Today's Headlines

Bloomberg:

• Retail Sales Growth Accelerated to 4.2% Last Week. Same-store sales at a selection of U.S. retailers posted last week the biggest jump of this holiday season, rising 4.2 percent as more consumers finished shopping, according to a survey of retailers. Almost 74 percent of shoppers completed gift buying in the week ended Dec. 18, spurring faster sales growth than the previous three weeks. That compared with 56.6 percent a week earlier, according to a chain-store sales index released today by New York-based International Council of Shopping Centers and Goldman Sachs Group Inc. The 4.2 percent gain compared to a year earlier.
• Portugal's Bond Rating May Be Cut by Moody's on Economic Growth Concern. Portugal’s bond rating may be downgraded one or two levels by Moody’s Investors Service because of concerns that budget cuts will worsen the country’s “sluggish” economic growth. “Portugal’s solvency is not in question,” Anthony Thomas, Moody’s London-based lead analyst for Portugal, said in a statement today. “But the likely deterioration in debt affordability over the medium term and ongoing concerns about the economy’s ability to withstand fiscal consolidation and private-sector deleveraging mean its outlook may no longer be consistent with an A1 rating.”
• Bond Returns Worst in Asia as Inflation Hits Two-Year High: China Credit. China’s bonds are Asia’s worst performers for the second time in four years, reflecting concern the central bank will have to be more aggressive in raising interest rates as it seeks to rein in inflation.
• Greece Has Ratings Put on Rating Watch Negative by Fitch. Greece had its ‘BBB-’ long term foreign and local currency Issuer Default Ratings placed on Rating Watch Negative by Fitch Ratings. The move to RWN is pending the outcome of a rating review by Fitch, expected to be completed in January, “which will focus on an assessment of Greece’s fiscal sustainability in the wake of the measures that the authorities have taken this year under the IMF-EU program,” as well as the outlook for the economy and the “political will and capacity” of Greece to carry out the reforms, Fitch said in a statement.
• NYSE Tweaks Trading Prices to Appeal to High-Frequency Firms. The New York Stock Exchange is changing prices for transactions on its market for the first time since May as it seeks to lure more business from high- frequency trading firms, according to an exchange notice. Brokers and traders will pay 23 cents per 100 shares starting in January to execute against bids and offers at the exchange, 2 cents higher than the current charge. Those placing orders that wait for executions at the Big Board, the largest U.S. equities venue, will get a rebate of 15 cents, up from 13 cents.
• Amazon(AMZN) Said to Exceed Kindle Sales Estimates by 60%. Amazon.com Inc. is likely to sell more than 8 million Kindle electronic-book readers this year, at least 60 percent more than analysts have predicted, according to two people who are aware of the company’s sales projections.

Wall Street Journal:

