Death Star Economics



China slows, Greece set to grow again

Over the weekend…
Venezuela has elected a new President, after re-elected Hugo Chavez died in early March after long illness. Nicolas Maduro is the man Chavez singled out as a worthy candidate himself, and the election result may have been driven my emotions more so than politics. read article

This morning…
China reported Q1 GDP growth, which came in lower than expected. Year-on-year, the country’s economy grew at a rate of 7.7% in the first three months of 2013. Prior estimates had suggested 8%; Q4 2012 came in at 7.9%. Again, we are facing a week of panic over the Chinese slowdown. read article

Otherwise, troika officials are arriving in Portugal today to assess the country’s austerity plans and post-bailout progress. Simultaneously, the body, composed of the EU, the ECB and the IMF, released a report claiming that Greece could return to growth next year. read article

The week ahead…
will bring us the first batch of earnings from New York-listed corporates, including a bunch of banks like Citigroup, Bank of America and Goldman Sachs, and tech companies Google, Microsoft and IBM.

The Italian parliament will try to elect a new President in the coming days. Officially, the process to find Giorgio Napolitano’s successor begins on Thursday, but it is expected to last a couple of days.

So long.


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Judgment day for J.P. Morgan

There won’t be an email on Monday and Tuesday of next week, 18/19 March 2012.

Today, the London Whale Senate hearing starts in DC, led by John McCain and including testimony from former CIO Ina Drew who left the firm in May 2012. The allegations include a failure to appropriately report on the $6bn trading losses, misleading regulators and investors. read article

Following the Fed stress testBank of America is set to buy back $5bn of shares and $5.5bn of preferred stock, while J.P. Morgan will buy back $6bn in common stock. Goldman Sachs will also be allowed to repurchase shares, but overall the Fed seems worried about J.P. Morgan‘s and Goldman‘s capital structures: the banks will have to submit revised capital plans by September. read article

The British Parliamentary Commission on Banking Standards (PCBS) stated that the UK didn’t need a ban on proprietary trading, mirrored from the American Volcker rule. The Commission suggested capital requirements as alternative tools and cited the difficulty of defining proprietary trading appropriately. Future BoE Governor Mark Carney agrees as well. read article

After months of investigations and grounded fleets, Boeing’s Dreamliners could be back in the air “within weeks”. The spontaneously igniting batteries have been replaced and “only” need approval from the Federal Aviation Administration to be ready for take-off. Japanese authorities remain skeptical and declined to put a date on when the Dreamliners could fly again. Either way, Boeing doesn’t have the capacity to replace batteries in all 50 active planes simultaneouslyread article

While the EU-US trade agreement is in the works, Japan has entered negotiations for a similar deal for Pacific nations. read article

Meanwhile, Greece, or rather the Hellenic Republic Asset Development Fund, is selling gas and gambling companies as part of its privatization campaign. Get in there while it’s cheap. read article

Last night, Samsung launched its latest smart phone in the Radio City Music Hall in New York. A review from All Things D, here.

Weekend reading:

– the America we used to know, read article

– the US is more energy self-sufficient, except China wants to own all their natural gas fueling stationsread article

– when hedge funds get personal: the Herbalife background storyread article

 Have a good weekend.

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Fixing Japan – a bucket list

Japan is all over the news today, trying to weaken its currency (or not), stimulate growth and create jobs. It’s ambitious, to say the least. But it’s also good news for Europe. After all, new PM Shinzo Abe is planning to weaken the Japanese yen by buying euro-denominated bonds from the ESM: to save Europe, the world and its currency. Unfortunately  the world moves faster than politics and while business executives had begged for a weaker currency, they now fret that the yen could fall too far. Abe also set a 2% inflation target alongside stability and prosperity for everyone, causing Japan’s pension funds, which hold the second largest pool of retirement assets in the world after the United States, to increase their gold holdings from JPY45bn to JPY100bn. And then there is this hint of an idea to eliminate the interest-rate floor for deposits at the Bank of Japan, something the ECB has done as well to try and incentivize lending. The final policy decisions will be announced at the Bank of Japan’s meeting on 21-22 January.

