Today's Headlines

Bloomberg:

• Draghi Says There's No 'External Savior' for Countries That Won't Reform. European Central Bank President Mario Draghi said there is no “external savior” for countries that don’t implement structural reforms to restore confidence to debt markets. “There is no external savior for a country that doesn’t want to save itself,” Draghi said in a speech in Berlin today. “I will never tire of saying the first response should come from the countries.” The ECB is buying the bonds of debt-strapped nations such as Italy and Spain after they agreed to implement austerity measures to improve their finances. Draghi nevertheless reiterated today that the ECB’s bond program is “neither eternal nor infinite.” He said an “unavoidable” short-term economic contraction in the euro area may be mitigated by a return of confidence if governments implement budget consolidation plans. “In the medium term, sustainable growth can be achieved only by undertaking deep structural reforms that have been procrastinated for too long,” he said.
• Schaeuble Says 'No Chance' U.S. Will Help in IMF Boost. German Finance Minister Wolfgang Schaeuble said he sees “no chance” that Congress would approve more U.S. money for the International Monetary Fund as a backstop against Europe’s debt crisis. Getting European countries to boost their IMF contributions is “more of a technical matter,” Schaeuble said in an interview on Deutschlandradio today, before a conference call among euro-area finance ministers. Germany’s Bundesbank will contribute if it’s guaranteed that the money will flow as a bilateral credit to the Washington-based fund’s general account, Schaeuble said. “In that case, the Bundesbank is in agreement.”
  
• German FDP’s Bruederle Sees Dissent on ESM Vote, Bild Says. Some lawmakers from Chancellor Angela Merkel’s Free Democratic coalition partner will probably vote against approving Europe’s permanent rescue fund when it goes to the German lower house, Rainer Bruederle, the party’s parliamentary leader, was quoted as saying by Bild. A few FDP members dissented in recent votes on euro-area matters and a similar thing is likely to happen when the European Stability Mechanism goes before the Bundestag in Berlin, Bruederle was quoted as saying in an interview in the newspaper today.
• Spain Bad Loans Rise to Highest Level Since '94 on Property Crash: Economy. Spanish banks reported more bad loans and lower lending and deposits in October, hurt by the fallout of the country’s property crash and the European sovereign debt crisis. The ratio of bad loans as a proportion of total lending climbed to 7.42 percent, the highest level since 1994, from 7.16 percent in September and 5.68 percent a year earlier as the value of borrowings in default rose to 131.9 billion euros ($171.9 billion), the Bank of Spain in Madrid said in a statement today. Lending fell 2.5 percent from a year ago, following a record 2.6 percent drop in September, and deposits slid 2.2 percent to their lowest level since 2008. Rising defaults and declining loans and deposits show how banks are suffering from the fallout of Spain’s property slump and a wider European debt crisis that has shut them out of wholesale debt markets. Spain’s Prime Minister-elect Mariano Rajoy, who is making an inaugural speech to parliament today, said that a “second wave” of restructuring of Spain’s banks is inevitable, including more mergers. “What we have been saying for a while, and I think the banks themselves have been in denial on this, is that the asset quality decline has not bottomed out yet because unemployment is still going up,” said Inigo Lecubarri, who helps manage about $300 million at Abaco Financials Fund in London. “A non- performing loans ratio of 7.4 percent is already very bad. Ten percent would be catastrophic and it’s not impossible we could get there.”
• Rajoy Vows Leaner Public Sector Amid 'Dark' Spain Outlook. Prime Minister-elect Mariano Rajoy pledged to shrink Spain’s public sector and reduce spending to tackle the euro area’s third-largest budget deficit without saying how he’ll finance higher pensions and tax breaks. “Expectations for the next two quarters are not good at all,” Rajoy said. With the economy “growing by half the rate of the rest of the European Union,” Spain is “being left behind” and “the outlook couldn’t be darker,” he said.
• U.S. Homebuilder Confidence Rises. Confidence among U.S. homebuilders rose in December for a third consecutive month, a sign of stabilization in the housing market. The National Association of Home Builders/Wells Fargo index of builder confidence climbed to 21, the highest level since May 2010, from a revised 19 in November that was lower than first reported, the Washington-based group said today. Economists projected an index of 20, according to the median forecast in a Bloomberg News survey. Readings below 50 mean more respondents said conditions were poor. Borrowing costs near a record low are attracting some prospective home buyers.
• Fed's Lacker Predicts U.S. Growt of Up to 2.5% in '12 Amid Inflation Risk. Federal Reserve Bank of Richmond President Jeffrey Lacker predicted the U.S. economy will grow 2 percent to 2.5 percent next year, with inflation likely to meet goals though posing a risk. The recent cooling in prices “is likely to prove as transitory, as did the acceleration we saw earlier in the year,” Lacker said in a speech in Charlotte, North Carolina. “Despite this year’s run-up, I believe the inflation outlook is reasonably good” though “I still view the risks to inflation as tilted to the upside.”
  
• Twitter Gets $300 Million Alwaleed Investment Amid Site Revamp. Twitter Inc., the microblogging service with more than 100 million users, won a $300 million investment from Saudi investor Prince Alwaleed bin Talal as it pushes through a redesign of its site to attract advertisers. Alwaleed and his investment company agreed to buy a “strategic stake,” Kingdom Holding said today, without giving details.
• North Korean Stability May Hinge on Military's Acceptance of Kim Dynasty. The stability of nuclear-armed North Korea may hinge on whether its military and the family of deceased dictator Kim Jong Il agree that his little-known, twenty-something son can extend six decades of dynastic rule. Kim Jong Un was named to high-level military and party posts in September 2010. Kim Jong Il, who died of a heart attack Dec. 17, groomed his son for succession by featuring him prominently at a party congress and having him meet with foreign dignitaries. The younger Kim is slated to take the reins of an economy whose 24 million largely impoverished people -- five percent of whom serve in the military -- have almost no access to outside media and suffer from chronic malnutrition. North Korea shows no signs of abandoning its nuclear weapons program in the face of global sanctions and any sign of concessions from the new leader could undermine his position.
• Egypt's Army Blames Protestors for Violence. Egypt’s military accused protesters of “methodical” attacks and said soldiers showed self- restraint as clashes continued for the fourth day in central Cairo, leaving 12 people dead and hundreds injured. Groups of demonstrators surrounded the bloodstains of a protester they said was killed by a bullet to the head when soldiers charged at dawn into Tahrir square, the focus of the revolt that toppled President Hosni Mubarak. In addition to the deaths, 815 people were injured, the state-run Middle East News Agency said. The violence is the latest confrontation between protesters and the military, which took interim power after Mubarak was ousted in February. The unrest threatens to further undermine the ailing economy, with the benchmark stock index down more than 46 percent this year and the country missing its target for the sale of Treasury bills today. “The ruling supreme military council is becoming more rigid and aggressive and appears incapable of marginalizing protesters without resorting to violence,” Hani Sabra, an analyst on the region for the New York-based Eurasia Group, said today by e-mail. “The military appears incapable of discipline and has failed to capitalize on its popularity.”

