Today's Headlines

Bloomberg:

• Germany on Brink of Recession as Euro Debt Crisis Damps Exports: Economy. Germany may be on the brink of recession after the sovereign debt crisis caused the economy to contract in the final quarter of 2011. Europe’s largest economy shrank “roughly” 0.25 percent in the fourth quarter from the third, the Federal Statistics Office in Wiesbaden said today in an unofficial estimate. Economists such as Christian Schulz at Berenberg Bank expect gross domestic product to contract again in the current quarter. A recession is defined as two consecutive quarters of declining GDP.
  
• Europe's $39 Trillion Pension Threat Grows as Regional Economies Sputter. State-funded pension obligations in 19 of the European Union nations were about five times higher than their combined gross debt, according to a study commissioned by the European Central Bank. The countries in the report compiled by the Research Center for Generational Contracts at Freiburg University in 2009 had almost 30 trillion euros ($39.3 trillion) of projected obligations to their existing populations.
• Spain's Rajoy May Need Back Door Bailout for Regional Rescues: Euro Credit. Prime Minister Mariano Rajoy may need to skirt Spanish law to backstop the nation’s indebted regions, mimicking the European Union’s dodging of its no- bailout rule to save Greece, Ireland and Portugal from default. “We consider the Spanish government should guarantee or take responsibility for the debt it has authorized the regions to issue,” said Albert Carreras de Odriozola, Catalonia’s deputy finance chief, in a telephone interview. “It must be possible to talk and find a mechanism.” Catalonia, Valencia, Andalusia and Madrid, which account for 60 percent of Spain’s economy, are shut out of markets as they brace to repay 9 billion euros ($11.5 billion) to lenders this year, according to data compiled by Bloomberg. Spain’s 10- year yield has risen to 5.3 percent from 5.09 percent on Dec. 30 when the government said its 2011 deficit had ballooned to a third larger than its target. Regional shortfalls drove Spain’s deficit to 8 percent of gross domestic product, breaching the 6 percent pledged to the EU. Spain’s Parliament today examines 15 billion euros of tax increases and spending cuts announced by Rajoy’s government on Dec. 30 to compensate the slippage.
• Oil Declines After U.S. Fuel Inventories Climb as German Economy Contracts. Oil fell as U.S. crude and fuel supplies climbed more than analysts estimated amid concern that a contracting German economy may drag Europe into recession. Futures dropped as much as 1.7 percent after a government report showed that crude inventories rose 4.96 million barrels last week, almost five times the gain projected in a Bloomberg News survey of analysts. Fuel stockpiles jumped as demand decreased. Oil also slipped as Germany’s Federal Statistics Office said Europe’s largest economy shrank last quarter. “The fundamentals are poor, with both today’s inventory report and the fourth-quarter contraction of the German economy pointing to lower prices,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “Today’s numbers point to a poor demand period, which should be weighing on the market.” Gasoline supplies climbed 3.61 million barrels to 223.8 million in the week ended Jan. 6, the highest level since March, the report showed. Analysts projected a 2.25 million-barrel increase in stockpiles. Demand (DOEDMGAS) for the fuel tumbled 4.4 percent to 8.18 million barrels a day, the lowest level since February 2003.
• Apple(AAPL) Analyst Munster Raises Estimates for Quarterly iPhone Sales. Apple Inc. may have sold 30 million iPhones in the quarter that ended in December, according to an estimate by Gene Munster, an analyst at Piper Jaffray Cos., who raised an earlier projection for sales of 26 million iPhones. He said in a research note today that the new prediction is based on data from NPD Group that implies sales of 30 million to 34 million iPhones, “given several conservative assumptions.”
• Property Investors Bet on Rising Demand for U.S. Charter Schools. A warehouse where workers once shaped and cut steel on Milwaukee's north side is getting a second life. It's being transformed into a charter school that's scheduled to open in August. A joint venture of Canyon Capital Realty Advisors LLC and former tennis champion Andre Agassi's business partnerships is developing the property and will lease it to Lighthouse Academies of Wisconsin Inc. The Canyon-Agassi real estate fund has done one warehouse conversion in Philadelphia and is considering school projects in other U.S. cities, including New York and Houston.
• Bove: Financial Industry May Lose 150,000 Jobs. Banks and other financial firms may lose 150,000 jobs by the middle of 2013, said Richard Bove, an analyst at Rochdale Securities LLC. “The financial industry in my view is going to shrink by about 150,000 people over the next 12 to 18 months,” Bove said during an interview today with Tom Keene on “Bloomberg Surveillance.”
• California's $500K Earners Dwindle. California (STOCA1) Governor Jerry Brown’s plan to balance the state budget in part with higher taxes on the wealthy depends on a group of top earners that shrank by one-third from 2007 to 2009. Tax returns with adjusted gross incomes topping $500,000 fell to 98,610 in 2009, the latest year available, from a recent peak of 146,221 two years earlier, according to data from the Franchise Tax Board, the state agency that collects income and corporate taxes. Brown, a 73-year-old Democrat, faces a budget deficit of $9.2 billion. If voters reject his tax plan, Brown proposes to cut $4.8 billion from schools, the equivalent of taking three weeks from the academic year. California’s top individual tax rate of 10.3 percent is third-highest in the U.S., behind Hawaii (STOHI1) and Oregon (STOOR1), according to the Washington-based Tax Foundation. The new tax proposal might put California on top.
• FDA Halts All Orange Juice Imports. U.S. regulators have halted shipments of imported orange juice from all countries, and plan to destroy or ban products if tests find even low levels from a prohibited fungicide. Initial test results are due this week. The imports are being held while they are tested and may be sold if levels are below trace amounts, according to the U.S. Food and Drug Administration.
• Lennar(LEN) Rises as New-Home Orders Climb 20% From a Year Earlier. Lennar Corp., the third-largest U.S. homebuilder by revenue, rose in New York trading after reporting a 20 percent jump in new orders for the fourth quarter from a year earlier. Orders increased to 3,027 for the three months ended Nov. 30, the Miami-based company said in a statement today. The shares climbed 3.6 percent to $21.51 as of 11:20 a.m. after gaining as much as 5 percent.
• Citigroup(C) Lobbyist Casts Doubt on Obama's Recess Appointment. Citigroup Inc.’s lobbyist said President Barack Obama’s decision to make Richard Cordray head of the new financial watchdog agency wasn’t a “recess” appointment and may face a court challenge. Naming Cordray to run the Consumer Financial Protection Bureau while the Senate held “pro forma” sessions left the White House open to legal action, especially from financial firms facing new rules, Candida Wolff, Citigroup’s executive vice president for global government affairs, said in an interview today.

