Bloomberg:
- Bondholders in Crosshairs as Merkel Travels to Cyprus. Bondholders are in the crosshairs as conservative European leaders gather in Cyprus amid talks over a bailout that may be as big as the nation’s entire economy. German Chancellor Angela Merkel said this week Cyprus won’t get “special” treatment as it negotiates the rescue it requested in June. She, Ireland’s Enda Kenny and other leaders of the European People’s Party descend on the city of Limassol to discuss the next European Union budget as they back Nicos Anastasiades, head of the DISY opposition, as successor to Communist President Demetris Christofias in February elections. Aid for the third-smallest euro nation will test policy makers’ commitments to hold the 17-member currency bloc together and avoid more sovereign-debt writedowns after they called Greece’s restructuring a one-off. The workarounds may put most of the burden on bank bondholders and possibly depositors.
- Cyprus Cut Three Steps to Caa3 by Moody’s on Bank-Bailout Costs. Cyprus’s credit rating was cut three steps to Caa3 by Moody’s Investors Service, citing the government’s projected increased debt load from the need to recapitalize its banking system. Nonperforming loans at the nation’s three largest banks rose to 26 percent in September from 19 percent in March, New York-based Moody’s said today in a statement. Recapitalizing those institutions may cost of about 10 billion euros ($13.3 billion), Moody’s said. “As a result of the increased debt burden, we think there’s a higher likelihood that the Cypriot government may default outright or press for a distressed exchange,” Sarah Carlson, a senior credit officer at Moody’s in London, said in a telephone interview. “It’s important to note that our base-case scenario does not assume that this will happen in 2013.” Cyprus’s debt to gross-domestic-product ratio may rise to 150 percent this year, Moody’s said.
- Berlusconi Denies Responsibility for Italy Crisis in TV Showdown. Former Italian Prime Minister Silvio Berlusconi, the country’s longest-serving elected head of government, refused to accept responsibility for the deepening recession in a televised debate last night with a long-time critic.
- China’s Inflation Accelerates as Chill Boosts Food Prices. China’s inflation accelerated more than forecast to a seven-month high as the nation’s coldest winter in 28 years pushed up vegetable prices, a pickup that may limit room for easing to support an economic recovery. The consumer price index rose 2.5 percent in December from a year earlier, the National Bureau of Statistics said today in Beijing. That compares with the 2.3 percent median estimate in a Bloomberg News survey of 42 economists and a 2 percent gain in November.
- China Data Suspected Says 75-Year-Old Theory: Cutting Research. A mathematical tool devised by an American physicist in the 1930s underscores doubts about the quality and reliability of Chinese economic data, according to research by Australia & New Zealand Banking Group Ltd. (ANZ) The results are based on “Benford’s Law,” which holds that in any series of numbers, certain patterns will be found only if the statistics are naturally generated. The rule, created by former General Electric Co. (GE) engineer Frank Benford, suggests patterns for the first and second digits in a numeric series and can be used to detect phony data, Li-Gang Liu, ANZ’s chief economist for Greater China, and colleague Louis Lam said in a Jan. 8 report. Benford’s work has already been adapted to show Greece should have been suspected of manipulating its data before the European debt crisis and that now-jailed financier Bernard Madoff was overstating investment returns.
- China’s Stocks Fall After Inflation Data, Paring Weekly Gains. Chinese stocks fall, paring a sixth week of gains for the benchmark index, as a government report showing inflation accelerating more than forecast overshadowed optimism an economic recovery will bolster earnings. Citic Securities Co., the nation’s biggest-listed brokerage, and Soochow Securities Co. dropped more than 1 percent after the People’s Daily reported that regulators warned the two brokerages for failing to make timely disclosures.
- Gross Raises Holdings of Treasuries to Highest Level Since July. Bill Gross raised the percentage of Treasuries held in his flagship fund to 26 percent in December, the highest level since July, while warning of the inflationary risks of stimulus programs such as quantitative easing. The world’s biggest manager of bond funds increased the proportion of U.S. government and Treasury debt in Pacific Investment Management Co.’s $285 billion Total Return Fund (PTTRX) from 23 percent of assets in November, according to a report on the company’s website. Mortgages remained his largest holding, though the percentage was reduced from 44 percent to 42 percent, the least since October 2011.