• Banks Look to Profit on Muni-Bond Fears. Some of the world's biggest banks are lining up to profit from worries about the declining finances of U.S. cities and states. For the first time in two years, Switzerland's UBS AG(UBS) has begun making markets in derivatives tied to municipal bonds and other securities. The credit-default swaps obligate swap sellers to compensate buyers if a municipal issuer misses an interest payment or restructures its debt. Separately, five large derivatives dealers—Bank of America Corp.'s Bank of America Merrill Lynch, Inc., CitigroupGoldman Sachs Group Inc., J.P. Morgan Chase & Co., and Morgan Stanley—met last month in New York to discuss standardizing the paperwork for "muni CDSs" in an effort to attract more buyers and sellers. The issue is politically explosive. States and cities are suspicious of CDSs, saying they encourage speculators to bet on, and at times worsen, states' financial distress. California is about to require all 86 of its underwriting banks to disclose what CDSs they have traded on the state's debt, either for customers or for their own accounts. But just as states grow fearful of more muni CDS trading, federal regulators are trying to streamline and bring more transparency to the derivatives market, which may have the effect of expanding the number of muni CDS contracts outstanding. "There is no evidence that CDS trading has provided any benefits to the municipal-bond market, and further we have seen little evidence that it serves much purpose beyond allowing speculators to get rich," said Tom Dresslar, spokesman for the California state treasurer's office. Muni CDSs are still thinly traded because the contracts are highly customized and difficult to unwind. Two-thirds of muni-bond buyers are households and individuals investing through mutual funds, who don't use derivatives. Hedge funds, meanwhile, are muni CDS buyers. "In the spring, when we saw muni CDS costs start rising, we found out it was hedge funds trying to profit from a muni disaster," said Jeffrey Cleveland, senior economist at Los Angeles money manager Payden & Rygel. "They're looking for the next subprime." After 17 consecutive weeks of inflows into U.S. muni-bond funds, including exchange-traded funds, the last five weeks saw $9.1 billion of outflows, according to data from Lipper, a Thomson Reuters unit. Risk premiums on triple-A-rated corporate debt over risk-free government debt have declined by 1.22% over the past month, according to Bank of America Merrill Lynch index data, but risk premiums have climbed 14.3% in the case of triple-A muni debt. Likewise, insurance on a default from California and Illinois, two of the most commonly quoted CDS contracts, has become more expensive. As of Monday, the cost of protection against a California default was 295 basis points, or hundredths of a percentage point, equivalent to $295,000 a year for 10 years of insurance on $10 million of bonds, according to Markit. A year ago, the same protection was $253,000. The cost of protecting that much Illinois debt was around $318,000 a year, compared with $161,000 a year ago.
• Extended Fed Currency Swaps Not Sign of Fresh Concern. The Federal Reserve’s extension of it currency swap arrangements with other major central bank reflects continued unease around the state of European financial markets. That said, the decision to maintain the swap lines with the Bank of Canada, Bank of England, the European Central Bank, the Bank of Japan and Swiss National Bank, should be viewed more as a protective action on the part of American officials. It is not, most economists reckon, a sign that some new problem is about to arise, even as it’s true investors remain worried by news out of Europe.
• Iraqi Parliament Approves Unity Government After Nine Months of Wrangling. Iraq’s parliament approved the government of Prime Minister Nuri al-Maliki, who vowed to pursue national reconciliation, after nine months of post-election wrangling.
• Business Roundtable Names John Engler of NAM as New President. The Business Roundtable, the association of major U.S. companies’ chief executives, today named John Engler, head of the National Association of Manufacturers, as its new president. Engler, who will take over the Washington-based roundtable next month, said his priority would be to spur economic growth. The U.S. unemployment rate was 9.8 percent in November.
• Toshiba Aims to Release Larger Glasses-Free 3-D TV.
• Nuclear Pact Moves Closer to Passage. A new nuclear-arms treaty with Russia appears headed for ratification after three additional Republican senators announced their support Tuesday morning.
• FCC Gives Government Power to Regulate Web Traffic. Federal telecommunications regulators approved new rules Tuesday that would for the first time give the federal government formal authority to regulate Internet traffic, although how much or for how long remained unclear.

CNBC:

• Goldman's(GS) O'Neill Sees 2011 as 'Year of USA'. Improving growth, falling unemployment and a sense that the U.S. is returning to "normal" could fuel a 20 percent stock market gain and make 2011 the "Year of the USA," according to Goldman Sachs economist Jim O'Neill.
• Student Loan Reform Puts Taxpayers on the Hook. The landmark healthcare reform law signed by President Obama last March included a relatively little-noticed provision that overhauled the federal student loan program. Previously, private companies made the loans, which were subsidized and guaranteed by the federal government. Under the reforms, the government now lends the money directly to students. The change means the government fronts the money and instantly bears all the risk.

Business Insider:

• Now That Apple(AAPL) is Passing 1 Million Apple TVs Sold, You Can Bet There Will Be An App Store.
• 16 US Cities Facing Bankruptcy if They Don't Make Deep Cuts in 2011.
• A Deep Look at the Winners and Losers of the 2010 Census.
• The SEC is Conducting a Wide Investigation of Possible Chinese Stock Fraud.
• Huge Photos of the Massive Snow Mess Ruining the Holidays in Europe.
  

New York Post:

• Verigy(VRGY), Advantest(ATE) in Talks. Advantest is in merger talks with rival semiconductor test systems maker Verigy, The Post has learned. The suitor is trying to break up a proposed Verigy merger with LTX-Credence and is engaged in talks, two sources close to the situation said. "They (Verigy) are not shutting out Advantest," one of the sources said. "I wouldn't categorize the talks, though, as going well," the source added.
• UK Released Lockerbie Bomber to Save Oil Deal, Report Says. Fear of "commercial warfare" from Libya led the British government to pressure Scotland to free the convicted Lockerbie bomber last year, according to a report set to be released Tuesday by four US senators. The lengthy report, which calls on the British and Scottish governments to apologize for Abdel Baset al Megrahi's release, concludes that a $900 million oil deal with Libya ultimately paved the way for the Scottish justice system to free Megrahi in August 2009. The report asserts that faulty medical analysis was used to justify his release on "compassionate" grounds, a decision described as a crass component of a complicated trade relationship between the United Kingdom and Libya.