Wall Street Journal:

• Iran Scientist Killed in Bomb Blast. An Iranian scientist working for a key nuclear site was killed in Tehran with a magnetic bomb attached to his car, in what the government said was a plot by the U.S. and Israel to sow unrest and interfere with its nuclear program.
  

Dow Jones:

• There's wide agreement that a 50% haircut alone won't bring Greek debt to levels agreed to in Oct., citing people familiar with the matter. EU15B is a rough first estimate provided the haircut talks are successful. Precise figures will be determined after visits from the EU, IMF and ECB officials to Greece this month. Greece's 2012 budget deficit is expected to by 10% of GDP versus an initial target of 8.5%, citing officials.

CNBC.com:

• ECB Faces Criticism Over Greek Debt Purchase. Already mired in controversy about whether it should play a greater role in solving the European financial crisis, the European Central Bank is facing criticism over what they’ve already done to help — buying Greek debt.
• IRS Used 'Bait-And-Switch' on Tax Amnesty: Watchdog. The Internal Revenue Service has persuaded U.S. taxpayers to disclose hidden offshore bank accounts but then sometimes failed to cap the penalties, as promised, an agency watchdog said on Wednesday, accusing the IRS of "bait and switch."
• US Mortgage Applications Picked Up Last Week. Applications for U.S. home mortgages rose in the first week of the year as demand for both purchases and refinancing perked up, an industry group said on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 4.5 percent in the week ended Jan 6. The MBA's seasonally adjusted index of refinancing applications gained 3.3 percent, while the gauge of loan requests for home purchases climbed 8.1 percent.

Business Insider:

• Beige Book: Economy Expands at 'Modest to Moderate' Pace.

Zero Hedge:

• The US Debt Ceiling Theater Is Back: Think The Issue Is On Autopilot? Think Again.
• Any North Koreans Found Not To Have Cried Hystrically At Kim Jong-Il's Passing May Spend 6 Months In A Labor Camp.
• China's Debt Maturity Problem Has Arrived.
  

New York Times:

• China Balks as Geithner Presses on Iran Curbs. Timothy F. Geithner, the U.S. Treasury secretary, pressed Chinese senior leaders Wednesday to join an American-led campaign to put pressure Iran over its nuclear program by sharply reducing Tehran’s lucrative oil export business. And as they had before Mr. Geithner’s arrival here Tuesday, Chinese officials said publicly that they wanted no part of it.

