Today's Headlines

Bloomberg:

• ECB Balance Sheet Increases to a Record $3.55 Trillion on Loans to Banks. The European Central Bank’s balance sheet soared to a record 2.73 trillion euros ($3.55 trillion) after it lent financial institutions more money last week to keep credit flowing to the economy during the debt crisis. Lending to euro-area banks jumped 214 billion euros to 879 billion euros in the week ended Dec. 23, the Frankfurt-based ECB said in a statement today. The balance sheet increased by 239 billion euros in the week and was 553 billion euros higher than three months ago. The euro weakened and stocks fell, halting a five-day advance in the Standard & Poor’s 500 Index, as the announcement highlighted risks from Europe’s debt crisis. “The market reaction is slightly incomprehensible,” said Jens Kramer, an economist NordLB in Hanover. “After that record liquidity injection it would follow that the balance sheet would swell. Seeing the figure in black and white, and the fear of what would happen to the ECB if a country defaulted, may have spooked the market.” The ECB last week awarded 523 banks three-year loans totaling a record 489 billion euros to encourage lending to companies and households and prevent a credit shortage. Barclays Capital estimates the loans injected 193 billion euros of new money into the system, with 296 billion euros accounted for by maturing loans. So far, banks are parking the money back at the ECB. Overnight deposits at the central bank increased to an all- time high of 452 billion euros yesterday.
• Euro Falls to 10-Year Low Against Yen as ECB Balance Sheet Reaches Record. The euro dropped against the yen to the lowest level since 2001 as the European Central Bank’s balance sheet soared to a record after it lent regional banks more money last week to keep credit flowing. The 17-nation currency fell against the dollar to the least since January as concern increased that the region’s sovereign- debt crisis will curb growth, even as rates fell at an Italian bill sale. The dollar gained as stocks dropped, boosting demand for haven assets. The yen strengthened after a U.S. Treasury report criticized Japan for intervening in the currency market and as economic reports signaled slowing economic growth. “We’re still so far from being out of the woods that even on a day of being positive, people decided that the euro should continue to fall,” said David Mann, regional head of research for the Americas at Standard Chartered Plc. in New York. “It’s quite a sharp rise in the ECB balance sheet. It’s concern about monetization already on the way in Europe.” The euro dropped 0.9 percent to 100.91 yen at 12:57 p.m. in New York. It touched 100.73 yen, the lowest level since 2001. The shared currency fell 1 percent to $1.2937, touching $1.2912, the least since Jan. 11. The dollar rose 0.2 percent to 78 yen.
• Greek Bank Recapitalization Plan Being Discussed, Imerisia Says. Greek bank recapitalization plans being examined include the issuance of preference and common shares, following the completion of a voluntary debt swap and the release of a review of Greek bank loans, Imerisia said.
  
• Oil Falls for First Time in Seven Days. Oil declined for the first time in seven days as a surge in the European Central Bank’s balance sheet to a record highlighted the growing risks of the region’s debt crisis. Futures dropped as much as 2.2 percent after the ECB lent financial institutions more money last week in an attempt to keep credit flowing. The euro tumbled to the lowest level since January against the dollar, curbing investor demand for commodities. Oil also decreased on reduced concern that Iran will block the Strait of Hormuz. Crude oil for February delivery declined $1.72, or 1.7 percent, to $99.62 a barrel at 1:18 p.m. on the New York Mercantile Exchange. Earlier, prices touched $99.11 a barrel. Futures have climbed 9 percent this year, extending last year’s advance of 15 percent. Brent oil for February settlement fell $1.61, or 1.5 percent, to $107.66 a barrel on the London-based ICE Futures Europe exchange.
• Worst-Rated Illinois May Lose Market-Beating Return: Muni Credit.
• U.S. State, Local Pensions Drop 8.5%. U.S. public pension-fund assets fell in the third quarter by the most since 2008 as stocks sank amid concern that Europe’s debt crisis would curb economic growth, Census Bureau data showed. Assets of the 100 largest public-worker plans decreased $237 billion, or 8.5 percent, from the prior quarter to $2.53 trillion by Sept. 30, the bureau said today in a report. It marks the first decline since the second quarter of 2010 and the biggest since the last three months of 2008, when holdings slid 13 percent during Wall Street’s credit crisis. The setback may strain state and local governments that have set aside more money to cover retirement benefits. That’s pressured governments already coping with diminished tax collections and has propelled efforts to reduce benefit costs. The asset decline was driven by losses in stock holdings, which slipped $134.7 billion to $769.6 billion, the Census Bureau said. The value of holdings of corporate bonds, U.S. treasuries, and international securities also fell.
• Retail Sales Climb 4.5% Week Before Christmas, ICSC Says. Sales at U.S. retailers rose 4.5 percent last week from a year earlier, as shoppers snapped up last-minute purchases for Christmas and took advantage of some chains extending hours. Sales for the week ending Dec. 24 increased 0.9 percent from the previous week, according to a chain-store sales index released today by New York-based International Council of Shopping Centers and Goldman Sachs Group Inc. That compared with a 3.4 percent gain a week earlier. Retailers benefited from Christmas Eve falling on a Saturday, with Family Dollar Stores Inc., Toys “R” Us Inc. and Macy’s Inc. among chains extending hours to lure bargain-hunting shoppers.

