Death Star Economics



US housing improving, Europe worsening as a whole

Over the long weekend…Starting positive, the US saw the release of some positive housing data, the “highest level of home building in more than four years”, while factory activity declined. read article

In Europe on the other hand, manufacturing went down down down across the board, yes, even Germany. According to Reuters, Cyprus is not the culprit. Maybe March was an outlier and the global recovery is still going strong *cough*. Other European data showed a steady 12% seasonally adjusted unemployment rate for the eurozone in Feburary. For the entire union, this number increased by 0.1% to 10.9%.

It’s only been a week and Cyprus, clearly coached by Greece, has already managed to have its bailout terms eased. The Wall Street Journal got hold of a document showing that the country will have until 2017 ( as opposed to 2016) to reach a 4% budget surplus. As for the capital controls put in place to prevent a bank run after tellers were open for business again on Thursday, may last for more than a week, according to Cyprus central bank governor Panicos Demetriades (see below).

Another country shifting around on the brink of collapse, Argentina, is trying to impress (read distract) its loyal (read angry) bondholders with a new deal: instead of discussing the repayment of old bonds per se, new bonds (different for retail and institutional investors) could be issued and paid off in about 25 years. Where do I sign, that sounds like a great idea. read article

This morning…
The week ahead looks quiet yet depressing, at least if you’re in Europe, but I will spend as much time as possible laughing about Demetriades first name PANICos.

On Thursday will be central banking day, with the Bank of Japan, Bank of England and European Central Bank holding their policy meetings.

Finally, today marks the death of the FSA as we know it and the advent of the Financial Conduct Authority and the Prudential Regulation Authority. The former is an independent shop supervising more or less everybody in financial services (brokers, traders, secretaries, markets…), while the latter is part of the bank of England and will focus on 1,700 banks, insurers and investment firms. read article

Have a good week.


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Why an EU policy success may do no good

Brussels is celebrating one of the rare agreements on European blanket policy, while the City of London is collectively banging its head against the wall. In a nutshell, the latest Basel III negotiations have led to this: more capital, more capital, more capital, and capping banker bonuses at 100% of salary (or at 200% with shareholder approval). Currently in draft form, the legislation is set to be implemented in January 2014. Enough time to find a place in Hong Kong. read article

Across the globe, Argentina is kind of blackmailing the American legal system. In November, three New York judges ruled that Argentina had to repay selected creditors a total of $1.3bn. Since then, the country has behaved like a child, fighting its creditors (and winning), bringing the case to the appeals court culminating in its attorney announcing that it was willing to default – again – on its government debt, if the ruling wasn’t reversed. It is unsure whether the final ruling can be issued before new repayments fall due. read article

Following Bernanke’s QE comments yesterday, Mario Draghi confirmed his commitment to the ECB pumping money into Europe. Meanwhile in Italy, Bersani and Berlusconi are looking into forming the mother of all coalition governments, says Finance Undersecretary Gianfranco Polillo. Apparently, the idea has been buzzing around the Italian press for days. Might be a rumor. All we know for certain is that Grillo is not going to make an effort to move towards Bersani whatsoever. read article

The aviation industry is swinging up an down in the meantime, with Iberia‘s restructuring causing its parent International Airlines Group a €997m pre-tax loss, while EADS is being celebrated as a “European success story” (that’s a thing?) by the Handelsblatt.

Otherwise, Europe got its own “fear” index called Ivi (implied volatility index), modelled on that of the US, measuring volatility in the Londoner FTSE 100 and Italy’s FTSE MIB indices, and the US is getting ready for the dramatic advent of the sequester spending cuts tomorrow.

So long.

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Randomly assembled bad news: EU data, US QE and Japan as a whole

In Germanyunemployment rose for the eighth month in a row, now amounting to 6.9%. Nevertheless, the rate is still around the lowest it has been in two decades. Economic confidence is rising in the eurozone, while consumer confidence has stuck to the same negative mark over the past two months. read article

Later today, we’ll get the weekly jobless claims from the US, still impacted by Sandy, expected to fall under 400,000.

There, the Fed is likely to continue its bond-purchasing program to jump-start the economy in 2013, while fiscal cliff negotiations continue in the background. The latest gossip: Erskine Bowles, former chief of staff to Bill Clinton and co-chairman of the 2010 fiscal commission, said a deal was unlikely to by struck before the end of the year.

