had decided to buy a building it has been leasing for additional office space.
• Geithner and the 'Privilege' of Being American by Lawrence B. Lindsey. The Founders argued that life, liberty, and the pursuit of happiness were rights that preceded government—not things to be granted by it.

Business Insider:

• Ray Dalio Is The NEW King Of Hedge Funds. Not only does Bridgewater Associates' Ray Dalio run the world's largest hedge fund, but he just took George Soros' title as the "world's most successful hedge fund manager," reports the Financial Times. The fund's rank jumped from the No. 6 spot to No. 1 according to LCH Investments. LCH ranks hedge funds based on their net gains since their founding.
  

Zero Hedge:

• Average February Gas Price At All Time High; Follows Record January Gasoline Costs. (graph)
• Another Unintended Consequence: $80 Billion 'Gas Price' Tax on Consumption. Real-time income tax withholdings suggest real wage and salary growth was barely positive in January and February. If fuel prices hold steady or rise further, we expect real wage and salary growth to turn negative.

CNBC:

• Next Big Financial Crisis Will Be Made in China. The next big global financial crisis will emanate from China. That is not a firm prediction. But few countries have avoided crises after financial liberalization and global integration. Think of the U.S. in the 1930s, Japan and Sweden in the early 1990s, Mexico and South Korea in the later 1990s and the U.S., UK and much of the eurozone now. Financial crises afflict every kind of country. As Carmen Reinhart of the Peterson Institute for International Economics and Kenneth Rogoff of Harvard have remarked, they are “an equal opportunity menace”. Would China be different?
• Is Warren Buffett's Berkshire Hathaway(BRK/A) Losing Its Edge?
• Could Take 5 Years to Get 6% Unemployment: Fed's Pianalto. The U.S. economic recovery is "frustratingly slow" and it could take four to five years to ratchet the unemployment rate down to about 6 percent, from more than 8 percent now, a top Federal Reserve official said on Tuesday. The recovery is held back by the housing market and Europe's debt crisis among other headwinds, but monetary policy is now appropriately positioned to eventually achieve this "maximum employment" level, said Cleveland Fed President Sandra Pianalto.

NY Times:

• Europe Delays Debt Talks After Signs of Uncertain Support. Domestic politics in euro zone countries emerged again on Tuesday as a serious obstacle to resolving the European debt crisis, contributing to a decision by officials to postpone a crucial meeting they had planned for Friday. The setbacks illustrated again how hard it has been to reconcile impatient financial markets with democratic processes.

Forbes:

• White House Quietly Increases Budget for Obamacare's Exchange Subsidies by $111 Billion. I’ve written extensively about how the most fiscally dangerous aspect of Obamacare is its creation of a new entitlement for subsidized private insurance, through the law’s state-based exchanges. If employers dump many of their workers onto the exchanges, as numerous independent analyses suggest is likely, taxpayers may need to spend as much as $200 billion a year extra on these exchange subsidies. It turns out that the Obama Administration agrees that initial spending estimates are too low. The White House’s fiscal year 2013 budget adds $111 billion in exchange spending between 2014 and 2021, with even more spending to come in future years.

CNN:

• Small Firms Prep For Rise In Gas Prices. Businesses that rely on fuel to get their products directly to customers are bracing for a sharp rise in gas prices. "We're terrified," Fain-Rossen said. "We don't want to let anyone go, but we have a family to support. We're actually wondering if we should raise prices now in anticipation of prices going up so that we don't get hit later unexpectedly."
• Feds Level Charges In Largest Medicare Fraud. Dr. Jacques Roy, a Dallas area physician, allegedly led a scheme that bilked Medicare for nearly $375 million over five years, in the largest healthcare fraud committed in the United States, federal authorities announced Tuesday. Roy, 54, his office manager, and five owners of home health agencies, were arrested and indicted on charges related to their alleged participation in the scheme that involved fraudulent claims for home health services.

Reuters:

• Exclusive: Justice Department Conducting Criminal Libor Probe. The Justice Department is conducting a criminal probe into whether the world's biggest banks manipulated a global benchmark rate, according to a person familiar with the situation. While the Justice Department's inquiry into how the London interbank offered rate, or Libor, is set had been known, the criminal aspect of the probe was not. A criminal inquiry underscores the serious nature of a worldwide investigation that includes regulators and law-enforcement agencies in the United States, Japan, Canada and the UK.
• China Higher Court Begins Hearing Apple(AAPL) iPad Appeal. A long-running legal fight between Apple Inc and a debt-laden Chinese firm over the iPad trademark moved to a higher court on Wednesday, in a potentially decisive hearing that will set a precedent for the rest of mainland China.
• BOJ's Kamezaki: Europe Debt Woes Hold Lessons For Japan. Japan needs to learn from Europe and act steadily to restore its fiscal health to avoid a sudden spike in bond yields, a central bank policy maker said on Wednesday. "The lesson from Europe's debt problems is that once trust in a country's finances declines, government bonds may not be considered a safe asset," Bank of Japan board member Hidetoshi Kamezaki said in a speech to business leaders in Fukuoka, in southern Japan. "It would be inappropriate to assume that just because Japanese government bonds have been stably absorbed in the market, there is no need to worry about the future."
• First Solar(FSLR) Hit by Steep Loss, Shares Slip. U.S. solar maker First Solar Inc (FSLR.O) posted a quarterly loss on Tuesday, hit by charges to cut production costs and replace faulty panels, and it trimmed its forecast for 2012 sales, sending its shares 8 percent lower.

Financial Times:

• Insider Trading Probe Broadens to Pharma Stocks. The US investigation into insider dealing on Wall Street has broadened to include trading of biotechnology and pharmaceutical stocks, according to a person familiar with the matter. The Federal Bureau of Investigation and the US attorney’s office in Manhattan are honing in on trades by hedge funds in biotech and pharmaceutical stocks around important drug approval announcements and corporate takeovers, this person said.

Telegraph:

• Irish EU Treaty Vote Threatens Chaos. Ireland has shocked Europe with plans for a referendum on the EU's fiscal treaty, a move that risks an unprecedented fragmentation of the eurozone and a major clash with Germany. Premier Enda Kenny said Dublin was acting on legal advice from Ireland's attorney-general that "on balance" the fiscal compact requires a vote under the country's constitution. "It gives the Irish people the opportunity to reaffirm Ireland's commitment to membership of the euro," he told ashen-faced members of the Dail. All three major parties back the treaty but analysts say there is a high risk of rejection by angry voters in the current fractious mood.
• Ireland Is Getting A Choice - Which Is More Than Other Eurozone States. Democracy continues to interfere with the European Union's best laid plans.

Bild:

• Josef Ackermann, chief executive officer of Deutsche Bank(DB), called for the additional transfer of national sovereign rights to the European level from EU member states, citing an interview. Ceding more power to Europe is a gain for member countries because without a more strongly integrated Europe, "there will be, even for Germany no successful future, not only economically, but politically and culturally as well," the CEO said. The EU needs to be empowered with automatic hard sanctions as well as strict supranational oversight, he said.

Economic Information Daily:

• China's highway construction debt-asset ratio is more than 70%, higher than high speed rail construction's ratio of 58%, citing a report by Beijing Jiaotong University. The National Development and Reform Commission requested the report from the university. Funds for public road construction takes up a "relatively large" proportion of financing from local government financing vehicles and poses a "relatively large" risk to banks, the report cites Guo Wenlong, a NDRC researcher as saying. Fees from highways in China's central, western regions aren't enough to cover interest payments on loans used to fund the projects, the report cites Guo as saying.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.25% to +1.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 161.0 -3.0 basis points.
  
• Asia Pacific Sovereign CDS Index 131.50 -2.5 basis points.
• FTSE-100 futures +.34%.
  
• S&P 500 futures +.12%.
  
• NASDAQ 100 futures +.10%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (SPLS)/.41
• (LIZ)/.13
• (CRI)/.44
• (JOY)/1.36
• (COST)/.87
• (ITT)/.35
• (EIX)/.46
• (MTZ)/.14
• (FNSR)/.22
• (PETM)/.90
• (PEGA)/.05
• (MDR)/.19
• (BID)/1.25
• (TIE)/.15

Economic Releases
8:30 am EST

• 4Q GDP is estimated to rise +2.8% versus a prior estimate of a +2.8% gain.
• 4Q Personal Consumption is estimated to rise +2.0% versus a prior estimate of a +2.0% gain.
• 4Q GDP Price Index is estimated to rise +.4% versus a prior estimated of a +.4% gain.
• 4Q Core PCE is estimated to rise +1.1% versus a prior estimate of a +1.1% gain.
  

9:45 am EST

• Chicago Purchasing Manager for February is estimated to rise to 61.0 versus a reading of 60.2 in January.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,100,000 barrels versus a +1,633,000 barrel gain the prior week. Distillate supplies are estimated to fall by -750,000 barrels versus a -208,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -425,000 barrels versus a -649,000 barrel decline the prior week . Finally, Refinery Utilization is estimated to rise by +.5% versus a +1.5% gain the prior week.
  