In the background, Eurozone unemployment has once again broken all records, while German and Finnish exports declined. Meanwhile, Spain announced that it would have to issue €215-230bn gross debt throughout the year, which is 7.5% more than accounted for in the November budget.

Norway’s Foreign Minister Mats Persson has called on the UK to reconsider its currently rather hostile relationship with the EU to save the City of London and influence European legislation. During a trip to Ireland, Persson pointed out that Norway, while swimming in oil money, only had very marginal influence in its status as a member of the EEA (European Economic Area). read article

Follwing yesterday’s mortgage crisis-related settlement charges, Bank of America has agreed to pay $11.6bn to state-backed Fannie Mae, the Federal National Mortgage Association, which was bailed out during the crisis. The settlement regards mortgage putbacks, those loans Fannie Mae wants BoA to buy back due to their questionable nature. read article

After the American SEC took the first step in fighting services providers in December, when it opened the investigation into potentially fraudulent behavior of the big auditing companies in China, Ernst&Young is now subject of an Washington-based inquiryAllegation say E&Y lobbied on behalf of its clientscompromising its independence in auditing said corporates. In 2004, E&Y was suspended from entertaining new client businesses with publicly traded companies for six months in response to violating independence rules. read article

So long.

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Morals = money: financial incentives for whistle-blowing

Apple’s earnings missed forecasts, posting slightly higher sales but lower EPS. Apple reportedly sold 26.9 million iPhones and 14 million iPads last quarter. Key rival Samsung sold 53.6 million phones, which makes for a market share of almost a third worldwideSamsung’s earnings were better than expected, but South Korea posted GDP growth of 1.6% in Q3, the slowest rate since 2009. That dragged Asian shares, including Samsung, which is the heaviest weighted stock in the MSCI Asia-Pacific index, down to a seven-week lowread article

The European Parliament is working on a new directive to financially incentivize whistle-blowing, says the Handelsblatt Morning Briefing. Of course, much of this aimed at the financial services sector, especially considering recent scandals regarding insider trading and interest rate fixing. What may have been claimed to be the moral high-ground will therefore soon become a way of cashing in. It seems like something Greg Smith would enjoy.

On that note, Societe Generale, Royal Bank of Canada, Bank of America, Credit Suisse, Bank of Tokyo Mitsubishi UFJ, Norinchukin Bank, Rabobank, Lloyd’s and West LB have also been subpoenaed in regard to the Libor scandal. Maybe it’s time to accept that everybody was involved and move on. read article

One of the last firms with a clean slate in this case is BNP Paribas, France’ largest bank, which was downgraded from AA- to A+. The ratings for Credit Agricole and Societe Generale were confirmed with negative outlook. France’s president Francois Hollande has meanwhile hit the lowest voter satisfaction ratings since his inauguration, reaching only 36% in a recent poll by Le Figaro, versus the highest rating of 55%. The poor rating is most likely due to the country’s terrible economic performance that has forgotten what growth even looks like by now. In September, the unemployment rate hit a 13-year high; Hollande expects to take another 12-14 months to see any effects in the jobless numbers. But let’s not forget that Monsieur le president is convinced that the worst is lying behind us, and Europe will flourish again in no time. read article

And in the background, Greece has run out of money again. Officials said that the country requires an additional €30bn to make it through 2016. Greece will also fail to meet the 120% debt (of GDP) target in 2020; officials say it will be more like 136%. Have fun negotiating that with the Germans. If this was last year and anybody would have heard about additional billions that far down the line, Greece would have been kicked out of the EMU faster than they can put on a general strike. read article

Weekend reading

– Why the color of your parachute doesn’t matter if you don’t know where it’s taking you, read article

– the five lies Mario Drahgi told ze Germans about the OMT programread article

– the Harvard comparison: Obama vs Romneyread article

– an economist at the US treasury found the transcript of the 1944 Button Woods negotiationsread article

Have a good one.

