Today's Headlines

Bloomberg:

• U.S. Manufacturing Expands at Fastest Pace in 7 Months. Manufacturing in the U.S. expanded in December at the fastest pace in seven months, reinforcing signs the expansion is gaining momentum. The Institute for Supply Management’s index climbed to 57 last month from 56.6 in November, the Tempe, Arizona-based group said today. “The factory sector is growing at a brisk pace, and it’s getting fueled by both U.S. demand and growth in exports,” said Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado, who correctly forecast the ISM figure. “The economic recovery will get help from manufacturing.” Former Federal Reserve Governor Frederic Mishkin today said that while the central bank will complete its $600 billion bond- purchase program to help fuel the economy, a third round of so- called quantitative easing is unlikely. In the U.S., factories reported faster rates of orders and production. The ISM’s bookings measure rose in December to a seven-month high. “Manufacturers are carrying a good bit of momentum into January,” Norbert Ore, chairman of the ISM factory survey, said today on a conference call with reporters. There is “good balance between new orders and production,” and “there’s still some room” for inventory replenishment, he said. Further gains in manufacturing may come from a pickup in consumer spending, which accounts for about 70 percent of the U.S. economy. Retailers’ 2010 holiday sales jumped 5.5 percent for the best performance since 2005, according to MasterCard Advisors’ SpendingPulse, which measures sales by all payment forms. The gain was 4.1 percent a year earlier. The numbers include Internet sales and exclude automobile purchases.
• Credit Swaps Fall by Most in a Month After Manufacturing Data. The cost of protecting corporate bonds from default in the U.S. fell by the most in a month after a report showed manufacturing is improving. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, decreased 2.3 basis points to a mid-price of 82.8 basis points as of 10:59 a.m. in New York, according to index administrator Markit Group Ltd.
• Australia's 'Biblical' Floods to Worsen as Waters Cut Off Queensland City. Flooding is set to worsen in the Australian state of Queensland in the next 48 hours, cutting off tens of thousands of people as the military is mobilized and cabinet recalled.
• Wheat Rises to Five-Month High as Australia Flood, U.S. Cold Threaten Crop. Wheat futures rose to the highest in almost five months as floods may hamper grain shipments in Australia and cold temperatures threatened U.S. crops. In the Australian state of Queensland, floods spread across an area the size of France and Germany, swamping roads. In the southern U.S. Great Plains, “intense cold” forecast in the next 11 to 15 days “poses a 50 percent risk of damage” for winter crops, according to Commodity Weather Group. Parts of Kansas and Oklahoma had less than half of normal rainfall in the past 30 days, according to the National Weather Service.
• Technology Takeovers May Accelerate in 2011 as IBM(IBM), HP(HPQ) Push Into the Cloud. Technology companies that fueled more than $100 billion in acquisitions last year are likely to spend more in 2011 in a race to harness surging demand for cloud computing and security services. Intel Corp., Hewlett-Packard Co. and International Business Machines Corp. led purchases of more than 2,700 companies and still spent only a fraction of the cash piles they accumulated during the recession. The dollar amount of announced tech deals gained 12 percent, lagging behind a 26 percent jump in worldwide mergers, according to data compiled by Bloomberg. “I’m bullish” on 2011, said Larry Sonsini, chairman and co-founder of Wilson, Sonsini, Goodrich & Rosati, the Palo Alto, California-based law firm that worked with security-software maker McAfee Inc. on its $7.7 billion agreed sale to Intel. “When I look at enterprise clients, I see they are poised to invest in growth on a global basis.” Buyers aim to capture the $3.4 trillion in information- technology spending projected by researcher Gartner Inc. for 2011, a 3.5 percent increase from 2010.
• Russell 2000 Doubling S&P 500 Return Signals Economy Will Drive 2011 Rally. Smaller U.S. companies are rallying the most since 2003 relative to the Standard & Poor’s 500 Index, a sign to BlackRock Inc. and JPMorgan Funds that the economy will strengthen and spur a third year of gains for investors. The Russell 2000 Index, comprised of stocks with a median market value of $528.5 million, rose 25 percent in 2010, beating the S&P 500 by 13 percentage points. The return left the benchmark gauge for American equity at the lowest valuation ever compared with the small-cap measure, according to data compiled by Bloomberg. Increases in smaller companies that are more dependent on U.S. demand have preceded faster economic growth and the biggest equity rallies of the last two decades, data compiled by Bloomberg show.
• Brazil Inflation to Quicken With Rates, Barclays Says. Brazilian inflation may accelerate along with interest rates until President Dilma Rousseff makes clear her fiscal policy, said Marcelo Salomon, a Barclays Plc economist. “We are quite concerned with inflation,” Salomon, the bank’s economist for the South American country, said in an interview on Bloomberg TV’s “In Business With Margaret Brennan.” “The big question mark is what the new administration is going to be doing with the monetary and fiscal policy mix.’” Brazil’s 2011 inflation expectations rose for a fourth straight week, according to a Dec. 31 central bank survey of about 100 economists published today. Consumer prices will rise 5.32 percent this year from a week earlier forecast of 5.31 percent, the survey found. Rousseff pledged to contain consumer prices in her Jan. 1 inaugural speech. While early signs of Rousseff’s economic plans are “positive,” her efforts won’t be enough to prevent monetary tightening in the short term, Salomon said. Salomon forecasts Brazil policy makers will raise interest rates 50 basis points, or 0.50 percentage point, to 11.25 percent at the bank’s Jan. 18-19 meeting, and continue to increase borrowing costs by a total 150 basis points by the end of April.
• Bank of America(BAC) Sees $2 Billion Charge on Home Loans. Bank of America Corp., the biggest U.S. lender by assets, paid $2.8 billion to Freddie Mac and Fannie Mae after the U.S.-owned firms demanded the company buy back mortgages they said were based on faulty data. The bank rose as much as 5.6 percent in New York trading. Resolving the disputes cost Bank of America about $3 billion in the fourth quarter, including additions to loss reserves for loans that weren’t a part of the deals announced today, the Charlotte, North Carolina-based lender said in a statement. The agreements “largely addressed” liabilities from Fannie Mae and Freddie Mac, Bank of America Chief Financial Officer Charles H. Noski said on a conference call.
• Citadel's Investment-Banking Unit Loses Executives Boas, Kurtzman, Mayer. Chris Boas, Brad Kurtzman and Carl Mayer, senior executives at the investment banking unit of Ken Griffin’s Citadel LLC, have left the firm. Boas was head of credit markets for Citadel Securities. Mayer was head of leveraged finance and Kurtzman ran equity derivatives sales and trading.
• Sector Snap: Some Casino Cos. Up on Macau Data. Shares of casino operators with properties in Macau climbed Monday as a government report indicated that gaming revenue increased 66 percent in December.
• Retail Stocks Climb to 3-Year High as Analysts Recommend Shares. U.S. retail stocks rallied to a three-year high after analysts said that companies whose prospects are most tied to growth will gain. Target Corp., Macy’s Inc., J.C. Penney Co. and Family Dollar Stores Inc. advanced today after Citigroup Inc. recommended the shares as the economy continues to improve. Staples Inc. jumped to the highest since May after Janney Montgomery Scott LLC advised buying the world’s largest office- supply retailer. “There are hopeful signs in the employment outlook as non- farm jobs ramped up in recent months, and business confidence is improving,” David Strasser, an analyst at Janney in New York, wrote in a report today.
• Bank Stocks Rise After Bank of America(BAC) Settles Mortgage-Putback Claims. Bank of America Corp. and JPMorgan Chase & Co. carried financial stocks higher after Fannie Mae and Freddie Mac agreed to settle claims on at least $4.1 billion in faulty loans they bought from Countrywide Financial Corp. The agreement sent Bank of America, which owns Countrywide, up 6.5 percent to $14.20 in New York Stock Exchange composite trading, the biggest increase in almost eight months. New York- based JPMorgan rose 3.5 percent to $43.89 at 2:08 p.m. The KBW Bank Index of 24 stocks gained 2.3 percent to its highest level since last May.
• Illinois Has Days to Plug $13 Billion Budget Gap. Illinois lawmakers will try this week to accomplish in a few days what they have been unable to do in the past two years -- resolve the state’s worst financial crisis. The legislative session that begins today will take aim at a budget deficit of at least $13 billion, including a backlog of more than $6 billion in unpaid bills and almost $4 billion in missed payments to underfunded state pensions.

