Deutsche Bank

• Guess who doesn't believe in the "great rotation out of bonds and into stocks": Abe Aids Bernanke as Japan Seen Buying Foreign Debt (BBG)
• AIG Sues Federal Reserve Vehicle in Dispute Over Lawsuit Rights (WSJ)
• JPMorgan Said to Weigh Disclosing Whale Report Faulting Dimon (BBG)
• Ugly Choices Loom Over Debt Clash (WSJ)
• Credit Suisse to cut bonus pool by 20 percent (Reuters)
• Brazilian Bikini Waxes Make Crab Lice Endangered Species (BBG)
• EU redrafts plan for bank rescue funding (FT)
• JCPenney stock plunges after bad holiday (NY Post)
• Regulator Comments Buoy Shanghai Stocks (WSJ)
• Japan voters back PM Abe's efforts to spur growth, beat deflation (Reuters)
• Cameron averts row over Europe speech (FT)
• Swatch Buys Harry Winston Jewelry Brand for $1 Billion (BBG)

As China's major trading partners try to control rising public pension and health care costs, they may not realize they also have an important stake in China's ongoing struggle to fashion a safety net for its own rapidly aging population. Many observers assume China has no pensions or healthcare insurance for the 185 million people over the age of 60 (13.7% of population), the highest official retirement age for most workers. They may well believe this explains why Chinese families save so much–more than 30% of household income–and therefore spend less on consumer goods, including imports from trading partners.

At the height of the financial crisis in 2008, Deutsche Bank made some extraordinarily large bets. As the WSJ reports, documents uncovered from the Libor rate manipulation investigation show huge outsized bets that would swing EUR68 million on a 1bps shift in the Libor rate that they have since been charged with manipulating. Sure enough, with regards the risk (which was large enough to be brought to management's attention), officials "dismissed those concerns because the bank could influence the rates they were betting on."

• Obama Picking Lew for Treasury Fuels Fight on Budget (BBG)
• Deutsche Bank Bank Made Huge Bet, and Profit, on Libor (WSJ)
• Spain Beats Maximum Target in First 2013 Debt Sale (BBG) - In other news, the social security fund is now running on negative?
• "Icahn is also believed to have taken a long position in Herbalife" (NYPost) - HLF +5% premarket
• Lew-for-Geithner Switch Closes Era of Tight Fed-Treasury Ties (BBG)
• Turkey Beating Norway as Biggest Regional Oil Driller (BBG)
• Greek State Firms are Facing Closure (WSJ)
• Draghi Spared as Confidence Swing Quells Rate-Cut Talk (BBG)
• China’s Yuan Loans Trail Estimates (BBG)
• SEC enforcement chief steps down (WSJ)
• CFPB releases new mortgage rules in bid to reduce risky lending (WaPo)
• Japan Bond Investors Expect Extra Sales From February (BBG)

The main macro event today will be the interest rate announcement by the ECB due out at 7:45 am (with the Bank of England reporting earlier on its rate and QE plan, both of which remained unchanged as expected, which will remain the case until Carney comes on board) which is expected to be a continuation of the policy, with no rate cut despite some clamoring by pundits that Draghi should cut rates even more. Overnight, we got Chinese December trade (better than expected) and loan (slightly worse than expected) data, coming in precisely as a country which has a new communist politburo leadership implied they would. Of particular note was that the US has now replaced the EU as the largest Chinese export market: what happens when the euro weakens even further? But at least the net benefit to European GDP as a result of declining imports will, paradoxically, help. Elsewhere, Spain auctioned off more than than the expected €4-5 billion in its first 2013 auctions of 2015, 2018 and 2026 bonds, sending the 10 year SPGB yield to under 5%, or the lowest since 2010, a process driven by expectations of a Spanish bailout. Thus the incredible odyssey of Schrodinger Spain continues, whose interest rates are improving on hopes it is insolvent. Fundamentally, things got better nowhere, with Greek unemployment rising to 26.8% in October from 26.0% previously, while bad loans in Italy soared by 16.7% Y/Y to €121.8 billion, while loans to businesses dropped at the fastest pace ever. And so the scramble to offset the trade and economic collapse of Europe using central bank tools continues.

AIG shareholders aren't just paying interest on its own bailout, they are paying (paid) hefty interest charges on the bailout of the most connected entity in the history of finance, the VAMPIRE SQUID, Goldman Sachs!