Wall Street Journal:

• EU Loans to IMF Likely to Fall Short of Expected EUR200 Billion: Sources. Euro-zone finance ministers will try Monday to finalize a loan to the International Monetary Fund, but the European Union as a whole is unlikely to meet the EUR200 billion target set by leaders on Dec 9, IMF and euro-zone officials said. "There will be an effort to get an agreement on the EUR150 billion committed by the euro zone, but it's not certain it will happen today and it certainly looks like we'll fall short of the total EUR200 billion by all of the EU," said a senior IMF official.
• EU Admits Tax Hikes, Spending Cuts Risk For Jobs. A new report released by the European Commission late last week underlines the devastating consequences of the financial crisis on youth employment, and acknowledged the difficulty in implementing policies to alleviate this crisis as the European Union focuses on austerity. “Young people remain the hardest hit by the crisis and its aftermath,” says the report, and the faltering recovery is expected to make things worse. “In short, income shocks may prove permanent and income losses at the bottom of the distribution can be persistent.” The consequences can be long-term scarring for youth, with future employability and earnings at risk. The EU report also concludes that the risks of long-term exclusion from the labor market and society are increasing for the jobless.
• Foreign Banks Stressed in U.S. as Funds Dry Up: Credit Markets. U.S. branches of foreign banks, struggling to tap American markets for short-term funding amid the European debt crisis, are using up their cash at the fastest pace since at least 2006 and seeking infusions of dollars from their home countries. Non-U.S. banks' cash plunged almost 40 percent, or $420 billion, in the five months ended Nov. 30, leading to an 18 percent decline in assets, according to Federal Reserve data tracked by Barclays Plc. The Fed's swap lines to foreign central banks, used to make dollars available abroad, surged last week after six central banks lowered the cost of obtaining greenbacks on Nov. 30. U.S. commercial paper issued by foreign banks fell to the lowest level since August 2009. "There has been a dramatic melting away since the end of June of non-U.S. banks cash holdings," said Joseph Abate, a strategist at Barclays Capital in New York. "As financing conditions have tightened and come under stress, foreign banks' U.S. branches have switched from exporting dollars back to their headquarters to effectively importing them." Banks are losing access to U.S. funding as European leaders fail to convince investors they can contain a crisis that led to bailouts of Greece, Ireland and Portugal and now threatens Italy and Spain. French banks lost almost 50 percent of their financing from money-market funds in the five-month period ended Nov. 30, Barclays said. The premium lenders pay to convert euro payments into dollars soared to the most since 2008.
• House Members Received VIP Loans. Oversight Panel Raises Concern of 'Possible Wrongdoing' in Borrowings From Countrywide Financial by Four in Congress. Four current members of the House of Representatives received loans through the controversial VIP program of Countrywide Financial Corp., according to the chairman of a congressional committee, raising new questions about possible efforts to curry political influence by the onetime mortgage giant whose troubles helped spark the 2008 financial meltdown. The disclosure of the congressional loans came in a Friday letter from Rep. Darrell Issa (R., Calif.) to the House ethics committee alerting members of that panel of "possible wrongdoing by Members of Congress."
• Schnitzer(SCHN) Sees Worse-Than-Expected 1Q On Weakened Demand. Schnitzer Steel Industries Inc. (SCHN) expects to post weaker than expected fiscal first-quarter results as a result of a weaker-than-anticipated global market for recycled metals. Shares were down roughly 6% at $43.01 in recent premarket trading. Through Friday's close, the stock is down 31% this year. The company said heightened concerns about the global economy led to a significant slowdown in buying patterns and a rapid decline in average selling prices during the quarter. For the period ended Nov. 30, Schnitzer forecast per-share earnings of 18 cents to 25 cents. Analysts polled by Thomson Reuters recently projected 55 cents. Schnitzer now expects operating earnings per ferrous ton to fall about 50% from year-earlier levels of $21 a ton in the metals recycling segment -- its largest business. In December, Schnitzer had expected operating earnings would be roughly flat with the year-earlier period. Operating income in the auto-parts segment is expected to decline 30%.
• Chinese Villagers Vow Protests Will Persist. Residents of this besieged southern village vowed to carry on protests this week and showed signs of settling in for a protracted standoff with Chinese authorities, even amid indications that the government has stepped up security efforts in the region. On Sunday, residents from other villages donated bags of rice and other supplies to Wukan, according to locals. The village's main square was quiet Sunday night, but resident left benches and a stage set up for more rallies planned later this week.

Business Insider:

• El-Erian: The REAL Reason Europe Is Begging For Help From The IMF.
• China's Housing Bust: A Potentially Devastating Blind Side In 2012.
• A Look at the North Korean Military Forces Now in the Hands of 29 Year Old Kim Jong Un.
• DSK: No 'Firewall' Exists, Europe Has 'Only Weeks'. In his first formal public address since facing charges, later dropped, for the attempted rape of a hotel maid in New York, Dominique Strauss-Kahn offered a blunt assessment of his former peers' performance during the European debt crisis.

Zero Hedge:

• As Liquidity Swap Impact Fades, ECB Is Back To Propping Up Peripheral Bond Markets In Size. (graph)
• Jon Corzine, MF Global, And Unaccountability.
• A Quick And Dirty Look At Japan's Nearly ¥1 Quadrillion In Debt.
• Bill Gross Insinuates The ECB's Upcoming LTRO Is Merely A Shell Game.

New York Times:

• ECB Warns of Dangers Ahead for Euro Zone Economy. The European Central Bank warned Monday of a perilous year ahead as the sovereign debt crisis collides with slower economic growth and a dearth of market funding for banks. But the E.C.B., in its twice-yearly assessment of risks to the euro area financial system, did not mention one risk that clearly weighs on many investors, economists and political leaders: the possibility that the euro zone could break up.

The Daily:

• FBI Launches Probe of Fannie, Freddie. Federal investigators want to know whether executives at mortgage finance giants Fannie Mae and Freddie Mac misled investors and the public about risky mortgages in the lead-up to the 2008 financial crisis. High-ranking sources with the Department of Justice told The Daily that the FBI and other federal authorities have launched investigations into the matter. The development comes as the Securities and Exchange Commission filed suit yesterday against six former top executives at Fannie and Freddie.
  

Opalesque:

• NYC Takes Anti-Hedge Fund Tax Stance. New York City has long held a reputation as America's financial center. The city is home to major exchanges, banks and some of the world’s largest hedge funds. Indeed, the city's mayor Michael Bloomberg made a name for himself providing services for financial professionals. However, this may be changing as city finance officials have opted to abruptly reassess how they collect taxes from hedge funds. I spoke with Alexis Gelinas, Attorney at New York based law firm Sadis & Goldberg LLP, about the shift and its potential impact.

Reuters:

• Britain Refuses to Take Part in EU IMF Fund: Sources. British finance minister George Osborne told European Union colleagues on Monday he would not take part in any proposed EU cash boost to the International Monetary Fund specifically aimed at the euro zone debt crisis, Treasury sources said. "We were clear that we would not be making a contribution," one source said. Another said there was "no agreement on the 200 billion" fund.
• Copper Slips on China Slowdown Fears.
  

The Economist:

• Gasping for Breath. Short of authority and direction, India’s rulers flail in the face of growing problems.

Telegraph:

• Debt Crisis: Live.

Kathimerini:

• Greece's government needs to adopt additional measures worth $2.6 billion in the first quarter of next year. A team of officials from the European Commission, ECB and IMF asked Greece to have the additional measures ready when it returns to Athens next month. The troika wants the measures, which are to be implemented in the first three months of next year, to be part of a second international bailout Greece is negotiating which is due to be signed in June.

