Today's Headlines

Bloomberg:

• Europe Leaders Bow to Cameron Push, Deepen Spending Cuts. European Union leaders agreed to a seven-year budget that cuts spending for the first time, bowing to U.K. Prime Minister David Cameron’s insistence on thrift. The deal, struck after 25 1/2 hours of talks in Brussels, set the budget for 2014-2020 at 960 billion euros ($1.3 trillion), down from an original proposal of 1.047 trillion euros and less than the 994 billion euros spent in the current budget cycle. “We simply could not ignore the extremely difficult economic realities across Europe,” EU PresidentHerman Van Rompuy told reporters. “It’s perhaps nobody’s perfect budget, but there’s a lot of it for everybody. This budget is future- oriented, it is realistic and it is driven by pressing concerns.” 
• European Stocks Post Weekly Drop on Debt-Crisis Concern. European stocks posted a second weekly decline as political uncertainty in Italy and Spain revived concern that the nations’ austerity programs may falter and the euro-area debt crisis may deepen. UniCredit SpA, Italy’s biggest lender, dropped 5.4 percent as a gauge of European bank shares fell for a second week. Royal Imtech NV plunged 47 percent as the Dutch technical-service provider after predicting writedowns exceeding 100 million euros ($136 million) in Poland. Hargreaves Lansdown Plc jumped 15 percent after the retail stockbroker posted first-half profit that exceeded analysts’ estimates.
• Aso Says Pace of Yen Decline Too Fast With G-20 Set to Meet.Japanese Finance Minister Taro Aso said the pace of the yen’s weakening has been too fast, speaking a week before a meeting of global finance chiefs where Japan’s currency stance is forecast to be an issue. Aso’s comment to reporters in Tokyo today came after he earlier told lawmakers the government hadn’t anticipated a rapid move to around 90 per dollar. 
• Honda Counters Weak Yen Criticism After U.S. Objections. Honda Motor Co., targeting record U.S. sales this year, said the weaker yen isn’t giving the Japanese company an advantage after a group representing U.S. automakers called for government intervention.
• Huntsman Warns of Risk of China-Japan Clashes in Disputed Areas. Jon Huntsman, a former U.S. ambassador to China, said he worries about the danger that a military “incident” between China and Japan may escalate into an unintended conflict. “The tensions are real,” he said, citing their territorial dispute over islands in the East China Sea. The increasing pace of military activities such as surveillance flights in the region by other nations, including South Korea and Russia, also raise risks, he said. “I worry about the military maneuvers in crowded airspaces and sea lanes” where an incident can escalate to something “beyond anyone’s ability to then de-escalate it,” Huntsman said in an interview on Bloomberg Television’s “Political Capital with Al Hunt” airing this weekend.
• Egyptians Rally as Tunisia Opposition Leader Death Stirs Unrest. Egypt’s army put up barbed wire and surrounded the gates of the Presidential Palace in Cairo as protesters pelted government buildings with rocks during rallies against President Mohamed Mursi and his Muslim Brotherhood. Protesters in Cairo marched from the Mostafa Mahmoud Mosque to Tahrir Square, and from the Nour Mosque to the palace today. Demonstrators blocked the subway in the city at Sadat station in the direction of the southern Helwan suburb, state-run Ahram Gate said on its website.
• The price-earnings ratio for the S&P 500 has risen 25% to 14.9 since October 2011.
• McDonald’s(MCD) January Store Sales Drop in Asia U.S Gains. McDonald’s Corp., the world’s largest restaurant chain, posted a surprise gain in U.S. same-store sales last month while demand slumped in the Asia Pacific region. Sales in the U.S. increased 0.9 percent in January, the Oak Brook, Illinois-based company said today in a statement. Analysts projected a drop of 0.3 percent, the average of 14 estimates compiled by Consensus Metrix. Sales in Asia Pacific, the Middle East and Africa plunged 9.5 percent while analysts anticipated a decline of 5.8 percent.