• A Bold Dissenter at the Fed, Hoping His Doubts Are Wrong (NYT)
• China and Japan step up drone race as tension builds over disputed islands (Guardian)
• How Mario Draghi is reshaping Europe's central bank (Reuters)
• Merkel Economy Shows Neglect as Sick Man Concern Returns (BBG)
• US oil imports to fall to 25-year low (FT)
• China Loan Share at Record Low Shows Financing Risks (BBG)
• Dimon Says Some JPMorgan Execs ‘Acted Like Children’ on Loss (BBG) - children that reveleased who 'excess reserves' are truly used
• Fed injects new sell-off risk into Treasuries (FT) - really? So the Fed will stop monetizing the US deficit some time soon?
• Obama aide presses Republicans to accept more tax revenues (Reuters)
• Ex-SAC analyst named 20 alleged insider traders (FT)
• BOJ easing bets help dollar regain ground vs yen (Reuters)
• Goldman Sachs Said to Be Part of Fed-Led Foreclosure Settlement (BBG)
• Venezuela postpones inauguration for cancer-stricken Chavez (Reuters)

Equity markets recovered from a lower open following press reports overnight by eKathimerini that the country’s main banks are considering requesting additional funds for their recapitalization and edged higher throughout the session after sources at Hellenic Financial Stability Fund said that there no indications that Greek banks need more recap funds. In addition to that, Xinhua reported that chance of China RRR cut is increasing for January, citing industry insiders for RRR cut forecast. This follows on from the reports in ChinaDaily last week, which suggested that a small interest rate cut at the right time could substantially decrease financing costs and improve expectations for profitability, citing researchers from the China Development Bank, the State Information Center and the Shanghai Securities News who have worked together to forecast key economic indicators and policies in 2013. The risk sentiment was also supported by well subscribed debt auctions from the Netherlands, Austria, Greece and Belgium. As a result, peripheral bond yield spreads are tighter by around 5bps in 10s. Going forward, market participants will get to digest the latest NFIB, IBD/TIPP and Consumer Credit reports. The Fed is due to conduct Treasury op targeting Oct'18-Dec'19 (USD 3.00-3.75bln) and the US Treasury is also set to auction USD 32bln in 3y notes.

• London Quantitative Hedge Funds Report Second Year of Losses (BBG)
• Berlusconi Forms Alliance in Comeback Bid (WSJ)
• Japan to Buy ESM Bonds Using FX Reserves to Help Weaken Yen (BBG)
• Japan Mulling BOJ Accord Linked to Employment, Mainichi Says (BBG)
• Samsung Expects Record Operating Profit (WSJ)
• Boeing 787 Dreamliner Fire Probed, Blaze Adds to Setbacks (BBG)
• BOJ's Shirai: Open to Firmer Inflation Target (WSJ)
• HSBC N.J. Client Admits Conspiracy in Offshore Tax Case (BBG)
• Lampert to Assume CEO Role at Sears (WSJ)
• Abe prepares fresh stimulus measures (FT)
• U.S. Set for Biggest State-Local Jobs Boost Since 2007 (BBG)
• Pakistan Seen Needing IMF Bailout as Rupee Drops Before Vote (BBG)

• Secret and Lies of the Bailout (Rolling Stone)
• Banks Win 4-Year Delay as Basel Liquidity Rule Loosened (BBG)
• Hedge Funds Squeezed With Shorts Beating S&P 500 (BBG)
• Bankruptcy regime for nations urged (FT)
• Is the Fed Doing Enough—or Too Much—to Aid Recovery (WSJ)
• Cracks widen in US debt ceiling debate (FT)
• McConnell Takes Taxes Off the Table in Debt Limit Negotiations (BBG)
• Abe Seen Spending 12 Trillion Yen to Boost Japan’s Economy (BBG)
• Monti, Berlusconi Spar on Taxes in Weekend Media Barrage (BBG)
• Cameron Sets New Priorities for U.K. Coalition (BBG)
• Defiant Assad Rules Out Talks With Rebels (WSJ)
• Korea Seen Resisting Rate Cut as Won Threatens Exports (BBG)

AAPL is now in the red for 2013 having filled its January 2nd opening gap. Down around 5% from its highs of that day, AAPL is down over 2% today alone (on decent volume) on the back of further concerns (prompted by Deutsche Bank) about iPhone 5 sales. It seems the meme on rotation from bonds to stocks is just not holding up for AAPL - perhaps it is time to plunder our Social Security fund to buy AAPL?