2:00 pm EST

• Fed's Beige Book
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Bernanke speaking, Fed's Plosser speaking, Fed's Fisher speaking, ECB's LTRO Program Results, NAPM-Milwaukee for February, weekly MBA mortgage applications report, China Manufacturing PMI, Lazard Medical Tech Conference, Robert Baird Business Solutions Conference, KeyBanc Consumer Conference, Keefe Bruyette & Woods Bank Conference, BofA Merrill Ag Conference, (FE) Analyst Meeting and the (CMS) Investor Meeting could also impact trading today.
  

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

Stocks Rising into Final Hour on Lower Energy Prices, Tech Sector Optimism, Less Eurozone Debt Angst, Short-Covering

Broad Market Tone:

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

Equity Investor Angst:

• VIX 18.22 +.16%
  
• ISE Sentiment Index 124.0 +2.48%
  
• Total Put/Call .80 -10.11%
  
• NYSE Arms .83 +2.88%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 93.96 -1.77%
  
• European Financial Sector CDS Index 168.61 -5.48%
  
• Western Europe Sovereign Debt CDS Index 345.56 -1.32%
  
• Emerging Market CDS Index 249.96 -.94%
  
• 2-Year Swap Spread 28.50 -2.0 bps
  
• TED Spread 39.0 +.25 bp
  
• 3-Month EUR/USD Cross-Currency Basis Swap -66.50 +1.5 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .10% unch.
  
• Yield Curve 165.0 +2 bps
  
• China Import Iron Ore Spot $143.0/Metric Tonne +1.78%
• Citi US Economic Surprise Index 47.60 -.2 point
  
• 10-Year TIPS Spread 2.27 +1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating +73 open in Japan
• DAX Futures: Indicating -11 open in Germany

Portfolio:

• Higher: On gains in my Biotech, Retail and Tech sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 trades near session highs despite Eurozone debt angst, high energy prices, global growth fears and recent equity gains. On the positive side, Steel, Internet, Semi, Retail and Airline shares are especially strong, rising more than +1.0%. Oil is falling -.87% and Copper is rising +.66%. Tech shares are outperforming. Asian shares were about +1.0% higher overnight, led by a +1.85%
gain in Hong Kong shares. The Germany sovereign cds is falling -2.3% to 80.17 bps, the France sovereign cds is down -3.0% to 178.67 bps and the Russia sovereign cds is down -2.9% to 188.0 bps. On the negative side, Oil Tanker, Networking, Construction, Homebuilding, REIT, Education and Road & Rail shares are under meaningful pressure, falling more than -.75%. The Transports are underperforming despite the pullback in oil today. The UBS-Bloomberg Ag Spot Index is rising +.83% and Gold is gaining +1.11%. Weekly retail sales rose +2.9% this week versus a +2.7% gain the prior week. This remains a subpar rate for a recovery. Lumber is -2.3% since its Dec. 29th high despite the better US economic data, more dovish Fed commentary, improving sentiment towards homebuilders, equity rally and decline in eurozone debt angst. Moreover, the weekly MBA Purchase Applications Index has been around the same level since May 2010. The Baltic Dry Index has plunged over -60.0% from its Oct. 14th high and is now down over -50.0% ytd. The 10Y T-Note Yield at 1.94%, remains a concern considering the recent stock rally, falling Eurozone debt angst and improvement in US economic data. Despite the recent positive US economic data, the Philly Fed/ADS Real-Time Business Conditions Index has declined -6.04% over the last 5 days and continues to trend lower from its peak in mid-December. The Western Europe Sovereign CDS Index is still fairly close to its Jan. 9th all-time high. Overall, credit gauge improvement has stalled over the last few weeks and these gauges are still at stressed levels. China Iron Ore Spot has plunged -21.0% since Sept. 7th of last year. Shanghai Copper Inventories are up +690.0% ytd and are still very near their recent all-time high. I still think this is more of a red flag for falling demand rather than the intentional hoarding, which many suggest. US stocks remain extremely resilient to all negative news. However, the Transports remain a concern. Breadth is poor today and there are an unusual number of stocks falling meaningfully on volume for an up day, which is another short-term red flag. US stocks are still technically extended short-term and are still right near intermediate-term resistance, which likely means more sideways action near-term. For an intermediate-term equity advance from current levels, I would still expect to see further European credit gauge improvement, a further subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices and higher-quality stock market leadership. I expect US stocks to trade mixed-to-higher into the close from current levels on lower energy prices, more tech sector optimism, short-covering, less Eurozone debt angst and investor performance angst.