- AmEx(AXP) Cuts Jobs as Digital Age Transforms Travel Business. American Express Co. will eliminate 5,400 jobs this year, mostly in travel services, as consumers and businesses rely more on digital technology for bookings. The lender posted a 47 percent drop in fourth-quarter profit and recorded after-tax charges totaling $594 million, including costs tied to severance and changes in how the firm estimates future redemptions of credit-card rewards, New York- based AmEx said yesterday in a statement. “Travel has gone through a great deal of change,” Chief Executive Officer Kenneth I. Chenault said in a conference call with analysts. The economics of corporate travel has “changed more dramatically over the years than any part of the business.”
- Pentagon Authorizes Steps Such as Freezing Civilian Hires. The Pentagon has authorized senior managers to freeze civilian hiring, curtail travel and training, dismiss temporary workers, review contracts and cancel some weapons maintenance because of uncertainty over the budget. “We have no idea what the hell’s going to happen,” Defense Secretary Leon Panetta said today at the Pentagon, in explaining the need to begin cost-cutting measures. “All told, this uncertainty, if left unresolved by the Congress, will seriously harm our military readiness.”
- Wads of Cash Squeeze Bank Margins. Inability to Find Credit-Worthy Borrowers Is Squeezing Lenders’ Margins. U.S. banks are struggling with a problem most people would love to have: too much cash. But the flood of deposits into U.S. financial firms, at a time when many lenders are having difficulty making new loans, spells trouble for the industry as banks prepare to post fourth-quarter numbers. Deposits reached a record $10.6 trillion at the end of 2012, according to Market Rates Insight Inc., a San Anselmo, Calif., firm that tracks deposit data. Meanwhile, the share of each deposit dollar that banks lend out hit a postfinancial-crisis low in the third quarter, according to data tracker SNL Financial of Charlottesville, Va. Extra cash can help cushion banks in an economic downturn, but it also helps to explain why banks’ net interest margin—the sum they collect by pocketing the difference between the interest they pay to depositors and the rate they charge borrowers—has fallen sharply.
- Rivkin and Casey: The Myth of Government Default. Three false arguments, pushed hard by the Obama administration and accepted on faith by the media and much of the political establishment, must be laid to rest if the American people are to understand the issues at stake in the federal "debt ceiling" debate. The first is that Congress's failure to raise the debt ceiling—the amount of money the federal government is authorized to borrow at any given time—will cause a default on the national debt. The second is that federal entitlement programs are constitutionally protected from spending cuts. The third is that the president can raise the debt ceiling on his own authority.
- PC sales fall 6.4% in Q4, worse than expected. Unit sales of PCs slid 6.4% in the fourth quarter compared to the same period last year, according to data released by IDC late Thursday. This was worse than the 4.4% that was predicted earlier by the market research firm -- and notable in that the quarter included the retail launch of the Windows 8 operating system from Microsoft Corp. Calling the PC market "sluggish," IDC said in its report that PC sales "continued to take a back seat to competing devices and sustained economic woes." In terms of global shipments, Hewlett-Packard HPQ retained the number one slot with 16.7% market share for the quarter, followed by Lenovo at 15.7% and Dell DELL at 10.6%.
- Videogame retail sales fall 26% in December. Sales of videogame software at U.S. retailers plunged by 26% in the month of December compared to the same period last year, according to data from NPD Group released late Thursday. Hardware sales slid by 22%, despite the presence of the new Wii U console from Nintendo.
- Japan Approves $117 Billion Stimulus as PM Abe Aims to Boost Economy. Japan's cabinet approved on Friday an economic stimulus package in the biggest spending boost since the financial crisis as Prime Minister Shinzo Abe pursues an ambitious agenda to spur growth and end nagging deflation.
- Goldman(GS) On The Debt Ceiling: "It's Different This Time".
- A Record $220 Billion "Deposit" Injection To Kick Start To The 2013 Market. (graph)
- Jim Grant Exposes "The Bureau Of Money Materialization". (video)
- Here's The Letter Being Sent Around Capitol Hill About Why Congress Needs To Act To Stop The Trillion Dollar Coin.
- Pakistan Sees Deadliest Day In Years as 115 Killed In Two Attacks.
- NRA Blasts White House And Biden's 'Attack' On Second Amendment: 'They Were Checking A Box'.