Wall Street Journal:

• Venture Investors Cluster Around Storage Start-Ups. Virtualization is pushing traditional data-storage systems past their breaking point, and venture capitalists are betting that so-called clustered storage technologies will finally have their day.
• Congress Targets Spending. The Republican majority that takes over the House this week plans an ambitious drive to slash government spending by tens of billions of dollars in the next few months, a strategy that ensures that the capital soon will be consumed by intense debate over how and where to reduce the size of government.
• Manufacturers Turn to Smart TV After 3-D Disappoints. After 3-D TV failed to excite consumers last year, manufacturers are betting that following the app-laden path of smartphones and tablet computers will fatten up what have been ultraslim profit margins.

CNBC:

• Fed Unlikely to Raise Rates Until 2013: Goldman's(GS) Hatzius. The Federal Reserve likely won't add any more stimulus to the economy this year but will probably hold off on raising interest rates until 2013, Jan Hatzius, chief US economist for Goldman Sachs, told CNBC Monday.
• Why Oil Stocks Are Better Investment Than Crude Futures.
  

Business Insider:

• John Paulson Is About to Become a Billionaire for the Second Time Over.

New York Times:

• Why Facebook Is Such a Crucial Friend for Goldman Sachs(GS). The news that Goldman has taken a stake in Facebook, the white-hot social networking giant, has tongues wagging from Wall Street to Silicon Valley. As first reported by DealBook, Goldman has invested $450 million in a deal that values Facebook at $50 billion. As part of the deal, Goldman is looking to raise as much as $1.5 billion from its wealthy clients to invest in Facebook alongside the firm.