Wall Street Journal:

• Germany, Italy Data Show Divergence. Record German export statistics released Friday contrast sharply with Italy's feeble industrial performance, highlighting the two countries' economic divergence at a time when a strengthening euro is threatening to hurt foreign trade. Italian industrial production hit a 22-year low last year, as output dropped 6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains mired in recession. "This was a year of suffering for Italian industry," Istat said.

CNBC:

• Subprime Is Back: Will This End Badly? The subprime market for risky mortgage backed securities is hot again and its revival is exceeding many people's expectations, the chief market strategist at Rosenblatt Securities said. However, he expects it will end badly. "The subprime market's revival is proving to be even stronger than we had anticipated," Brian Reynolds said, in a research note. "This is just a credit cycle, and it will eventually end badly like the others." Rosenblatt Securities has been worried before. It showed outrage when General Motors bought AmeriCredit car loans firm in 2010. The deal repeated the excesses of the last credit cycle, it said at the time, when GM had to hive off its financial subsidiaries which then needed taxpayers' money to survive. And it has noticed another huge development this week. The Wall Street Journal reported that a joint venture between AIG and Fortress will be issuing a securitization of personal loans. "The average coupon on some of these loans is 25 percent, as some of them have no collateral. The A-rated tranche is expected to yield a whopping (for this environment) 2.5 percent, and we're pretty sure the enhanced cash and cash-plus pseudo-money market funds will gobble this up." This search for yield has angered Reynolds, who thought he would never see subprime personal loans again. He said the situation was now reminiscent of the structured finance boom that began in 1994. "We're tempted to go check the attic to see if we have some old Beanie Babies that we could securitize," he said.

Zero Hedge:

• US Trade Deficit Drops To Lowest Since January 2010 As Crude Imports Plunge To 1997 Levels. 
• An Italian "Hung Parliament" - Europe's Biggest Political Risk.
• High-Yield Bond ETF Outflows Spike To Record. (graph) 
• Friday Farce: 16 Year Old Outperforms 99% Of Hedge Funds: "Oh My Gosh, That's So Easy, I Have To Do This". (video) 
• Farage Demolishes Europe's "Troll Patrol". (video)

Business Insider:

• Everything You Need To Know About The Enormous Snowstorm Headed For The Northeast. 
• Two Chilling Developments Suggest Asia May Be One Step Away From War. 
• An Explanation Of The Derivatives Scandal That Could End Up Reshaping The Italian Election. 
• South Korea Talks Of A Pre-Emptive Strike On North Korea's Nukes. 
• Six States With Embarrassingly Low Credit Ratings. 
• Actually, It Looks Like GoDaddy Lost Up To $7 Million On That Disgusting Superbowl Ad.
• There's Going To Be A 'Brutal Reallocation Of Risk', And Then We'll See Where All The Hidden Leverage Is. 
• FINANCIAL ADVISOR INSIGHTS: Investment Newsletter Writers Haven't Been This Bullish On Stocks In 13 Years.

4-Traders.com:

• Bond ETFs inflows strong to start 2013. (video)

Reuters: 

• U.S. Treasury in no rush to exit Ally Financial stake -source. The U.S. Treasury, under pressure to quickly wind down its crisis-era bailouts, believes it will take time to shed auto lender Ally Financial because the company's mortgage lending unit is in a messy bankruptcy, a person familiar with the matter told Reuters. Ally is one of Treasury's largest remaining holdings, but the lender will be hard to exit as long as it is working through the bankruptcy of its Residential Capital unit and is also selling its international operations, the person said.
• Canada hit with surprise jobs loss, weak housing starts. Canada's economy unexpectedly shed jobs in January, while housing starts plunged, suggesting global uncertainty, weak prices for Canadian oil, and a government clampdown on the property market will drag on growth in early 2013.

AP: 

• Iraq bombs kill 36, Sunnis stage protest rallies. Car bombs struck two outdoor markets and a group of taxi vans in Shiite areas across Iraq on Friday, killing at least 36 people and wounding nearly 100 in the bloodiest day in more than two months, as minority Sunnis staged large anti-government protests.