Wall Street Journal:

• European Bank Worry: Collateral. Even after the European Central Bank doled out nearly half a trillion euros of loans to cash-strapped banks last week, fears about potential financial problems are still stalking the sector. One big reason: concerns about collateral. The only way European banks can now convince anyone—institutional investors, fellow banks or the ECB—to lend them money is if they pledge high-quality assets as collateral. Now some regulators and bankers are becoming nervous that some lenders' supplies of such assets, which include European government bonds and investment-grade non-government debt, are running low. If banks exhaust their stockpiles of assets that are eligible to serve as collateral, they potentially could encounter liquidity problems. That is what happened this fall to Franco-Belgian lender Dexia SA, which ran out of money and required a government bailout. "Over time it is certainly a risk," said Graham Neilson, chief investment strategist for Cairn Capital Ltd. in London. "If banks don't have assets good enough to pledge as collateral, they will not be able to tap as much liquidity...and this could be the end-game path for a weaker bank."
  
• CareerBuilder: Hiring To Be Cautious, Improve Slowly In 2012. Hiring should remain cautious through 2012, as one in four employers expect to bring on new full-time workers next year, same as in 2011, according to employment company CareerBuilder's annual survey.
• Tough Markets: Punishing Hedge Funds Since 2003. Much has been made about hedge funds’ failure to keep up with the major stock market benchmarks this year. But 2011 is merely the latest disappointment in a string of misses that stretches back nine years, according to one analysis of the hedge fund industry.
• Shutting Up Business. Now unions are turning to shareholder proposals to limit political speech.
  

MarketWatch:

• China Real Estate Prices Must Fall Further: AgBank. Chinese lender says up to 25% drop needed to stabilize prices. Government adjustments to housing prices should aim for an up-to-25% downward revision, according to a report by Agricultural Bank of China, one of China’s big four state banks. Official statements made at the recently concluded central economic work conference indicated that urban housing prices should return to “reasonable levels.”

CNBC.com:

• Small Business Trends to Watch in 2012.
• Online Merchants Home in on Drunk Shoppers.
  

Business Insider:

• The Big China Fraud Is About To Become Apparent To Everyone.
• US Fifth Fleet: Disruptions In The Strait Of Hormuz Will Not Be Tolerated.
• The North Dakota Oil Boom Is Making Half The Residents Rich And Half The Residents Jealous.
• Insane Pictures From The Funeral Of Kim Jong-Il.
• This Bill Maher Joke About Time Tebow Has People Boycotting HBO.
  

Zero Hedge:

• The Italian Yield Curve Vs The Euro Basis Swap. (graphs)
• Abysmal Spanish Housing Market Gets Even Worse In October.
• Former Fed VP Accuses Bernanke of Bailing Out Europe Via Currency Swaps.
  

New York Times:

• U.S. Declines to Say China Manipulates Its Currency. The Obama administration on Tuesday declined to label China a currency manipulator after seeing recent increases in the value of the renminbi compared with the dollar. The decision angered some manufacturing groups, which have accused China of artificially holding down the value of its currency, the renminbi, to gain trade advantages. A cheaper renminbi makes Chinese goods less expensive when they are shipped to the United States. It also makes American goods more expensive in China. Both could increase America’s trade deficit with China, which is on pace to reach a record high this year.

AppleInsider:

• Apple(AAPL) Wants to Offer Television Subscribers Customized Channel Lineups. Apple's anticipated full-fledged television set could offer Internet-based content subscriptions with customized channel lineups, if the company has its way.

Wall Street All-Stars:

• 2012 - Things That Will Happen. Significant economic and political changes will make 2012 a historical year. The globe has experienced relative calm for the past 24 months. That stability won’t last much longer. Events that are not on anyone’s radar screen will matter the most. The following are the things that I think might happen, but it’s the surprises that worry me.

CBS News:

• FEMA Seeks to Recover $385 Million in Improper Katrina Payments.

Reuters:

• Athabasca Oil Sands Gets Regulatory Nod For Key Alberta Project. Canada's Athabasca Oil Sands Corp said it received regulatory approval for its 150,000 barrels per day MacKay River project in Alberta and is on track to start production from 2014.

AP:

• Gulf Arab countries are prepared to make up for any loss of Iranian crude from the world market, citing a Saudi oil official.
• US Police Fatalities Up 13% in 2011 to 173. Across the nation, 173 officers died in the line of duty, up 13 percent from 153 the year before, according to numbers as of Wednesday compiled by the National Law Enforcement Officers Memorial Fund.

Expansion:

• Spanish Prime Minister Mariano Rajoy may instruct the country's banks to cut the value of their real-estate assets by an average of 20% as part of a plan to make them declare potential losses and rebuild their credibility, citing people with knowledge of the matter.