Mineweb:

• Japanese Scientists Develop 1st Artificial Rare Metal-Palladium-Type Alloy. Scientists say they have developed nanoprocessing technology which may lead to the production of other artificial rare metals.

Dallas Fed:

• Slide Show on U.S. Economy.

Boston Globe:

• Medicaid Cost Crisis Looms for Massachusetts. The money, it seems, is never enough. Governor Deval Patrick approved a record $9.6 billion last July for the state’s health insurance program for the poor — sufficient, he assumed, to last a year. But the program’s costs quickly outpaced expectations, forcing the governor to approve an additional $329 million in October and then seek $258 million more, which lawmakers approved last week. And even that may not last, with six months remaining in the budget year. The ballooning cost of Medicaid is one of the biggest challenges facing Massachusetts and other states, which have seen demand for the program jump during the recession as increasing numbers of unemployed residents enroll in the subsidized insurance plan.

Sacramento Bee:

• Brown to Propose Broad List of Budget Cuts. The broad set of budget cuts that Gov.-elect Jerry Brown will propose in the coming days would touch nearly all Californians, eliminating local redevelopment agencies, shrinking social service benefits, shuttering parks and reducing library hours, according to a source familiar with his budget proposal. Brown, to be sworn in this morning, wants to slash virtually every state-funded program to help balance California's massive deficit, in many cases resurrecting cuts sought by Gov. Arnold Schwarzenegger but rejected by lawmakers. Brown would restrict Medi-Cal access, divert low-level offenders to county jails and cut deeply into California State University and the University of California. The Democrat is counting on lawmakers to approve the cuts to encourage voters to also provide revenue. A June ballot measure would extend higher tax rates on income, vehicles and sales set to expire this year, as well as eliminate a new corporate tax benefit.

TradingMarkets:

• Byron Wien Announces The Ten Surprises for 2011.

gigaom:

• Apple(AAPL) Holds Smartphone Lead, But Android is Gaining. While Android surges among new smartphone buyers, Apple’s iOS continues to hold on to the overall marketshare lead, although it remains within spitting distance of a fading BlackBerry OS and a hard-charging Android OS, according to the latest figures from the Nielsen Company. According to November 2010 data, Apple holds 28.6 percent of the U.S. smartphone market, up slightly from 27.9 percent in October. BlackBerry OS slipped again in November to 26.1 percent, down from 27.4 percent in October and 33.9 percent in June. Android OS, meanwhile, closed the distance on Apple — reaching 25.8 percent in November, compared to 22.7 percent in October and 15 percent in June. The big winner in all this is the smartphone market as a whole, which is growing rapidly: Nielsen said that 45 percent of recent phone buyers chose a smartphone in November, up from 34 percent in June, which suggests that we’re not too far off from a time when one out of every two handsets sold in the U.S. is a smartphone.

Politico:

• White House Hires Veteran Environmental Economist. The Obama administration has hired a seasoned environmental economist from the Environmental Defense Fund as the White House prepares to battle congressional Republicans over climate and air pollution regulations.
• Darrell Issa Reveals List of Investigations. Rep. Darrell Issa is aiming to launch investigations on everything from WikiLeaks to Fannie Mae to corruption in Afghanistan in the first few months of what promises to be a high-profile chairmanship of the top oversight committee in Congress. According to an outline of hearing topics obtained by POLITICO, the House Oversight and Government Reform Committee is also planning to investigate how regulation impacts job creation, the role of Fannie Mae and Freddie Mac in the foreclosure crisis, recalls at the Food and Drug Administration and the failure of the Financial Crisis Inquiry Commission to agree on the causes of the market meltdown.
• 6 States to Watch on Health Reform. Health reform repeal efforts will generate a lot of noise in the opening weeks of the 112th Congress – but the real action on health reform is going to ramp up outside the Beltway in state capitals. “Unless states move forward as fast and as hard as they can this year, they will be lost in 2014 when the bulk of health reform hits,” says Stan Dorn, a senior health policy researcher at the Urban Institute. “The pressure is just enormous on state policy makers.”

Reuters:

• U.S. Consumer Bankruptcies Rose 9% in 2010.
• Republicans May Starve US Financial Reform of Cash.
• Barnes & Noble Says Nook Boosts Holiday Sales. Barnes & Noble Inc (BKS) reported strong preliminary holiday results at its superstores, led by the popularity of its Nook e-readers, and shares rose more than 5 percent.

The Age:

• Cashed-Up BHP(BHP) Ready to Splurge. There are about 20 exploration companies in the US market on its watch list, writes Barry FitzGerald. BHP Billiton petroleum chief executive Mike Yeager is rightly proud of the division's top-of-industry performance in achieving an average 11 per cent growth rate in production since the 2007 financial year. But the outlook for the next four years is not so rosy. If anything, BHP's annual oil production could well flatline at its current 160 million barrels of oil equivalent until at least 2015, according to some analysts' forecasts. That could all change should BHP do what is expected by devoting a chunk of its growing pile of cash to a meaningful oil and gas acquisition, with more than 20 independent exploration and production (E&P) companies in the US market on its watch list.