Bear Radar

Style Underperformer:

• Mid-Cap Value (-.91%)

Sector Underperformers:

• 1) Coal -3.70% 2) Airlines -3.10% 3) Steel -2.20%

Stocks Falling on Unusual Volume:

• C, JPM, CLF, IOC, BP, TEVA, JAKK, SCHN, VPRT, AWAY, ARUN, ATHN, LRCX, ABMD, CVV, NVLS, FSLR, PLCE, MAT, SINA, PEGA, PICO, IOO, IXG, WBK, RGC, IAK, EXI, AWAY and P
  

Stocks With Unusual Put Option Activity:

• 1) NSC 2) C 3) SOHU 4) EWY 5) HD
  

Stocks With Most Negative News Mentions:

• 1) RIMM 2) FSLR 3) DO 4) XLNX 5) WFC
  

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume
  

Bull Radar

Style Outperformer:

• Large-Cap Growth (-.34%)

Sector Outperformers:

• 1) Tobacco +.89% 2) Biotech +.59% 3) Drugs +.49%

Stocks Rising on Unusual Volume:

• INHX, SPPI, ADES and ZIP
  

Stocks With Unusual Call Option Activity:

• 1) AMLN 2) CECO 3) BPAX 4) CLSN 5) SVU
  

Stocks With Most Positive News Mentions:

• 1) ZMH 2) PTEN 3) ADS 4) NOC 5) LMT
  

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume
  

Monday Watch

Weekend Headlines
Bloomberg:

• North Korea's Kim Jong Il Dies. Kim Jong Il, the second-generation North Korean dictator who defied global condemnation to build nuclear weapons while his people starved, has died, state media reported. A government statement called on North Koreans to “loyally follow” his son, Kim Jong Un. Kim, 70, died on Dec. 17 of exhaustion brought on by a sudden illness while on a domestic train trip, the official Korean Central News Agency said. Kim probably had a stroke in August 2008 and may have also contracted pancreatic cancer, according to South Korean news reports. The son of Kim Il Sung, North Korea’s founder, Kim was a chain-smoking recluse who ruled for 17 years after coming to power in July 1994 and resisted opening up to the outside world in order to protect his regime. The likely succession of his little-known third son, Jong Un, threatens to trigger a dangerous period for the Korean peninsula, where 1.7 million troops from the two Koreas and the U.S. square off every day. “Kim Jong Un’s taking complete control of the helm will not take place for a while due to his youth and inexperienced leadership,” said Yang Moo Jin, a professor at the University of North Korean Studies in Seoul. “The North will likely be under the control of a governing body for about a year.” A state television announcer wept as she read the news of Kim’s death. Footage was aired of thousands of people in the main square of the capital of Pyongyang cheering in unison and waving Kimjongilia, a flower named after the deceased leader. Jong Un, is at the “forefront of the revolution,” KCNA said in its statement of the elder Kim’s death. While official reports give Kim’s age as 69, Russian records indicate he was born in Siberia in February 1941. South Korea’s won declined as much as 1.6 percent to a two-month low of 1,177.15 per dollar and government bonds dropped after the news. The Kospi index lost 4.2 percent to 1,762.34 as of 12:38 p.m. in Seoul.
• French Take Aim at Britain as Credit-Downgrade Worry Mounts. French officials deflected concern about a looming cut in the country’s AAA credit rating by lashing out at Britain. “It’s better to be French than British, economically speaking,” French Finance Minister Francois Baroin said in an interview yesterday on Europe 1 radio, following verbal jabs against the U.K. by Prime Minister Francois Fillon and Christian Noyer, the governor of the Bank of France. British Deputy Prime Minister Nick Clegg called the remarks “unacceptable” and asked for steps “to calm the rhetoric.” With the French economy sinking into recession amid the euro-area credit crunch, the officials’ comments serve two purposes, according to Paul Vallet, a professor of international relations at Paris’ Sciences-Po university: prepare public opinion for a possible rating cut and convince voters in an election year that President Nicolas Sarkozy is an effective crisis manager. “There’s a lot of political posturing going on with the elections,” said Vallet. “They have to convince public opinion they are responding to the crisis and that it’s much worse elsewhere.” Sarkozy trails his Socialist Party challenger Francois Hollande by six points before May’s presidential election, according to a Harris Interactive poll published Dec. 15. “There is a search for scapegoats across Europe,” said Vallet. “In the U.K. they are shifting blame to the Germans, and the Germans are blaming everyone.”
• Euro 8% Stronger Than Average Since 1999 as Losses Seen for 2012. The euro, after falling to its weakest level against the dollar since January, is poised to depreciate further as traders lose confidence in the ability of European leaders to contain the region’s debt crisis. Measures in the derivatives market ranging from future volatility implied by option prices to the cost of insuring against a drop in the euro to the record number of bearish bets by hedge funds and other speculators, show traders expect the blueprint unveiled by European leaders this month for a closer fiscal accord will fail to stem the declines. While the euro at $1.3046 remains 8.3 percent above the average since it began trading in 1999, bears say that provides more scope for depreciation as bond yields in Italy and Spain approach levels that prompted bailouts of Greece, Ireland and Portugal. Companies from Spain’s Grupo Gowex to Germany’s GEA Group AG are preparing for some countries to leave the euro and bank failures. “The euro trading where it is now reflects a global lack of confidence in those dealing with the sovereign debt crisis,” Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London, said in a telephone interview on Dec. 14. “It is also a signal of more bad news to come in the euro zone. I am not certain what future euro negatives lie ahead, but I am certain there will be more.”
• IMF Bazooka Is Between Meaningless, Dangerous: Simon Johnson. Financial rescue plans for Europe are becoming ever more fanciful. Increasingly, policy analysts in Europe and the U.S. turn to the International Monetary Fund to provide what is termed “the bazooka” -- meaning a lot of money underpinning a scaled-up bailout for Italy, other troubled countries and, of course, Europe’s failing banks. This proposal is somewhere between meaningless and dangerous, depending on its precise form. The good news is that it will not happen. The bad news is that no one is prepared for the real consequences of the bazooka proving to be illusory.
• China Debts Dwarf Official data With Too-Big-to-Finish Alarm. A copy of Manhattan, complete with Rockefeller and Lincoln centers and what passes for the Hudson River, is under construction an hour’s train ride from Beijing. And like New York City in the 1970s, it may need a bailout. Debt accumulated by companies financing local governments such as Tianjin, home to the New York lookalike project, is rising, a survey of Chinese-language bond prospectuses issued this year indicates. It also suggests the total owed by all such entities likely dwarfs the count by China’s national auditor and figures disclosed by banks. Bloomberg News tallied the debt disclosed by all 231 local government financing companies that sold bonds, notes or commercial paper through Dec. 10 this year. The total amounted to 3.96 trillion yuan ($622 billion), mostly in bank loans, more than the current size of the European bailout fund. There are 6,576 of such entities across China, according to a June count by the National Audit Office, which put their total debt at 4.97 trillion yuan. That means the 231 borrowers studied by Bloomberg have alone amassed more than three-quarters of the overall debt. The fact so few of the companies have accumulated that much debt suggests a bigger problem, says Fraser Howie, the Singapore-based managing director of CLSA Asia-Pacific Markets who has written two books on China’s financial system. “You should be more worried than you think,” he said of Bloomberg’s findings. “Certainly more worried than the banks will tell you. “You know how this story ends -- badly,” he said.
• China November Home Prices Post Worse Performance This Year. China’s home prices posted their worst performance this year with more than half of the 70 biggest cities monitored in November recording declines after the government reiterated plans to maintain property curbs. New home prices dropped from the previous month in 49 of the cities monitored by the government, compared with 33 posting decreases in October, the national statistics bureau said in a statement on its website yesterday. Only five cities had gains in home prices, according to the statement. “Home prices will fall further as the government’s tightening continues,” said Jinsong Du, a Hong Kong-based property analyst for Credit Suisse Group AG. “We’ll see more small developers file for bankruptcy or sell off their assets next year.” The government said last week it won’t back away from real- estate industry curbs that are damping home sales and pulling down prices. China intensified measures this year by raising down payment and mortgage requirements and also imposed home purchase restrictions in 40 cities. New home prices in China’s four major cities of Shanghai, Beijing, Shenzhen and Guangzhou each retreated 0.3 percent from October, the biggest monthly falls for these metropolitan areas this year, according to data from the statistics bureau. The eastern port city of Ningbo and Shenyang in the north close to the North Korean border posted the biggest month-on- month declines of 0.6 percent.
• China 2012 Metals Demand to Grow at Slower Pace, Group Says. Metal demand in China, the biggest consumer of copper and aluminum, may grow at a slower pace in 2012 and prices may be lower than this year, Wang Huajun, deputy secretary-general of the China Nonferrous Metals Industry Association. “It is unlikely to see metals demand to grow at more than 10 percent next year,” given the macroeconomic environment, Wang said at a forum in Shanghai. He did not give comparative figures for this year. Slower China demand may further pressure metals prices, which have fallen 23 percent this year on the London Metal Exchange LMEX Index, the first decline since 2008. (LMEX) Commodities are set for a “difficult environment” in 2012 amid a possible dissolution of the European Union and a “hard landing” in China, UBS AG said Nov. 30.
• Hong Kong Luxury Rents Reach 'Tipping Point' as Banks Retrench. Hong Kong luxury home rents, which fell last quarter for the first time since mid-2009, may slump 10 percent next year as banks and hedge funds scale back amid the threat of a global recession, according to brokers including Jones Lang LaSalle Inc. and Colliers International. “We’re definitely at that tipping point,” said Anne-Marie Sage, Hong Kong-based head of residential leasing at Jones Lang, the world’s second-largest commercial brokerage. “We’ve began to see vacancies at the very top end of the market. The banking and the financial sector have basically stopped all movement.”
• U.S. 'Deeply Concerned' Hungary Democracy Weakening, Hvg.hu Says. The U.S. is “deeply” concerned that Hungary’s democracy is weakening as the government “eliminates” checks and balances on its power, news website hvg.hu reported late yesterday, citing Thomas O. Melia, Deputy Assistant Secretary at the Department of State. A draft law which would curb the power of the central bank is the latest in a series of measures that add to the worries the U.S. government has over Hungary, hvg.hu said, citing an interview with Melia. Hungary’s ruling party’s action of filling the judiciary with its own people also threatens the independence of that branch of the state, Melia told the website. The proposed changes on the governance of the central bank are “even more problematic” because they may undermine an institution central to the working of the free market, he added.
• India Inflation, Infrastructure Problems Persist. Truck driver Sujan Singh should be delivering cars to Mumbai from Maruti Suzuki India Ltd. (MSIL)’s plant near New Delhi. Instead, he’s sitting at a roadside cafe by one of India’s busiest highways, waiting for the traffic to ease. “I’ll start again in the evening and travel through the night as you face huge congestion during the daytime,” he said, enjoying the warmth of a burning pile of trash in the New Delhi winter air. “Most of the highways are just single lanes and the roads are so uneven and bad that that it causes accidents.” India’s failure to upgrade its 4.2 million kilometers (2.6 million miles) of roads, close a 10 percent power deficit and ease congestion at ports is hobbling the central bank’s efforts to beat inflation. Even after raising interest rates by a record 375 basis points in 1 1/2 years, wholesale prices have risen more than 9 percent for 12 straight months.
• U.S. Online Holiday-Season Spending Close to $31 Billion, ComScore Says. U.S. online spending for the holiday season has risen 15 percent to $30.9 billion from the year- earlier period, ComScore Inc. (SCOR) said. Four days during the week ended Dec. 16 topped $1 billion, the Internet-traffic researcher said in a statement. Sales for last week were $6.32 billion, also up 15 percent. Spending is expected to slow as Christmas Day nears, ComScore said. This means Cyber Monday, Nov. 28, is likely to be the single top online spending day with $1.25 billion, followed by $1.13 billion in purchases on Dec. 12 and $1.07 billion on Dec. 16, or Free Shipping Day. The data measured the 46-day period from Nov. 1 to Dec. 16.
• Oil Trades Near Six-Week Low on Speculation Europe Crisis Will Curb Demand. Oil dropped for a fourth day before Europe’s latest attempt to contain a sovereign debt crisis that threatens to slow economic growth and demand for fuel. Futures in New York fell as much as 0.5 percent in the longest losing streak since the five days ended Aug. 4. European Union finance ministers will hold a conference call today in an attempt to meet a self-imposed deadline for drawing additional aid and cobbling together new budget rules. Europe’s demand for crude will decline 2.8 percent in the first quarter of next year from this year’s fourth quarter, the International Energy Agency forecast on Dec. 13. “The demand picture is starting to look weak,” said Jonathan Barratt, a managing director at Commodity Broking Services Pty in Sydney who predicts oil in New York may drop to $90 a barrel. “You are seeing continued news that reinforces a slowdown and that’s weighing on the price of crude.” Crude for January delivery fell as much as 47 cents to $93.06 a barrel in electronic trading on the New York Mercantile Exchange and was at $93.25 at 1:57 p.m. Sydney time.

