Death Star Economics



The next thing – gold price fixing

Things to know today: The new pope is Argentinian (or Argentine if you will) and the first non-European in 1,272 years; the US continues to fail at making the budget happen; Libor, Euribor, now gold and silver, ALL PRICES ARE FIXED.

The US is seeing Republican and Democratic budget proposals this week, with the former having been released on Tuesday. So far so good, surely a compromise can be found, right? No. In an interview with ABC Obama admitted that the two proposals may be too different to be combined in any shape or form, particularly if the Republican idea only relies on cutting social security and healthcare benefits. read article

The Commodity Futures Trading Commission (CFTC) has begun an inquiry in the gold and silver market in London. Though not a ‘real’ investigation yet, the Commission is looking into price fixing, much as they did with Libor. The banks involved in gold price setting in London are BarclaysDeutsche BankHSBCBank of Nova Scotia and Societe Generaleread article

The troika, composed of the EU, ECB and IMF, has decided to delay the latest bailout tranche for Greece, worth €2.8bn, due to “outstanding issues”. One of these could be firing public servants:

Identifying redundant positions and putting in place a system that will lead to mandatory exits for about 150,000 civil servants by 2015 is a so-called milestone that will determine whether the country gets a 2.8 billion-euro aid instalment due this month.

Otherwise, Eurostat released a handful of data including rising Greek youth unemployment (record) and low overall European employment (lowest since 2006). In Brussels, the European leader summit has begun. Rumor has it that France, Spain and Portugal will get more time to shrink their deficitsread article

So long.


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Currency wars – on land and on Twitter

There won’t be an update until Friday, 15 February 2013.

Today, there is a lot of opinion and analysis on North Korea’s third nuclear test; even China has joined in with the rest of the world in condemning the tests. 

The G7 have issued a statement telling the world they have not and will not target exchange rates as instruments to meet national fiscal targets, because they realize the negative impact it could have on economic stability. Assorted comments from across the globe loosely translated to a “well done on monetary policy, Japan,” sending the yen even lower, as Japanese official Haruhiko Kuroda, who could be in the running for the governor post at the Bank of Japan, said there could be more easing in 2013.

From a rather upset ZeroHedge:

In other words, let the FX wars continue and may the biggest balance sheet win, all the while everyone pretends nothing is happening.

Barclays has presented its restructuring plan “Project Transform” (seriously) this morning, cutting 3,700 jobs and £1.7bn in annual costs in a final effort to lift the bank out of crisis. read article

In the US, Twitter and American Express have launched a new service allowing Amex holders to buy products by sending a tweetTechCrunch explains:

Payments are made by tweeting a purchase hashtag, and retweeting the confirmation tweet from Amex within 15 minutes of receiving it. The product will be shipped to the account billing address synced with Twitter, and payment taken from your synced Amex account.

Hello 21st century. 

Elsewhere, Colgate-Palmolive will lose $120m (post-tax) as a direct result of Venezuela’s currency devaluation and the French company EDF Energy has knocked on the UK Treasury‘s door to guarantee [part of] the payment of three planned nuclear power stations across Britain, reviving a debate about the country’s future energy supply.

So long.

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Sue the banks (check), sue the auditors (check), sue the rating agencies (pending)

We’ve done the banks and the auditors, now it’s time to turn to other services providers in the sector: the rating agencies. The US Department of Justice is suing Standard&Poor’s (McGraw-Hill) over mortgage-bond ratings between September 2004 and October 2007. According to the filings, the ratings agency understated the riskiness of the assets sold. According to Bloomberg:

The company bent rating models to suit its business needs to the extent that one CDO analyst commented that loosening the measure of default risk for a certain security in 2006 “resulted in a loophole in S&P’s rating model big enough to drive a Mack truck through,” the U.S. said.

Shares in the publishing company fell the most since 1987 in response to the lawsuit. In November 2012, S&P was found guilty for misrating CPDOs (constant proportion debt obligations). The other big rating agencies, Moody’s and Fitch, which presumably did the exact same thing at the exact same time, have been left alone so farread article

Across the pond, Barclays bill for mis-selling products has increased to more than £3.4bn. Today, the bank announced to add £425m to the pool used for redress on mis-sold interest rate hedges, as well as adding another £600m to the indemnities pool for mis-sold payment protection insurance. read article

From ZeroHegde:

In the meantime, the political scandal scene in both Italy and Spain is unchanged, and getting worse, especially with Rajoy summarizing it all with this absolute pearl according to El Pais: Rajoy Says “It’s All Untrue, Except Some of It. No seriously, he said that.