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BofA sued for $1bn+, Spain drowns in mortgage chaos

British GDP rose 1% from the second quarter, attributing 0.3% of national income to the Olympics and Paralympics. After Reuters reported yesterday that Germany was being sucked into the black hole of European economic performance at last, this could change the UK’s position in EU crisis negotiations. read article

The US government is suing Bank of America for at least $1bn in damages for selling mortgages of questionable, and more importantly misrepresented, quality to government organizations Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation). Any damages paid would go towards the 2008 bailout balance sheet of the two organization. The sales in question were facilitated by Countrywide Financial Corporation, which was acquired by Bank of America in 2008 for $4.1bn. According to WSJ:

The government is suing Bank of America under the Federal False Claims Act, which has become a popular tool for prosecutors seeking to hold banks accountable for alleged mortgage misdeeds and calls for triple damages when the government can show taxpayers were ripped off.

As sensationalist and public as the prosecution already is, it was probably fuelled by yesterday’s verdicts in the insider trading cases against SocGen’s Jerome Kerviel and McKinsey’s Rajat Gupta. Kerviel was sentences to three years and a fine of almost €5bn in France, while Gupta was sentenced to two year and a fine of $5bn.

In other news, Santander’s Q3 profits fell to 94% due to write-downs of bad Spanish property loans. Santander’s current exposure to bad loans in the Spanish real estate market remains 65%. read article

Spain’s effort to set up a bad bank, holding around €90bn in toxic real estate assets, seems to failing as well, because the bank would be too big to function. Those banks who would have a stake in said bad bank are already running on government support, making the whole business model less flexible.

The aim is to place soured real estate loans and other assets in the vehicle for as long as 15 years in the hope that, once cleansed of bad property bets, banks can resume lending and reactivate an economy mired in its second recession since 2009.

But the appetite for Spanish debt, financing by debt, financed by debt, financed by debt, seems low for some reason, increasing the risk of losses handed down to the tax payerread article

So long.

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Black Monday: 25 years later, the world hasn’t learned much

Half time at the EU summit, we don’t have much but a step forward on the banking union front. From 2013 on, “a single supervisor“, i.e. the European Central Bank, will monitor certain undecided actions of an undecided number of banks in Europe. For EU standards, that’s a pretty solid plan. Monsieur Hollande of la France commented most eloquently:

There was an agreement, a good agreement, on timing and about the banks as [a] whole.

Aha. Oblivious to the Spain issue (not to mention the Italy issue), which is likely to be on the agenda for today, Hollande continued:

Tonight, I have the confirmation that the worst is behind us […] We are on track to solve the problems that for too long have been paralyzing the euro zone and made it vulnerable.

Thank you, France, you’re dismissed.

On the little detail there is, we know that all of the around 6,000 banks within the European Union will fall under the ECB supervision until 2014, presumably starting with those that were bailed out by their respective governments. read article

Today‘s part of the summit is likely to focus on what they didn’t agree on yesterday: a time line, followed by another press conference geared at Germany-for-all-and-all-for-one sentiment.. At this point, nobody knows when exactly the ESM will be able or allowed to inject money into [Spain’s] banks. Any debate regarding the increased fiscal integration that will save the continent, has been pushed back until the end of the year.

Google accidentally released its earnings report during the trading day as opposed to after the closing bell last night. And the numbers weren’t great, with earnings per share and revenues coming in 15% and 4% below estimatesGoogle’s shares fell 10% on the news, were then suspended, but registered an overall drop of 8%. Contrary to all of that, CEO Larry Page made a statement regarding the strong performance of the company last night. read article

Today is the 25th anniversary of Black Monday, the day in 1987 when the Dow Jones Industrial Average plunged 23%, erasing about $1tn between October 19 and October 22. Time to reflect on what we have learned and whether things are better now. Considering the above, the jury is still out. read article

Weekend reading

– “Would I have done Bear Stearns again knowing what I know today?”, why governments should be careful in suing banksread article

– another one bites the dust: Newsweek discontinues print edition, read article

– James Bond in numbers: Pierce Brosnan most badass (what!!), Daniel Craig on way to alcoholism, read article

– Sallie Krawcheck, former president of Merill Lynch on why she worked more hours than any man she knows, read article

Have a good one.

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Adverse QE reactions: VIX vs business


There won’t be a news brief tomorrow, Friday, 21 September 2012.

The collective monetary easing exercise that the US, the EU and Japan have engaged in recently [and the UK has alluded to], seems to have done some good. Via MarketBeat:

The Chicago Board Options Exchange’s Volatility index, or VIXis back below 14 and pushing against five-year lows (annotation: this only happened three times in the past five years). More global monetary easing appears to have been the best medicine to cure investor anxiety.