Wall Street Journal:

• Live Blog: North Korea Leader Kim Jong Il Has Died.
• US Lenders Losing Battle of 'Basel'. The Federal Reserve is expected to embrace a new global framework that requires giant financial institutions to hold extra capital, said people familiar with the situation. The central bank's decision to accept the rules laid out by regulators in Basel, Switzerland, as part of a draft proposal that could come before Christmas is a defeat for giant U.S. banks that argued the guidelines needn't be so strict. They contended the Basel approach could prompt them to reduce lending and hurt the economy.
• Apple(AAPL) Plots Its TV Assault. Apple Inc. is moving forward with its assault on television, following up on the ambitions of its late co-founder, Steve Jobs. In recent weeks, Apple executives have discussed their vision for the future of TV with media executives at several large companies, according to people familiar with the matter. Apple is also working on its own television that relies on wireless streaming technology to access shows, movies and other content, according to people briefed on the project.
• Beyond Borders: Europeans Stash Money Elsewhere. Southern European investors, fearful of the health of their banks and the future of the euro, are increasingly stashing their wealth in currencies, real estate and investment products outside the euro zone, say bankers and government officials. In a troubling sign for European banks, investors in Greece, Portugal and Italy are asking bankers and lawyers for ways to protect their money in the case of a failure of euro-zone banks or a breakup of the euro itself. Some are converting deposits into currencies such as the Swiss franc.
• Fitch: Let's Talk About It. The president of Fitch Ratings said the credit-rating firm has sought to telegraph credit-rating changes to investors in order to limit the volatility that can be caused by such moves. "We're trying to be less volatile," Paul Taylor, Fitch's president since January 2010, said in an interview. "We're trying to give as good a direction as we can by laying out what the outcomes could be."
• Italian Industry Minister Rules Out Another Austerity Package. Italian Industry Minister Corrado Passera Sunday ruled out a new austerity plan, adding that the government will continue to fight tax evasion, sell digital-television frequencies and continue the liberalization of professions as part of its program of boosting economic growth.
• The EPA's Fracking Scare. Breaking down the facts in that Wyoming drinking water study.