In other news, the banking union turns out to be job creation machine: The ECB, which is meeting on Thursday, will have to hire up to 2,000 people to fully exercise its responsibilities as the watchdog of the banking union. Over in China, the People’s Bank of China injected RMB450bn ($72bn) into the country’s money markets as part of a short-term liquidity fix before the Chinese New Year holiday. 

So long.

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Jobs Friday and Barclays latest disaster

Before 1.30pm (8.30am EST):

After Wednesday’s announcement of the shrinking US economy, today’s jobs report gained in importance. Forecasted is a flat unemployment rate at 7.8% with a 11,000 more jobs added than in December (166,000). As according to MarketBeat:

To get the rally back on track, the jobs figures might not only have to beat expectations, but beat them handily. […] On top of that the January jobs report, in particular, is typically difficult to read. The government updates its population estimates at the beginning of every year, which in the past has caused big movements in the survey figures compared to the December data.

After 1.30pm (830am EST):

Ouch. This didn’t work out at all, did it now… With jobs only up slightly from 155,000 to 157,000, the unemployment rate rose to 7.9%. But not all is bad, in hindsight both November and December were better months for the job market. read article

If there was a part of you hoping that an end would be in sight for this ubiquitous bailout hangover from the financial crisis, I’ve got bad news for you. Allegedly, Barclays lend money to the Qatari government, the go-to investor for all of London, to invest in the bank and avoid a bailout by the British government. Improper disclosure and dubious fees could deem this deal illegal. read article
In the background, Barclays CEO Antony Jenkins refused his 2012 bonus.

Otherwise, there’s not a whole lot going on. UK manufacturing picked up, as did consolidated eurozone manufacturing, and the Dutch government will fund a €14bn bailout of SNS Reaal, the countries fourth largest bank. 

Weekend reading:

– things economists worry about, by likelihood and impact, see graphic

– in defense of Europe’s financial transaction taxread article

– the life and death of moneyread article

– Berlusconi and Mussolini, read article

– advertising and the Super Bowl, 2013 edition, read article

– the banking blog on complianceread article

Have a good one.

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US economy shrinks, RIM revives as BlackBerry

So that was quite the surprise. The US economy shrank 0.1% last quarter, while expectations had averaged on 1% growth. This is the first contraction of the economy in three years. To blame are, in part, a decline in business inventories, the fiscal cliff and government spending cuts, including the largest cut in defense spending since the Vietnam war. Employment data released tomorrow, could shed more light on whether the US is actually slowing down. read article

Elsewhere, in China, local government are also feeling the impact of the global economy. Frantic to meet their tax targets, North-Eastern cities demand taxes two years in advance from local steel mills. Now that’s sustainable. While China produces almost half of global steel supplies, the mills’ profits slumped 98% last year. read article

In happier news, RIM has managed to use the defibrillator on itself, officially rebranding to BlackBerry (BBRY) and introducing a new phone… with a touchscreen. Like they don’t know that the keyboard is the best feature. Shares fell 12%. Either way, the company has bought some time until private equity firms will start circling over its Canadian headquarters again. Winning in the category of most puns in single headline: the FT with “Rimless BlackBerry hopes to regain touch.” read article

Deutsche Bank reported losses worth €2.6bn in Q4 2012, mostly related to legal matters and writedowns. €1bn alone was allocated to legal costs arising from the Libor scandal. Over in London, BarclaysRBSLloyds and HSBC have to pay a total of £5bn in compensation after mis-selling interest-rate derivatives to SMEs. read article

Otherwise, Bundesbank president Jens Weidmann called for a more conservative approach to bailouts in Europe, in order to protect wealthier economies from throwing themselves in the deep end out of misunderstood solidarity, and Greek retail sales fell almost 17% in November, indicated that, no, the crisis is indeed not over.

So long.

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US corporate tax up for discussion, BoE changes course (towards Canada)

There won’t be a News Brief tomorrow, Thursday, December 13, 2012.