New York Times:

• For Activist Funds, A Long-Term Approach to Investing. Cevian Capital isn’t exactly a hedge fund, though it classifies itself that way in public filings. It takes significant ownership stakes in companies for three to five years, but it isn’t really private equity, either. Cevian, a $3.5 billion firm that is based in Europe with mostly American investors — Carl C. Icahn and the Florida Teachers Pension Fund among them — calls itself an “operational activist fund.” It is among a growing body of investors who eschew the limelight and push for longer-term operational changes at companies.

CBS News:

• Latest Terror Threat in U.S. Aimed to Poison Food. Exclusive: The Dept. of Homeland Security Uncovered a Plot to Attack Hotels and Restaurants Over a Single Weekend.

ABC News:

• Attorney General's Blunt Warning on Terror Attacks. (video) In a rare and wide-ranging interview, the attorney general disclosed chilling, new details about the evolving threat of homegrown terror, and touched on topics ranging from Wikileaks to the prisoners at Guantanamo Bay.

Women's Wear Daily:

• VF(VFC) to Acquire Rock & Republic for $57 Million. VF Corp. has inked a deal to acquire bankrupt premium denim maker Rock & Republic for $57 million, WWD has learned. An official announcement is expected as soon as today.

Miami Herald:

• Employers' Burden Could Surge. In Florida, minimum unemployment taxes paid by employers could double or triple next year. As U.S. employers brace for higher state unemployment insurance taxes next year, business groups are urging Congress to delay interest penalties on $42 billion states have borrowed to continue paying jobless benefits during the recession. Thirty states and the Virgin Islands, including Florida, have exhausted their unemployment insurance trust fund reserves and are using U.S. treasury funds to maintain benefit checks for millions of workers who lost jobs through no fault of their own. So far, only Maryland, New Hampshire, South Dakota and Tennessee have paid back their loans in full, according to the National Conference of State Legislatures. California, with an unemployment rate of 12.4 percent, leads all borrowers with more than $9.1 billion owed. Hard-hit Michigan is a distant second and owes more than $3.8 billion. A provision of the stimulus bill waived interest on the loans for the past two years, but that respite expires on Dec. 31 and interest begins accruing on the outstanding loans in 2011. Unless Congress intercedes, states that don't pay off their loans by Sept. 30, must either pay interest on their average daily loan balance for the first nine months of 2011 -- or give back their federal grant that is used to administer their state programs. The federal government estimates the collective interest on the outstanding loans will total about $2 billion in 2011, while continued state borrowing is expected to stretch the outstanding loan amount to $65 billion by fiscal year 2013.

MobileBeat:

• Survey: 1 in 5 Americans Will Own a Tablet, And a Third Will Use It for Business. More than 1 in 5 Americans will own a tablet by 2014, and 37 percent of them will own them for business use, according to the survey. About half of all tablet owners plan to use the devices for social networking. Enterprise applications continue their charge into the mobile market and are set to take over about a third of all tablets in the next few years, according to a new survey conducted by Harris Interactive and sponsored by Fuze Box.
  

Politico:

• Census Shows Power Shifting Westward.

Reuters:

• U.S. Healthcare Sector Ripe for More Deals in 2011.
• Holdings in Physical Copper ETP Up About 850.5 Tons.
  

Telegraph:

• Citigroup Warns of Fresh Wave of Bank Defaults in Europe. Citigroup has warned of a fresh wave of bank failures and sovereign defaults in Europe unless EU leaders come up with a credible response to the crisis.

IrishTimes.com:

• ECB Wants Changes to Bill Tackling Banking Crisis. THE EUROPEAN Central Bank (ECB) wants the Government to change legislation that gives the Minister for Finance broad powers to intervene in the banking sector. The ECB, one of the three institutions backing the €85 billion bailout agreed with the Government last month, has criticised the Credit Institutions (Stabilisation) Bill, which is designed to give the Government the powers it needs to tackle the two-year-old banking crisis. The ECB has published a legal opinion which states that it fears the law as it stands could usurp its rights over collateral given as security for liquidity it has provided to Irish banks, which owe it €136 billion.