Marketwatch.com:

• France Finally Realizing What a Bad Deal Euro Was.
  

CNBC:

• Cost of Payroll Tax Cut: Another $17 a Month on Most Mortgages. Who is paying for the two-month extension of the payroll tax cut working its way through Congress? The cost is being dropped in the laps of most people who buy homes or refinance beginning next year.
• Housing Recovery Held Back by Web of Program Roadblocks.

Business Insider:

• The ONLY 10 Things That Are Known About North Korea's New Leader.
• You've Got To See The Latest Pictures From Tahrir Square. Even as votes are being counted from Egypt's election, the country is descending into levels of violence seen during the Arab Spring. A sit-in around government buildings in Cairo -- #OccupyCabinet -- was broken up by the army on Friday morning. Over the next 24 hours unrelenting clashes left buildings on fire, 8 dead, and 299 injured.
• China: The Hard Landing Is Still In Sight.
• There's An 82% Chance That California's Public Pension System Will Run Out Of Money.
• 14 Straight Quarters Of Falling Home Prices May Be More Than Spanish Banks Can Survive.
• Moody's Cuts Belgium's Credit Rating By Two Notches.
• Here's What Happens If Nicolas Sarkozy Can't Win Re-Election.

Zero Hedge:

• Things That Make You Go Hmmm - Such As Europe's "Comprehensive Solution".
• Fed May Inject Over $1 Trillion To Bail Out Europe.

NY Post:

• MF 'broke the rules'. He’s turning into Jon Corzine’s worst nightmare. And Terrence Duffy, CEO of CME Group(CME). the Chicago-based commodities exchange, appears to be the most vocal critic during the seven-week scavenger hunt for the $1.2 billion in missing MF Global’s client funds. During multiple Capitol Hill hearings — all held in the last 10 days — to get to the bottom of the missing money, Duffy has made no bones that he thinks the money vanished because MF “broke rules.” “I’m here to tell the truth to the Congress,” Duffy told The Post exclusively. Duffy, 53, who heads up the nation’s biggest derivatives and futures exchange, said “I’m here to protect this business and grow it.” And he does not want the CME to be harmed by MF’s actions.
  

Washington Examiner:

• EPA Sets Air Toxics Rule for Coal-Fired Power Plants, Group Says. The Environmental Protection Agency signed a rule to curb toxic emissions from coal-fired power plants, the most-expensive order being considered by President Obama's administration, according to an environmental advocate briefed on the agency's action. The regulation includes details for how companies such as American Electric Power Co. and Southern Co. can apply for additional time to comply with the standards for emissions of mercury, arsenic and acid gases, said Howard Learner, executive director of the Environmental Law & Policy Center in Chicago.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 23% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-two percent (42%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -19 (see trends).

AP:

• ECB's Stark Discusses Resignation. A top European Central Bank official has publicly discussed the reasons for his surprise resignation, saying he is not satisfied with the direction Europe's currency union has taken. Juergen Stark said in an interview in Monday's edition of Germany's Wirtschaftswoche magazine that the ECB had done its job by keeping inflation under control across the eurozone, which it does through adjusting interest rates. But he said some governments had tolerated excessive wage costs and unsustainable real estate booms that preceded today's debt crisis. Stark is leaving at the end of the year, 2 1/2 years before the end of his eight-year term on the bank's six-member executive board. The council runs the bank day-to-day at its Frankfurt heaquarters, while interest rate decisions are taken by the broader 23-member government council, on which Stark also sits. Stark was quoted as saying that "there is a broad theme that serves as the reason for this: that I am not satisfied with the way this currency union has developed." Stark said the ECB had done its part by keeping inflation under control but could not be expected to clean up policy mistakes by individual governments that ran up too much debt or let their economies become uncompetitive through high labor costs. "Don't overburden the central bank," he said. Analysts have said he appears to have left because of opposition to the European Central Bank's program to buy government bonds. Stark repeated his longstanding opposition to calls for the ECB to sharply increase the bond purchases through its power to create new money. He said that would violate the prohibition in the EU treaty on the ECB using its monetary powers to finance governments, although it is a step that the U.S. Federal Reserve has been allowed to take. Stark dismissed calls by "real or self-styled experts" to use the "big bazooka" of printing money. "It is a fundamental arrangmenet of a currency union that the monetary financing of state debts through the ECB is not permitted," he said.

Financial Times:

• Draghi Warns on Eurozone Break-Up. Mario Draghi has warned of the costs of a eurozone break-up, breaching a taboo for a president of the European Central Bank, even as he sought to play down market expectations about the ECB’s role in combating the sovereign debt crisis. Mr Draghi’s willingness to discuss a scenario for Europe’s 13-year-old monetary union that his predecessor, Jean-Claude Trichet, simply described as “absurd,” highlights the high stakes in the eurozone debt crisis, which has rattled global financial markets.

The Telegraph:

• Workers of Europe Unite, You've Only Euro Chains to Lose. The question for today’s Left is whether it is in their interests to keep apologising for an EU monetary regime that has pushed the jobless rate for youth to 49pc in Spain, 45pc in Greece, 30pc in Portugal and Ireland, 29pc in Italy and 24pc in France – yet 8.9pc in undervalued Germany – and that offers no credible way out of the slump for the Southern half. Comrades across Europe, come over to the eurosceptic side. You have only your euro chains to lose.
• If the euro is saved then Britain should quit the EU and say good riddance. The season of good cheer may be upon us but in this, my last column of the year, I want to discuss the attractions of good riddance. My subject is Britain’s relations with the EU.

RAI TV:

• Italy's 30 billion euro emergency-budget plan is too focused on raising taxes and should have reduced public spending more, former Finance Minister Giulio Tremonti said. The package should have contained more economic-growth measures and has not sparked a positive reaction from financial markets, Tremonti said in an interview. Italy will probably need to pass additional austerity measures, though Tremonti opposes such a move, he said.

Il Sole 24 Ore:

• Italy would have ended up like Greece had the government not pushed through a $39 billion emergency budget, Deputy Finance Minister Vittorio Grilli said. Without the package, "our future was Greece," Grilli said.
• Increasing the haircut on Greek sovereign debt to 80% is "unacceptable," BNP Paribas SA Chairman Baudouin Prot said in an interview. BNP Paribas has "absolutely no" contingency plan for a possible breakup of the euro area, Prot said.

Australian Financial Review:

• Australian Bank Rules May Trigger Credit Squeeze. Local regulator's 'hardline' application of new int'l bank rules are at odds with Europe, U.S., may put Australian banks at a disadvantage and force higher interest rates for business, former Commonwealth Bank of Australia boss Ralph Norris wrote.

Xinhua:

• Chinese Vice President Xi Jinping urged local governments not to evaluate officials' performance based 'simply' on economic output or growth rate.
  

Beijing News:

• Zhang Ping, China's National Development and Reform Commission Chairman, said the nation will continue to "strictly" implement measures to curb speculative demand in the property market. China will continue to improve control measures on property prices and study rules to prevent exorbitant profit in the area of housing, citing Zhang.
  

Jordan Times:

• The U.S. will give Jordan an annual assistance of $660 million next year, citing the Ministry of Planning and International Cooperation.
  

Asharq Al-Awsat:

• The Gulf Cooperation Council's plan for a single currency has been postponed indefinately, citing Abdullah Al-Shebli, assistant secretary-general for economic affairs at the GCC Secretariat.