In Japanconsumer spending shrunk the most (5.8%) in almost a year in October, with drops in TV and car sales. Some of Japan’s largest tech companies, Sony and Panasonic, have announced reductions of employee numbers and both recorded losses in Q3. read article

HSBC, which decided to abandon its Japanese retail banking business this year, is looking to do the same in South Korea. Since the 1990s, HSBC has tried to set foot in Korea, first with the attempted purchase of SeoulBank in 1999, then with a takeover bid for Korea First bank in 2005 (now owned by Standard Chartered) and finally with a $6bn bid for Korea Exchange Bank in 2008 that was renounced. read article

Argentina won its appeal case against having to pay $1.33bn to its bondholders by December 15. A new repayment strategy has to be agreed on in early 2013read article

The IMF called Kabul Bank a Ponzi scheme yesterday, after a group of individuals smuggled almost $1bn out of the country, sometimes in food trays of airplanes, to buy property in Dubai. Kabul Bank collapsed in 2010 and its bailout amounted to what was worth 5-6% of Afghanistan’s GDP. read article

So we have all these bad news, and just then, Bloomberg publishes survey results saying the world economy is in its best shape in 18 months, because China is likely to return to growth and the fiscal cliff is likely to be avoided… read article

So long.

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Black Friday after Black Thursday; FT Deutschland shuts down

It’s Black Friday, THE day in the world of retail, except some companies started early this time around. Firms included Wal-MartTarget and Toys”R”Us offered their traditional Black Friday discounts on Thanksgiving day itself. What was that good for? MarketBeat says it raised the bar: on expectations and stock prices.

On EU issues, this summary says it all:

First it was Greece, which Europe couldn’t “resolve” on Monday night despite Juncker’s vocal promises to the contrary, and was embarrasses into postponing until next Monday when everything will surely be fixed. Now, the time has come to delay the “resolution” of the EU budget, which was supposed to be implement[ed] last night, then a decision was delayed until today, and now every European government leader is saying a new meeting will likely be needed to resolve the budget impasse.

The FT reports that the deadlock between the EU’s North and South could delay a budget deal until the new year. So far, rumors say the overall size of the budget, approximately €1tn hasn’t changed – much to the displeasure of the UK and Sweden. As mentioned before, the European common agriculture policy takes the biggest share of the budget, and received an additioanl €7.7bn.

In other news, Bolivia has been invited to join Mercosurthe association between Brazil, Argentina, Paraguay, Uruguay and Venezuela, while Argentina has criticized yesterday’s decision of a New Yorker judge that the country has to proceed with its debt repayments and reimbursements to its hedge fund bond holders, sparking new fears about another South American defaultread article

The gender battle about the next appointment to the ECB’s board has been won by Yves Mersch of Luxemburg. Politically, Mersch is part of the German anti-inflation party. The German edition of the Financial Times is officially shutting down on 7 December, slashing 364 jobs in Hamburg, Frankfurt and offices abroad. I am deeply upset.

Weekend reading:

– Deutsche Bank and the [unbiased] case for the “universal” mega bankread article

– Is Ben Bernanke the new Wizard of Ozread article

– Gaza in an infographic, read article

– Inflation measured on the price of turkeyread article

Have a good one.

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Renault found the eurocrisis advantage

The US is closed for the Turkey feast and the rest of the world is in and out of meetings, with the EU summit kicking off today in Brussels and the ASEAN summit in Phnom Phen just finished.