• Just like last year: A Postholiday Letdown for Retailers (WSJ)
• Obama Fights Republicans on Debt as Investors Seek Growth (BBG)
• Housing a Sweet Spot for U.S. Economy as Recovery Expands (BBG)
• House chooses Boehner as speaker again despite dissent (Reuters)
• Backlash pushes Republicans to seek cuts (FT)
• Jobs Lost Hit 5 Million With Rigged Currencies (BBG)
• Chavez still has "severe" respiratory problem (Reuters)
• Paris promises flurry of economic reforms  (FT)
• Investors Sour on Pro Stock Pickers (WSJ)
• Abe moves to ease South Korea tensions (FT)
• Wildfires Hit Australia Amid Worst Heatwave in Decade (BBG)
• Monti attacks ‘extremist’ rivals (FT)

• Obama Signs Bill Enacting Budget Deal to Avert Most Tax Hikes (BBG)
• GOP Leaders Take Political Risk With Deal (WSJ)
• Basel Becomes Babel as Conflicting Rules Undermine Safety (BBG)
• Portugal Faces Divisions Over Austerity Measures (WSJ)
• The Fiscal Cliff Deal and the Damage Done (BBG)
• Cliff deal threatens second term agenda (FT)
• Deposits stable in euro zone periphery in November (Reuters)
• Fresh Budget Fights Brewing (WSJ)
• China Poised for 2013 Rebound as Debt Risks Rise for Xi (BBG)
• Who's Afraid of Italian Elections?  (WSJ)
• China services growth adds to economic revival hopes (Reuters)
• Asian Economies Show Signs of Strength (WSJ)
• Japan’s Aso Targets Myanmar Markets Amid China Rivalry (Bloomberg)

When it comes to the main sovereign story of 2011 and 2012, namely the endless bailout of Greece, now in its third iteration, the conventional wisdom is that courtesy of the near elimination of the country's private sovereign debt and the fact that its official foreign debt held by benevolent taxpayer funded globalist powers (IMF, ECB, EFSF) has been mostly converted into a zero-coupon, perpetual piece of paper, the country is fine. After all it has no debt interest expense to finance, and the only shortfall it has to plug is that created by its primary budget deficit (which as we showed earlier is "improving" on a year over year basis not because the economy is improving, but because the Greek government is simply refusing to pay its bills). So there is nothing more to do but sit back and wait while the economy slowly recovers, the unprecedented internal imbalance with Germany is gradually aligned, are the unemployment rate drops, (while hoping that the population does not die out first) right? Wrong.   Moments ago Kathimerini reported that in 2012, the amount of non-performing loans has exploded by a laughable amount, rising some 50% from December 2011, when it was "only" 16% and stood at 24% last month. And therein lies the rub, because as Kathiermini prudently notes, the "bad loans come to a considerable 55 billion euros. This means that the sum of NPLs already exceeds the total funds set aside for the recapitalization of the local credit system, which amounts to €50 billion."

Oops.

• Lawmakers, Obama in last chance talks on "fiscal cliff" (Reuters)
• Obama Summons Congress Leaders as Budget Deadline Nears (BBG)
• Hopes for fiscal cliff deal fade  (FT)
• Iran starts navy drills in Strait of Hormuz (Reuters)
• Looming Port Strike Deadline Pressures Obama to Intervene (BBG)
• Home Depot to Lowe’s Busiest Season Threatened by Strike (BBG)
• 'Whale' Capsized Banks' Rule Effort (WSJ)
• China tightens Internet controls, legalizes post deletion (Reuters)
• Goldman Sachs Buying Japan’s Exporters on Abe Policy Bets (BBG) and preparing one Goldman alumnus to take over the BOJ
• IPOs Slump to Lowest Level Since Financial Crisis After Facebook (BBG)
• Blackstone seen sticking with SAC despite insider trading probe (Reuters) - what a shock
• Mistry at Tata Helm as Investors Query $500 Billion Goal (BBG)
• High-Speed Traders Race to Fend Off Regulators (WSJ)