Weekend Recommendations
Barron's:

• Made positive comments on (CSTR) and (RGR).
• Made negative comments on (CONN).
  

Night Trading

• Asian indices are -3.0% to -1.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 211.0 -1.0 basis point.
• Asia Pacific Sovereign CDS Index 157.0 -.75 basis point.
• FTSE-100 futures -1.15%.
  
• S&P 500 futures -.68%.
• NASDAQ 100 futures -.58%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (RHT)/.26

Economic Releases
10:00 am EST

• The NAHB Housing Market Index for December is estimated at 20.0 versus 20.0 in November.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Lacker speaking, 2-Year Treasury Note Auction and the (HI) Investor Day could also impact trading today.
  

BOTTOM LINE: Asian indices are sharply lower, weighed down by commodity and technology shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the week.

Weekly Outlook

U.S. Week Ahead by MarketWatch (video).
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week mixed as seasonal strength, investor performance angst and lower food/energy prices offsets rising global growth fears, technical selling and rising Eurozone debt angst. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 50% net long heading into the week.

Market Week in Review

S&P 500 1,219.66 -2.83%*



The Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices

• S&P 500 1,219.66 -2.83%
  
• DJIA 11,866.30 -2.61%
  
• NASDAQ 2,555.33 -3.47%
  
• Russell 2000 722.05 -3.13%
  
• Wilshire 5000 12,634.40 -2.89%
  
• Russell 1000 Growth 566.33 -3.24%
  
• Russell 1000 Value 604.49 -2.51%
  
• Morgan Stanley Consumer 740.34 -1.0%
  
• Morgan Stanley Cyclical 858.43 -4.87%
• Morgan Stanley Technology 583.18 -5.16%
  
• Transports 4,906.26 -1.02%
  
• Utilities 446.15 -.18%
  
• MSCI Emerging Markets 37.54 -3.52%
  
• Lyxor L/S Equity Long Bias Index 965.44 -2.01%
  
• Lyxor L/S Equity Variable Bias Index 826.46 -1.5%
  
• Lyxor L/S Equity Short Bias Index 605.97 +.67%
  

Sentiment/Internals

• NYSE Cumulative A/D Line 123,816 -2.47%
  
• Bloomberg New Highs-Lows Index -484 -216
  
• Bloomberg Crude Oil % Bulls 35.0 +6.1%
  
• CFTC Oil Net Speculative Position 149,303 -4.2%
  
• CFTC Oil Total Open Interest 1,346,495 +1.05%
  
• Total Put/Call 1.20 +.84%
  
• OEX Put/Call 1.99 +5.85%
  
• ISE Sentiment 74.0 -51.6%
  
• NYSE Arms .82 +57.69%
  
• Volatility(VIX) 24.29 -7.92%
• S&P 500 Implied Correlation 83.94 +6.35%
  
• G7 Currency Volatility (VXY) 12.06 -6.8%
  
• Smart Money Flow Index 10,026.49 -2.58%
  
• Money Mkt Mutual Fund Assets $2.678 Trillion unch.
  
• AAII % Bulls 40.2 +4.20%
  
• AAII % Bears 33.6 -3.22%

Futures Spot Prices

• CRB Index 295.0 -3.73%
  
• Crude Oil 93.53 -6.31%
  
• Reformulated Gasoline 248.70 -4.44%
  
• Natural Gas 3.13 -6.32%
  
• Heating Oil 280.05 -4.05%
  
• Gold 1,597.90 -6.82%
  
• Bloomberg Base Metals Index 199.41 -4.83%
  
• Copper 333.10 -6.79%
  
• US No. 1 Heavy Melt Scrap Steel 401.67 USD/Ton unch.
  
• China Iron Ore Spot 132.10 USD/Ton -5.31%
  
• UBS-Bloomberg Agriculture 1,422.03 -.59%
  

Economy

• ECRI Weekly Leading Economic Index Growth Rate -7.5% +10 basis points
• Philly Fed ADS Real-Time Business Conditions Index -.1237 +13.19%
  
• S&P 500 EPS Estimates (FY 2012 Mean) 108.70 -.17%
  
• Citi US Economic Surprise Index 75.50 -2.5 points
  
• Fed Fund Futures imply 36.0% chance of no change, 64.0% chance of 25 basis point cut on 1/25
• US Dollar Index 80.26 +2.12%
  
• Yield Curve 162.0 -21 basis points
  
• 10-Year US Treasury Yield 1.85% -21 basis points
  
• Federal Reserve's Balance Sheet $2.885 Trillion +2.92%
  
• U.S. Sovereign Debt Credit Default Swap 50.83 -3.02%
  
• Illinois Municipal Debt Credit Default Swap 282.0 +4.59%
  
• Western Europe Sovereign Debt Credit Default Swap Index 379.03 +3.18%
• Emerging Markets Sovereign Debt CDS Index 302.0 +3.19%
  
• Saudi Sovereign Debt Credit Default Swap 127.0 -.50%
• Iraqi 2028 Government Bonds 82.07 -1.11%
• China Blended Corporate Spread Index 787.0 +23 basis points
  
• 10-Year TIPS Spread 1.91% -12 basis points
  
• TED Spread 57.0 +3 basis points
  
• 3-Month Euribor/OIS Spread 94.0 -2 basis points
• 3-Month EUR/USD Cross-Currency Basis Swap -122.0 unch.
  
• N. America Investment Grade Credit Default Swap Index 128.69 +4.97%
  
• Euro Financial Sector Credit Default Swap Index 299.45 +6.10%
  
• Emerging Markets Credit Default Swap Index 312.99 +6.08%
  
• CMBS Super Senior AAA 10-Year Treasury Spread 245.0 -31 basis points
  
• M1 Money Supply $2.148 Trillion -.07%
  
• Commercial Paper Outstanding 991.70 -.60%
  
• 4-Week Moving Average of Jobless Claims 387,800 -1.60%
  
• Continuing Claims Unemployment Rate 2.9% +10 basis points
  
• Average 30-Year Mortgage Rate 3.94% -5 basis points
  
• Weekly Mortgage Applications 677.0 +4.09%
  
• Bloomberg Consumer Comfort -49.9 +.4 point
  
• Weekly Retail Sales +3.0% -20 basis points
  
• Nationwide Gas $3.25/gallon -.04/gallon
  
• U.S. Heating Demand Next 7 Days 17.0% below normal
• Baltic Dry Index 1,888 -1.77%
  
• Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 37.50 unch.
  