Five years! That’s all the way back to 2007, a year before Lehman, almost to the date. But of course, this is no reason to relax:

Earlier this month Bank of America Merrill Lynch noted that when the VIX has been this low, it has risen over the next 12 months about two-thirds of the time.

Yet, the eurozone PMI shows that the ECB’s bond-purchasing plan hasn’t really made that promised difference just yet, and Japanese exports have slipped 6% YOY.

Meanwhile, the EU is preparing for Wen Jiaboa’s visit and abolished an investigation into the Chinese telecommunications companies Huawai and ZTE Corp. The two were under scrutiny over illegal state subsidies. Of course, EU officials deny that it has anything to do with China’s visit to the west. Another investigation regarding solar panel manufacturer was launched earlier this month. So for the US engaging in trade wars with China is one thing. It’s been kind of an issue for ages, plus there’s the whole world domination angle to it. But for the EU, the picture looks pretty different. Just minutes after they tried to get into the books of Gazprom (the Russians? Really?), they now want to screw the Chinese over. Something tells me Europe is not in the position to criticize anyone right now, particularly those who are still sitting on money (or resources = money). read article

The fun fact of the day: Bruce Willis’ loss-making France-based vodka manufacturer (he’s a minority shareholder, 2.6%, but still) that needs restructuring of its €441m debt mountain. read article

[Some early] Weekend reading:

– Men and cooking: haute macho, read article

– the global brand that Occupy would like to be, read article

 Hayek on China (not personally), read article

So long.


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773 Germans want Greece to leave the euro

The fun fact of the day is that only a quarter of Germans think Greece should stay in the eurozone. Outrage everywhere. Most papers have made this out to be yet another factor in Angela Merkel’s dilemma of domestic vs foreign affairs. But when you consider that the Financial Times/Harris Interactive poll of 5,134 people between the age of 16 and 64 only features 1,030 Germans, the results look much less drastic. read article

But yes, sure, there might be some truth to it. Why else would Bank of America consider to send trucks filled with drachmas Deutsche Mark euros into Greece to support their clients’ salary payments… read article

In France, lender Centrale du Credit Immobilier du France was bailed out by the government. The bailout of the real estate loan provider is rumored to be worth €20bn. France was involved in the two-times bailout of French-Belgian bank Dexia in 2008 and 2011; however, CCIF is the first ‘fully’ French bank to need state aid. Prime minister Jean-Marc Ayrault said in a statement that the bailout would not inhibit France’ plans to cut the budget deficit until the end of the year. Well, bon courage, because if all these crises have taught us anything, then it is that there’s a herd instinct among institutions which need bailing out. read article

In line with that: over the weekend, the Spanish government threw more money at Bankia, after the nationalized lender posted a €4.4bn loss for the first half of 2012.

International Airlines Group (IAG), the owner of British Airways and Iberia, is looking to become a cornerstone investor in a new humongous American airline. This could be composed of bankrupt American Airlines, currently owned by AMR, and the US Airways Group. After AA and US Airways shared their books with the other, IAG signed a confidentiality agreement, which allows it access to the balance sheets drenched in red.

In the US, Mitt Romney will have to deal with some more blast from the past very soon. Some of the largest US private equity firms have been subpoenaed to get to the bottom of a tax avoidance procedure, which helped hundreds of millions of dollars to slip through the system’s fingers. Besides Bain Capital, KKR, the ‘inventor’ of the leveraged buyout, and Silverlake Capital Partners, formerly invested in Skype. At issue are the taxes paid on fees collected from fund investors, which have to correspond to whether said fees count as income or capital for re-investment. read article

Otherwise, CICChina Investment Corporation, has sold its 3% stake in asset manager BlackRock, which is thought to be worth $1bn, in an effort to reduce its financial services holdings, and Markit’s manufacturing index shows that the eurozone was subject to yet another contraction in August, making a zone-wide recession more and more probably. Chinese manufacturing continued to slow over the same time period. read article

So long.

