Today's Headlines

Bloomberg:

• German Industrial Output Drops in Sign Growth Stalling. German industrial output declined in November as factories produced fewer investment and consumer goods, adding to signs that growth in Europe’s largest economy may have stalled. Production fell 0.6 percent from October, when it rose 0.8 percent, the Economy Ministry in Berlin said today. Economists forecast a 0.5 percent drop, according to the median of 30 estimates in a Bloomberg News survey.
• Sarkozy Wins Merkel Backing for Transaction Tax. French President Nicolas Sarkozy won the backing of German Chancellor Angela Merkel for a tax on financial transactions, a levy that Britain maintains won’t work unless it’s applied worldwide. The French government, long a proponent of the tax, stepped up its campaign last week, going so far as to suggest that France would impose the levy even if others didn’t. At a joint press conference in Berlin with Sarkozy today, Merkel threw her weight behind the tax. “Personally, I’m in favor of thinking about such a tax in the euro zone,” Merkel said. “Germany and France both equally view the financial transaction tax as a correct response.”
• Germany Sells Bills With Negative Yield for First Time Amid Crisis Concern. Germany sold six-month treasury bills at a negative yield for the first time amid demand for the debt securities of Europe’s biggest economy as a haven from the sovereign debt crisis roiling the region. The government auctioned 3.9 billion euros ($4.98 billion) of securities maturing in July at an average yield of minus 0.0122 percent, the Federal Finance Agency said in an e-mailed statement today. It was the first time it sold the securities at a negative yield, Joerg Mueller, a spokesman in Frankfurt, said in a telephone interview. The Netherlands sold 107-day bills at minus 0.007 percent on Dec. 12.
• Sovereign Bond Risk Falls in Europe, Reversing Climb to Record. The cost of insuring against default on European sovereign debt fell, reversing an earlier rise, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments declined two basis points to 380 at 11:30 a.m. in London, after climbing to a record 386. The cost of insuring corporate and financial debt rose, according to JPMorgan Chase & Co. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings increased six basis points to 757. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 2.25 basis points to 179.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers climbed 4.5 basis points to 295 and the subordinated index increased three to 528.
• Fannie Rating Faces Cut as Lawmakers Siphon Funds, BofA Says. The odds of credit rating downgrades on the bonds of Fannie Mae and Freddie Mac rose after lawmakers tapped the government-supported mortgage companies to pay for last month’s extension of a payroll tax cut, according to Bank of America Corp. Investors in the so-called agency debt market should favor the bonds of other government-sponsored enterprises such as the Federal Home Loan Banks and Federal Farm Credit Banks because of the risk, Ralph Axel, a Bank of America analyst in New York, wrote in a Jan. 6 report. Congress, to finance the two-month extension of the tax cut in December, ordered an increase in the premiums that Washington-based Fannie Mae and Freddie Mac in McLean, Virginia, charge to guarantee mortgage debt. The funds generated by the extra fees will be directed to the government for the next 10 years.

Wall Street Journal:

• Bombs Kill 17 in Iraqi Capital. Three car bombs exploded Monday evening in the Iraqi capital and killed at least 17 people, authorities said. At least one appeared to target Shiite pilgrims, sinking the country deeper into a new wave of sectarian violence.
  

Dow Jones:

• Greek debt holders will be asked to accept a 60% haircut.

MarketWatch:

• Chinese Outlook Unusually Uncertain: Experts.

CNBC.com:

• US Government Plans to Sell Foreclosures in Bulk to Investors.
• Stronger Recovery Held Back by Washington, Welch Says. The U.S. economy is well on the road to recovery, but would be doing better if not for a repressive environment in Washington, Jack Welch, author and former General Electric chairman, told CNBC Monday.

Business Insider:

• Europe Has A Much Bigger Problem Than Debt, And Nobody Has Any Clue How To Fix It.
• White House Chief of Staff Bill Daley Stepping Down.
• Incredible Time-Lapse Of A 30_story Hotel In China Built In 15 Days. (video)
• Tim Tebow Set A Twitter Record Last Night.
• Former TARP Czar Barofsky Blasts Obama's Recess Appointment of Richard Cordray.
• Norway Makes Its Second Huge Oil Discovery In The Past Year.
  

Zero Hedge:

• ECB Resumes Buying Bonds With Gusto As Italian Yields Remain Well Wide Of 7%.
• Iran Sentences Alleged CIA Spy To Death.
• European Companies Are Now Funding European Banks And The ECB - Is "Investment Grade" Cash Really Just Italian Treasurys?
• Greece Spends Bailout Cash On European Military Purchases.
  

New York Times:

• A Boom in Starter Capital for Hedge Funds. There is a seeding frenzy happening in the hedge fund industry. As the industry returns have been disappointing, big money investors need somewhere to park their big money — and handing development capital to emerging hedge funds has become a strategy of choice.

Reuters:

• Brocade(BRCD) Gets First-Round Bids for Sale: Sources. Brocade Communications System Inc has received first-round bids from a handful of potential buyers as the company explores a sale, sources familiar with the matter said. The San-Jose, California-based maker of switches and routers for managing data traffic, which has a market value of $2.35 billion, hired Frank Quattrone's Qatalyst Partners in November to focus on a deal that could result in a leveraged buyout, the sources said.
• Copper Falls, Europe Debt Crisis Dims Demand Prospects.
• BMW Sees Emerging Markets Protectionism On The Rise. Germany's BMW is seeing a trend of increasing protectionism in emerging economies that are trying to attract foreign investments and more local production at the expense of imports. "We are seeing in these markets the rise of protectionism," BMW group sales chief Ian Robertson said at the Detroit Car Show on Monday, citing countries like Brazil, Argentina, Turkey, Russia and India.

Telegraph:

• Debt Crisis: Live. Cameron warns Germany may have to accept a big transfer of wealth to weaker southern European nations to address a fundamental lack of competitiveness as Merkel and Sarkozy push for transaction tax.

Die Welt:

• Germany Is in Recession, Citing Survey of Economists. Welt surveyed 14 economists. They estimate there was contraction in 4Q that's continuing in 1Q.

Tagesspiegel:

• The 50% bond writedown creditors agreed to as part of a bailout package for Greece will probably not suffice to rescue the country, citing Gerhard Schick, the finance policy spokesman for the German Green Party in parliament. European taxpayers will have to make an additional contribution should it prove impossible to persuade creditors to take higher losses on Greek debt.

Cinco Dias:

• Four Spanish savings banks that received money from the state rescue fund lost $14 billion of deposits in the 10 months from January to October last year, citing data from the savings bank association known as CECA.