• Rail Freight Carloads 240,899 -1.27%
  

Best Performing Style

• Small-Cap Value -2.30%

Worst Performing Style

• Mid-Cap Growth -3.97%

Leading Sectors

• Airlines +2.40%
  
• Drugs +.46%
  
• REITs +.07%
• Utilities -.17%
• Telecom -.53%

Lagging Sectors

• Networking -7.08%
• Gold & Silver -8.63%
  
• Oil Service -8.79%
• Alternative Energy -9.0%
• Coal -10.13%

Weekly High-Volume Stock Gainers (9)

• SYNO, BCSI, SONO, VMC, CCMP, TNGO, NVLS, TWTC and OLN
  

Weekly High-Volume Stock Losers (10)

• PRI, ADTN, PTRY, NDSN, LRCX, ATHN, SGI, ITMN, LRN and FSLR
  

Weekly Charts
ETFs

• High-Volume Gainers
• High-Volume Losers

Stocks

• High-Volume Gainers
• High-Volume Losers
  

*5-Day Change

Stocks Slightly Higher into Final Hour on Short-Covering, Euro Bounce, US Economic Data

Broad Market Tone:

• Advance/Decline Line: Slightly Higher
  
• Sector Performance: Mixed
  
• Volume: Slightly Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 24.87 -.96%
  
• ISE Sentiment Index 77.0 -29.36%
  
• Total Put/Call 1.20 -1.64%
  
• NYSE Arms .96 +5.0%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 128.69 +.56%
  
• European Financial Sector CDS Index 305.09 -.38%
  
• Western Europe Sovereign Debt CDS Index 379.08 -.93%
  
• Emerging Market CDS Index 313.62 -.18%
  
• 2-Year Swap Spread 49.0 +1 bp
  
• TED Spread 57.0 +1 bp
  
• 3-Month EUR/USD Cross-Currency Basis Swap -121.75 +18.25 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 162.0 -5 bps
  
• China Import Iron Ore Spot $132.10/Metric Tonne -1.27%
  
• Citi US Economic Surprise Index 75.50 +3.6 points
  
• 10-Year TIPS Spread 1.91 -2 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -17 open in Japan
• DAX Futures: Indicating -25 open in Germany

Portfolio:

• Slightly Higher: On gains in my Medical, Retail and Biotech sector longs
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short, then added them back
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish, as the S&P 500 gives up morning gains at its 50-day moving average and trades near session lows on rising Eurozone debt angst, rising global growth fears, higher energy prices, technical selling and tech sector pessimism. On the positive side, Oil Tanker, Oil Service, Road & Rail and Airline shares are especially strong, rising more than +1.0%. Small-caps are outperforming again. Copper is rising +2.7% and Lumber is up +1.3%. The Italy sovereign cds is falling -4.02% to 538.33 bps and the Spain sovereign cds is down -3.55% to 420.0 bps. On the negative side, Drug, Wireless and Computer Service shares are under mild pressure, falling more than -.5%. (XLK) has traded poorly again throughout the day. Gold is rising +1.8%, oil is gaining +.53% and the UBS-Bloomberg Ag Spot Index is up +.9%. The 10-year yield is falling -6 bps to 1.85% despite recent better economic data and equity strength. The Germany sovereign cds is jumping +4.0% to 106.67 bps and the France sovereign cds is climbing +1.4% to 227.83 bps. The Western Europe Sovereign CDS Index is still very near its all-time high. The TED spread continues to trend higher and is at the highest since May 2009. The 2Y Euro Swap Spread is near the highest since Nov. 2008. The 3M Euribor-OIS spread is very near the highest since February 2009. The 3M EUR/USD Cross-Currency Basis Swap is rising +13.04% to -121.75 bps, which is back to mid-Nov. levels. The Libor-OIS spread is rising to the widest since May 2009, which is also noteworthy considering the equity surge off the recent lows. China Iron Ore Spot has plunged -31.2% since February 16th and -27.0% since Sept. 7th. The China Corporate Blended Spread Index remains very close to another technical breakout. The Citi Asia-Pacific Economic Surprise Index is at -25.1, which is right at the worst since April 2009. Asian shares bounced back overnight with the exception of India’s Sensex, which reversed a +1% opening gain and finished at session lows -2.2%. This index is now at the lowest since Nov. 2009 and is down -24.5% ytd. Brazil's Bovespa fell another -.42% today and is down -19.1% ytd. Major European equity indices fell today despite Asia/US strength. Overall, European credit gauges are still performing very poorly given that the European debt crisis “can-kicking” solution is supposedly at hand, which remains a large red flag. Tech share performance is also troubling. Market/Tech sector leader (IBM) is breaking below its 50-day moving average today on volume. Trading still has an overall complacent feel as volume remains poor, leadership is lacking and each push lower is met by sloppy dip-buying. This is likely due to year-end window-dressing and seasonality. Today’s equity rally does not have the characteristics I normally see at the beginning of sustainable advances. I expect US stocks to trade modestly lower into the close from current levels on rising Eurozone debt angst, rising global growth fears, tech sector pessimism, technical selling, rising energy prices and more shorting.

Today's Headlines

Bloomberg:

• France's AAA Outlook Cut; Fitch Reviews Others. Fitch Ratings lowered France’s rating outlook and put the grades of nations including Spain and Italy on review for a downgrade, citing Europe’s failure to find a “comprehensive solution” to the debt crisis. Fitch changed its outlook on France to negative, while affirming its AAA rating. It also placed Spain, Italy, Belgium, Slovenia, Ireland and Cyprus on a “Rating Watch Negative” review, which it expects to complete by the end of January, according to a statement released today in London. The move raises pressure on European leaders after Fitch said on Dec. 12 that the lack of a comprehensive solution at a European Union summit this month increased pressure on sovereign ratings. EU heads, in their fifth attempt to end the debt crisis now in its third year, agreed to forge a tighter fiscal union as the main thrust of their efforts, even as the European Central Bank resists investor calls to step up its bond-buying program. “Of particular concern is the absence of a credible financial backstop,” Fitch said in an e-mailed statement. In the company’s opinion, “this requires more active and explicit commitment from the ECB.” Without a full solution, Fitch said the crisis will persist, “punctuated by episodes of severe financial market volatility that is a particular source of risk to the sovereign governments of those countries with levels of public debt.”“It’s justified,” said Vincent Truglia, managing director at New York-based Granite Springs Asset Management LLP and a former head of the sovereign risk unit at Moody’s Investors Service. “A solution to the crisis that maintains the euro as it is is not tenable,” he said. “The euro must be shrunk dramatically.” Fitch said that it changed France’s outlook because of the “heightened risk of contingent liabilities” that may emerge from the escalating euro-region crisis. The country has almost run out of buffers to absorb shocks “without undermining its AAA status,” it said. “The intensification of the euro zone crisis since July constitutes a significant negative shock to the region and to France’s economy and the stability of its financial sector,” the company said.
• Euro Weakens After Fitch Downgrade Warnings. The euro dropped against the majority of its most-traded counterparts as concern increased that the region’s leaders won’t be able to contain the sovereign-debt crisis after Fitch Ratings said it may downgrade France and six other European nations.
• European Banks Insure $25 Billion of Government Debt via Swaps. European banks have sold insurance on a net 18.9 billion euros ($25 billion) of government debt in the region, according to figures from the European Banking Authority analyzed in today’s Bloomberg Risk newsletter. Data gathered by the EBA for its stress tests, combined with figures compiled by the Depository Trust & Clearing Corp., show that European Union banks are responsible for 17 percent of the credit-default swaps issued on euro sovereign bonds. German, French and Italian banks have the most at stake, the data show. German banks have underwritten 8.1 billion euros of government securities, the most for any country surveyed by the EBA. The four largest French banks, which were downgraded by Moody’s Investors Service last week, wrote 4.1 billion euros of protection, while Italian banks sold 3 billion euros of swaps designed to compensate the buyer in the event of a government failing to meet its obligations. The entanglement between banks and their governments may hamper plans by regulators to move settlement of credit-default swap trades to clearing houses by the end of 2012, said Jon Gregory, partner at Solum Financial Partners in London. French banks, for example, have insured a net 1.5 billion euros of their own government debt, according to the EBA.
• UK Lawsuit Risk May Lead EU to Damp Treaty Plan, FTD Says. European Union leaders who agreed to tighten fiscal rules amid the debt crisis last week may water down the plan over fears the U.K. could oppose the step in court, the Financial Times Deutschland reported, without citing anyone. In amending the rules, the states that signed up for the plan may no longer insist on binding commitments to tighter fiscal rules and instead substitute voluntary agreements on some points, the newspaper reported. EU officials will meet on Dec. 20 in Brussels to resume work on the measures, the newspaper said.
• US Consumer Prices Stagnate as Gas Drops. The cost of living in the U.S. was little changed in November as gasoline prices dropped and food expenses cooled, supporting the Federal Reserve’s view that inflation will remain in check. The stable reading for the consumer-price index followed a 0.1 percent decline in October, a report from the Labor Department showed today in Washington. So-called core prices that exclude food and energy rose 0.2 percent, more than forecast, reflecting higher medical care and clothing costs.
• Zynga Declines in Trading Debut After $1B IPO. The shares, listed on the Nasdaq Stock Market under the symbol ZNGA, fell 4.2 percent to $9.58 at 12:53 p.m. New York time. The developer of games such as “CityVille,” “FarmVille” and “Mafia Wars” sold 100 million shares for $10 each, the top end of a proposed range, Zynga said in a statement.
• Prada Poised to Extend Slump as China's Shoppers Cut Bank Spending: Retail. Prada SpA is falling out of fashion six months into its Hong Kong trading debut as investors brace for Chinese shoppers to curb spending. Shares of the maker of $2,000 bags and Miu Miu shoes, which gets more than 42 percent of sales from Asia, have dropped 32 percent from their July peak. The stock has fallen with companies such as jeweler Luk Fook Holdings International Ltd. (590) and Omega retailer Hengdeli Holdings Ltd. (3389) as property and stock- market declines hurt China’s consumers. Luxury-sales growth in the world’s most populous nation will slow in 2012 from a forecast of at least 20 percent this year, said Royal Bank of Scotland analyst Katherine Chan. Coach Inc. (COH) to Gieves & Hawkes seller Trinity Ltd. (891) are already feeling the effects. “The golden time, or the high-growth period, for many luxurious goods retailers is probably over,” said Chan. Sales growth at high-end stores open more than a year may drop by as much as six percentage points in 2012, she said. Consumption leveled off faster than expected this quarter amid a cooling economy and market declines, Citigroup Inc. said Dec. 8, citing retailer and manufacturer projections at a Hong Kong conference.