- Bobby Jindal Is Proposing The Elimination Of All Income And Corporate Taxes In Louisiana.
- ANALYST: It's Only Going To Get Worse For Microsoft(MSFT) And Intel(INTC) In 2013.
Washington Post:
CNN:- White House considers funding for police in schools after Newtown. The Obama administration is considering a $50 million plan to fund hundreds of police officers in public schools, a leading Democratic senator said, part of a broad gun violence agenda that is likely to include a ban on high-capacity ammunition clips and universal background checks. The school safety initiative would make federal dollars available to schools that want to hire police officers and install surveillance equipment, although it is not nearly as far-ranging as the National Rifle Association’s proposal for armed guards in every U.S. school.
- Jack Lew had major role at Citigroup when it nearly imploded.
Treasury secretary nominee Jack Lew has spent most of his career in
government, but during the financial crisis, he was embedded inside one
of the country’s biggest banks as it nearly imploded. From 2006 to
2008, he worked at Citigroup in two major roles, a notable line in his
résumé given that as Treasury secretary, he would be charged with
implementing new rules regulating Wall Street.
- Consumer groups criticize new mortgage rules. New rules from the Consumer Financial Protection Bureau aim to make mortgages safer for borrowers, but consumer groups argue that the rules offer more protection for lenders than benefits for borrowers.
- Middle class tax breaks on the line. Watch out, middle class Americans. President Obama wants to tie spending cuts to tax revenue hikes in the debt ceiling talks, but that could mean trouble for the middle class taxpayers he has pledged to protect. "They'll have to go down to where the real money is, which is the middle class," said Brian Gardner, Washington policy analyst with Keefe, Bruyette & Woods, an investment bank. "Politically, that would be very tough."
- Michigan governor wants review team to assess Detroit cash flow. Whether or not the state of Michigan takes over Detroit's finances could depend on recent action by the city council to approve contracts tied to city's restructuring and oust the corporation's counsel.
- U.S. Fed hawks worry about threat of inflation. Two top Federal Reserve policymakers expressed discomfort on Thursday with the U.S. central bank's easy monetary policy, in comments suggesting Fed Chairman Ben Bernanke may face more dissent this year.
- U.S. stock mutual funds gain $7.5 bln, most since 2001 -Lipper.
- U.S. officials to launch review of Boeing's Dreamliner - source. U.S. transportation officials will hold a press conference on Friday to discuss issues related to recent electrical problems on Boeing Co's new 787 Dreamliner, according to a person familiar with the matter. The source, who declined to be identified because the information is not public, declined to provide further details. The U.S. Federal Aviation Administration will announce a review into the jet's power system at the Friday press conference, according to Bloomberg News.
- Japan November current account swings into hefty deficit. Japan's current account swung to a much bigger than expected deficit in November after the nation's trade gap hit a 10-month high, adding to a string of poor data and firming up the case for more stimulus to help the stuttering economy. The 222.4 billion yen ($2.52 billion) deficit reported by the Finance Ministry on Friday marked the first shortfall in 10 months and far exceeded economists' median forecast of 3.5 billion gap. "The argument that Japan can rely on a current account surplus and savings in the household sector to fund its public debt is starting to weaken."
- New Rules May Make Mortgages Harder to Get. The government is establishing new rules for mortgages that will make it harder for some borrowers to qualify but that are designed to prevent the kind of risky lending that nearly caused the housing market to collapse during the financial crisis.
- None of note
- Asian equity indices are -.25% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 103.0 -2.0 basis points.
- Asia Pacific Sovereign CDS Index 83.0 +2.0 basis points.
- FTSE-100 futures +.26%.
- S&P 500 futures unch.
- NASDAQ 100 futures +.03%.
Earnings of Note
Company/Estimate
- (WFC)/.89
8:30 am EST
- The Import Price Index for December is estimated to rise +.1% versus a -.9% decline in November.
- The Trade Deficit for November is estimated at -$41.3B versus -$42.2B in October.
- The Monthly Budget Deficit for December is estimated at -$1.0B versus -$86.0B in November.
- None of note
- The Fed's Plosser speaking, USDA crop report, UK GDP report, (BBY) sales results and the Goldman Sachs Energy Conference could also impact trading today.
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