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Braced for a week full of numbers

There’s not that much out there today in terms of news or maybe I’m just getting too used to scandals… It seems like there’s a collective hangover causing refrain from doing world-changing things. Fair enough maybe, because the week will be packed with sentiment and inflation indicators, and Ben Bernanke talking monetary policy on Tuesday and Wednesday. In more detail: read article

Or as according to FT markets editor Chris Adams:

Today’s must-know fact: Barclays’ ex-COO, Jerry Del Missier, has a tattoo of his dog on his shoulder.

Alright then… Del Missier is facing the Treasury committee today.

Unless, of course, you hold any senior bonds of Spanish bank debt, in which case you may be a bit agitated today. The European central bank is now backing a value cut for Spanish debt holders higher up in the repayment hierarchy. In effect, agreeing to a haircut for creditors, unlike in the Irish bailout, where this was heavily disputed, will lead to a smaller debt burden for the Spanish citizens in the years to come. WSJ FT Alphaville

Also, earnings continue to disappoint and financial services earnings are likely to be down 0.1% from last year, excluding Bank of America, whose earnings are distorted by a big mortgage settlement, says WSJ.

In terms of speculation regarding quantitative easing in China, we have prime minister Wen Jiabao saying the recovery of China’s economy was “yet to develop momentum” in the right corner, and rising wages, suggesting economic strength, in the left.

Otherwise, the United Arab Emirates and Saudi Arabia have found a way to rob Iran off some of its power over oil supply: a new pipeline will render Iran’s threats to close the Strait of Hormuz and thus cut off supply irrelevant. read article

Hillary Clinton is currently visiting Egypt, where she is talking to effectively all key figures in the Egyptian military. Yet, she’s the enemy in the public eye and her car convoy was attacked with tomatoes and shoes on her way through Alexandria. Interestingly, the latter bit of information is the German angle on the story – the diplomatic mission is the British one..

Finally, Reuter’s Photographer’s Blog features a series on Angela Merkel’s faceread article

So long.

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Sharing enemies – Europe’s best back-up plan

Yesterday saw the new EU budget proposal, Goldman’s CEO doing some marketing and the UK’s official double-dip recession.

Re: EU budget

The commission wants to increase the budget by 6.8%, which has led to outrage – pretty much everywhere. There is a slight chance that it was a reverse psychology kind of trick to have the European players re-bond over a common enemy, but history shows that few things out of Brussels are just that strategic. Still, the Netherlands, Germany, the UK and France disagree strongly. That’s because the commission is the institution which can’t seem to get enough ofausterity in EU member states, while demanding higher allocationread article

Re: UK recession

The British economy contracted in Q1 of 2012, with GDP shrinking by 0.2%. It’s official, this is a double dip. DavidCameron had to step up to defend his proposed austerity measures and cuts, leading to Business Insider calling him a moron (something I’ve been doing for months). read article

Meanwhile, George Osborne, another moronic musketeer, continued to play the blame-game as told, saying it was all the eurozone’s fault. Of course. read article

But Osborne and CaMORON also get critiqued from their own people – for being too posh.

Goldman Sachs’ CEO Lloyd Blankfein sat around with Bloomberg sharing his views about the economy and not Greg Smith. Greg who? Yeah, that’s probably why. Anyway, well done, Jake Siewert, this was nice. Blankfein also claimed to be fiscally conservative and socially liberal, like about 95% of people I know who have received any sort of education in economics. If you’re one of them, read what the Onion has to say about itread article

Otherwise, Mario Draghi managed to mitigate the bitch fight between Angela Merkel and Francois Hollande by stressing the need of a proper plan for economics growth, which in Europe means to make it a treaty that takes 7,000 years to be ratified and then gets rejected by a country like Ireland in the last minute.

Here’s a whole array of European confidence indicators, including a reason to disregard consumer sentiment, because the last time people on this continent had a good feeling about anything was around the year 2000. view image

Also, this is Bank of America’s Who Makes the Car – 2012 report, with pretty pictures and everything. Yes, ze tshermans are in it and so are the Japanese, yet the picture has shifted. Eleven years ago, American companies supplied 54% of components, now it’s down to 34%. That may not be surprising, but unless they come up with a couple of good ideas fairly soon, the American car industry will have disappeared and Detroit will be lost to Canada.

So long.

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