With the US at the table to stay in the loop of what’s happening around the Pacific, it seems like the non-interference politics of ASEAN are changing on the very topic they started out on: the South China Sea. read article

Staying East, preliminary Chinese manufacturing data shows above-trend growth in November for the first time in over a year, restoring faith in China’s economy across the globe until further notice. read article

Just two days after mentioning the underperforming French [car] industryRenault came out with the following plan: if the French unions make life difficult for you, while European car sales are doing terrible, why not take your production to a place where everybody is desperate for a job? No, not London. Renault will create 1,300 jobs in Spain, as Spanish labor unions jumped on the low-wage deal. Let’s appreciate how good an idea this is: Spaniards are happy, Renault is happy, the unions would be happy if they’d be capable of expressing anything but discontent, and the EU is happy too, because nobody needed to leave the continent to make this happen. read article

There’s also default news from a country that is not Greece. Yep, you heard me, this is not about our favorite producer of Feta cheese, it’s about Argentina. A New York District judge ruled that Argentina has to proceed to pay the holders of its defaulted bonds a total of $1.33bn. The original ruling from October 26 was under consideration until today. Besides the above payment, Argentina also has to pay $3bn in repayments of restructured government debt. Sam Jones of the FT says that JP Morgan says December 31st is the date to watch in this case. If the Argentina fails to fulfil its financial obligations, it could revisit 2001, when it first defaulted on $95bn of debt. read article

So long and happy Thanksgiving.

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Dramatic commodities and unfriending facebook

The looming food crisis is gaining more traction, as Argentinian farmer’s have planted the second-smallest amount of wheat in more than a century this year, due to unfavorable (dry) weather conditions. From the Economist:

The United Nations Food and Agriculture Organisation’s food-price index was up by 6% in July, as corn and soyabean prices hit records. The rise, the steepest in nearly three years, is the result of drought in many of the world’s crop-growing regions. Ample supplies of wheat and rice helped to keep the index, which tracks export prices, 10% below its peak in February 2011.

After the Lonmin platinum mine was forced to shut down last week due to labor union disputes, it has now become the scene of what is called the bloodiest labor-related event South Africa has seen since the end of apartheid. Not a happy day for South Africa or its mining industry… read article

Meanwhile, the White House has resumed considerations to release some of its strategic oil reserves to combat high oil prices. read article

Mitt Romney was going to have Wall Street behind him and business execs praising his policy agenda… until it all came differently. The FT-Economist Business Barometer conducted by the Economist Intelligence Unit, shows that the private sector around the globe prefers Obamaread article

Also in the US, Facebook’s first lockup clause expired yesterday, meaning that some pre-IPO investors were [finally] allowed to sell their shares. And selling they did. The company’s share price dropped 6%. Over the next ten months, around 2 billion previously locked shares will be freed up.

And finally, the Telegraph, one of the UK’s worse newspapers, is pushing a rumor that Finland is preparing for a Greek exit from the euro after an interview with the Minister of Foreign Affaires, while official confirmation can’t seem to be found. read article

Weekend reading:

– Fancy prepositions, get ready for ‘modulo’, read article

– John Cusack and the US housing market, read article

– Jay-Z and investing in the Brooklyn Nets, at c. 7.30min, watch video

– Alphaville on the correlation of online dating and recessions, read article

– A rough patch for US-UK relations, read article

Have a good one.

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The Falkland Islands need crumpets

The Argentinian industry minister called for an unofficial boycott of British products on Tuesday, urging shops to replace British products with those from countries that recognize the Falkland Islands as belonging to Argentina. But the UK is only willing to start talks about the sovereignty of the Islands if at least 3,000 residents demand it [that, by the way, is essentially everyone who lives there and so far they don’t seem to care]. read article

Transparency International released the world corruption index yesterday. Greece, the country of honest, hard-working, tax-paying people, who got screwed by 1%ers and banks (no, wait…) came in on rank 80. EIGHTY! Making it the second most corrupt country in the EU after Bulgaria. According to an EU corruption survey, 88% of Greeks think that corruption is part of Greek business culture. To make this grim subject more fun, Transparency International put all the data in pretty interactive charts. view charts

Otherwise, North Korea agreed to stop its nuclear programJames Murdoch said he would step down as CEO of News International and the European Central Bank pumped more than half a trillion euros (€529.5bn) into the economy.

Oh right, and Peter Orszag, of the Council on Foreign Relations and Citigroup, has yet another idea to combat the Greek deficit: taxing smokers. Apparently, 40% of the population in Greece smoke, which is almost double of the OECD average (22%). One reason are the low tobacco prices (less than half of the UK), so why not tax the shit out of it? No deficit, no smokers, no austerity… great plan. read article

Planet Money’s Adam Davidson wrote something like a short history of the City of London in his NYTimes column, it’s a nice read: read article

So long.

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