Reuters:

• EU Fiscal Treaty to Include Escape Clause - Draft. A new EU fiscal treaty is set to include an escape clause that allows the suspension of a balanced-budget rule during a period of economic downturn or other exceptional event, according to a draft of the document obtained by Reuters on Wednesday. Referring to the balanced-budget rule, the document said: "Temporary deviation from the medium-term objective will only be allowed in cases of (an) unusual event outside the control of the contracting party with a major impact on the financial position of the general government or in periods of severe economic downturn for the euro area, the EU or the concerned contracting party."
  
• Greek bond swap talks going badly - banking sources. Talks about private sector participation in a Greek bailout are going badly, senior euro zone bankers said on Wednesday, raising the prospect that European Union governments will have to increase their contribution. "Governments are mulling an increase of their share of the burden," one of the bankers, who is familiar with the talks, said. Upon being asked whether governments will have to put up more cash to make up a shortfall from lower than expected private sector participation, another senior banker said: "Nothing is decided yet, but the bigger the imposed haircut the less appetite there is for voluntary conversion." A third senior banker, who was asked the same question said: "Private sector involvement is going badly."
• ECB Must Do More To Avert 'Cataclysmic' Euro Collapse: Fitch. The European Central Bank should ramp up its buying of troubled euro zone debt to support Italy and prevent a "cataclysmic" collapse of the euro, David Riley, the head of sovereign ratings for Fitch, said on Wednesday. Speaking to investors as part of a European roadshow, Riley said a collapse of the euro would be disastrous for the global economy, and while it is not Fitch's baseline scenario, it could happen if Italy did not find a way out of its debt problems. "It is hard to believe the euro will survive if Italy does not make it through," he said, adding that while many saw Italy as too politically and economically important to be allowed to fail, "one might also argue that it is too big to rescue." The warning pushed the euro down towards a 16-month low versus the dollar. Fitch has warned that the economic outlook for the euro zone has darkened further in recent months and has said there is a high chance it will downgrade Italy, Spain, Belgium, Ireland, Slovenia and Cyprus by one or two notches by the end of this month.But unlike larger rival Standard & Poor's, which has all but Greece on a downgrade warning and said France risks a two notch cut, Fitch has said it does not expect to strip Paris of its triple-A status for this year at least.Still, Riley cautioned the euro zone's second-biggest economy was in a precarious position as the crisis rumbled on."France is the weakest AAA country in the euro zone," he said, adding it had the additional burden of being the main country alongside Germany underpinning the euro zone's bailout fund.
• The Great Hedge Fund Humbling of 2011. Some of the best-known hedge fund managers have offered lots of excuses for underperforming the major stock market indexes last year, with many large funds posting double-digit losses.
  

Stuttgarter Zeitung:

• German Finance Minister Wolfgang Schaeuble rejected joint euro-region bond sales as long as there are no rules in place to enforce coordinated economic policies in the area. The euro region mustn't create incentives for governments to abandon their deficit-reduction policies, Schaeuble said. Differences in the sovereign-bond yields of euro-area countries are indispensable to spur governments to limit their budget shortfalls and mustn't be leveled by the introduction of so-called euro bonds, he said.
  

Expansion:

• Spanish banks may be unable to generate more than 30 billion euros of the estimated 50 billion euros of extra provisions needed to clean up the banking system, citing people in the financial industry.

El Confidencial:

• Spain's new government will force banks to cut the values of foreclosed homes by as much as 50% as part of its plan to clean up lenders' balance sheets, citing people with knowledge of the matter. The banks, which will be given two years to make provisions for the losses, will also be required to cut the values of their urban land assets by 80% and value rural land on their books at virtually zero.

China Daily:

• Shanghai Housing Prices to Drop in 2012: Mayor. Mayor Han Zheng on Wednesday said the government will continue with its policies aiming to bring down the prices of the city's new residential apartments. Han told a municipal congressional meeting that Shanghai will carry on implementing the central government's package of policies, which include mortgage restrictions and limits on the numbers of homes people can own, to cool the property market while increasing land supply and deepening property tax reforms. The mayor also said Shanghai will build more affordable apartments and public rental houses for the city's low-income families. China's efforts to cool the red-hot property market paid off in 2011. Nearly 50 out of 70 major Chinese cities had reported monthly decline in the price of new apartments by November, the first decline in three years in the case of many cities.