Wall Street Journal:

• Dell(DELL) Sees Weak PC Demand in India. Dell Inc. is seeing some softness in demand for its personal computers in India as the local currency's sharp fall and a shortage of hard disk drives have pushed up the price of PCs, and consumer sentiment is damped by economic uncertainties. "We are seeing lower offtakes [in PCs] pretty much across" the board, Mahesh Bhalla, executive director and general manager at Dell's India unit, said recently. "We see this trend continuing over the next few months," he added.
• Oil Sector Sites Sights High, Adds More Muscle in Iraq. Oil companies active in the south of Iraq have beefed up security to deal with fears over the security implications of the U.S. troop withdrawal, but they say the pullout hasn't caused them to change plans to significantly ramp up production. "We have to wait and see.…If the security situation deteriorates that means we will hire more security personnel to protect us," said an executive of one of the oil majors.
• Investors Turn Away From Emerging Market Funds On Euro Worries. Investors turned away from emerging-market funds in the latest week, demonstrating their disappointment with the recent summit of European Union leaders and continued risk aversion. In the days following last week's summit, which took steps toward greater fiscal integration within the euro zone, market sentiment reflected concerns that such measures may not be enough to stopgap contagion risks.
• SEC Sues Former Fannie, Freddie Executives. The Securities and Exchange Commission has sued the former chief executives of Fannie Mae and Freddie Mac, accusing them of misleading investors about risks of subprime-mortgage loans. The lawsuits, filed in Manhattan federal court, also accused four other former executives at Freddie Mac and Fannie Mae of making false and misleading statements about the firms' exposure. The government took over Fannie and Freddie in September 2008 as investors pulled back from the firms, which took heavy losses on souring mortgages they guaranteed. Taxpayers have since provided $151 billion of support.
  

CNBC.com:

• Bank Layoffs Far From Over: 150,000 Likely in 2012: Bove.

Business Insider:

• Fitch Threatens Massive Euro Downgrade After Saying Comprehensive Solution To Crisis Is 'Beyond Reach'.
• These Are The 29 Massive Banks That Could Take Down The Global Economy.
• The Sharks Small A Bubble Right In The US Heartland.
• Portuguese Politician: 'We Have An Atomic Bomb That We Can Use In The Face Of The Germans And The French'.
  

Zero Hedge:

• Whitney Tilson Down -.6% in November, Down -25% YTD.
• Charting China's Take Over Of The Banking World... And A Stark Warning.
  

Bespoke:

• Bank and Broker Default Risk Remains Elevated. (graph)
  

IBD:

• New Chinese Microblog Regs Hit Sina(SINA); Stock Down 7%. Among other things, Sina (SINA) said the new rules require that "users of microblogging services register their identities with microblogging service providers." That means users, who may or may not post items that criticize the Chinese government, can't hide behind false names or pseudonyms. Microblogging service providers are required to verify the identities of their users, Sina said. Moreover, Sina said the new regulations "identify 11 categories of content that are restricted from being disseminated. Microblogging service providers are required to implement systems and procedures to ensure the security of user information and that the information disseminated by microblogging users is in compliance with the content restriction policy." In its statement, Sina said its executives are "closely monitoring this new regulatory development" and the impact it might have on its Twitter-like service, Weibo. Investors didn't monitor the news long, as Sina's U.S. shares were down 7% in early trading

Reuters:

• Boyer Allan Shutting China, Asia Hedge Funds - Sources. Boyer Allan Investment Management is shutting two of its hedge funds after losses and a fall in assets this year, four sources familiar with the matter said. The company, which managed about $1.8 billion in three products before the financial crisis, was shutting its pan-Asia Boyer Allan Pacific fund after an 18.7 percent loss up to the end of November, two of the sources said. It is also shutting the Boyer Allan Greater China fund, which has lost 7.8 percent this year.
• Europe's Lenders On Central Bank Life Support. European banks face a 725 billion euro funding crunch in 2012, forcing them deeper into the arms of a European Central Bank which is prepared to prop up banks but not governments. The central bank is throwing European lenders a three-year liquidity lifeline in response to pressure from desperate top executives who have seen interbank lending and funding from wary money market investors come to an abrupt halt. "There's a huge funding issue in Q1 where a lot of banks have to refinance debt so there's a big crunch coming," a senior banker at a European firm told Reuters on Friday. "Couple that with uncertainty about what's going to happen with the euro and it could be a very interesting first quarter."

Telegraph:

• IMF Chief Offers Nothing But Platitudes. Christine Lagarde's blood-curdling warning of a 1930s style depression is all very well as far as it goes, but she fails to provide anything in the way of solutions. After a brief interlude in which the multilateral response to the initial banking crisis seemed to be working, it is now manifestly failing.
• Debt Crisis: Live. UK Deputy Prime Minister tells French PM Francois Fillon 'remarks about British economy simply unacceptable', as draft fiscal document states that all 27 members will have a hand in eurozone reforms and Fitch places six countries on watch for possible downgrade.
• Ireland's Economy Shrinks More Than Expected -1.9%. Ireland's economy contracted by 1.9pc in the third quarter, far worse than expected, as global economic turmoil dented export growth, raising the stakes for its fiscal and debt targets under an EU-IMF bailout.

Die Welt:

• A plan to boost the IMF's resources to help finance euro zone nations faces skepticism from countries such as the U.S., Brazil, China and Japan.