There are actual news regarding the fiscal cliff, with President Obama and House Speaker John Boehner putting corporate tax up for discussion. Reforming the corporate tax rate, currently between 15% and 35% depending on the state, would be part of a policy package that could yield $1.4bn in new revenues, as opposed to $1.6bn as proposed earlier. Some sources say that an overhaul of the current corporate tax regime could reduce the maximum rate from 35% to 28%. Obama’s current proposal also includes lifting the debt-ceiling and increasing infrastructure spendingread article

Germany has gently (read harshly) reminded Silvio Berlusconi to leave blaming Germany for Italy’s economic policies out of his election campaign. Berlusconi said that Monti’s government had employed German-centric policies and Berlin had used the spread between German and Italian bond yields to cause his last cabinet to collapse. read article

Meanwhile in the UK, i.e. New Canada, Mark Carney has had the entire BoE‘s senior management stumble as he announced the central bank needed more radical measures, steady rates, numerical unemployment targets and maybe consider leaving inflation alone for now and replacing it with nominal GDP targeting. Mervyn King is real happy about his successor right now. read article

Today also marks the day when the libor scandal creeps back onto the front pages. A former trader for Citigroup and UBS and two employees of interdealer broker RP Martin were arrested and questioned regarding the rate-rigging that was uncovered in Spring 2012. Barclays paid $450m in settlement charges in June in connection to the scandal. read article

So long.

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Splitting up – Barclays reconsiders investment bank, Catalonia favors seperatism

Barclays may have to follow the seemingly unavoidable path of European banks and split. The bank’s shareholders have demanded that new CEO Antony Jenkins should let go of investment banking operations, along the lines of UBS‘ shut down of its fixed income business last month that eliminated 10,000 jobs. The Swiss bank was fined £30m by the British FSA in connection to the $2.3bn insider trading loss that Kweku Adoboli got seven years for. Of course, axing the division would help Barlcays get around ringfencing investment banking and retail operations and may therefore be desirable from a regulatory point of view. read article

All of this coincided with Qatar Holdings selling a pile of Barclays shares this morning. read article

Yesterday, Spainish region Catalonia held elections, which saw a slight reduction of seats of CiU (Convergencia i Union), the party that demands a referendum. But those seats lost, were picked up by ERC (Esquerra Republicana di Catalunya), which demands independence from Spain without a referendum and as soon as possible. Four parties in favor of separating from Spain, holding 87 of 135 seats, are now present in the Catalan parliament. Gaining independence from the Spanish mothership would neither be simple nor quick. Catalonia is contributing 7-8% of its output to the central government in Madrid, and could cause an overhaul of Spain’s fiscal politicsread article

In terms of reforms, there is a new idea from Germany’s Finance Minister, who wants to force banks to write a restructuring manual for a bankruptcy scenario. Lawyers and advisory firms just collectively ordered new cars.

Otherwise, it is Cyber Monday, which is estimated to be the biggest online shopping day of the year for the third time in a row, says the Associated Press.

In Brussels, the “Eurogroup meets for third go at kicking can down the road” and to assess Angela Merkel’s campaign strategy in conjunction with Christine Lagarde’s hopes and dreams of a Greek debt haircut.

In the week to come, we’ll get the new governor of the Bank of England (330 pm today), updated US GDP, the Spanish budget, Chinese manufacturing and all unemployment number of the rainbow, with France on Tuesday, Germany on Thursday and eurozone on Friday.

So long.

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Heathrow to be renamed China-Qatar International Airport

The US saw 158,000 jobs added in October, undercutting expectations of 162,000. Jobless claims fell by 9,000 from last week. ADP, which releases the numbers, changed its methodology for this report, introducing its new partner company Moody’s Analytics, after having faced criticism regarding the data’s relation to the monthly unemployment report. Said report will get out tomorrow, despite being almost delayed due to the aftermath of hurricane Sandy. This is the second last unemployment data release before falling or not falling off the fiscal cliff in January, as this wonderful infographic illustratesForecasts see unemployment going up to 7.9%.

PMIs were released both in the UK and China. The former missed expectations, hope and dreams of a number closer to the magic 50 (growth benchmark), proof the exiting a recession is not as fun as it sounds. In China on the other hand, fears over the country’s slowdown were eased with stronger growth returning to the manufacturing sector and the October PMI reading being back in the black.

And the timing could hardly be any more ironic. Yesterday, CIC, China Investment Corporation, confirmed to have bought a 10% stake in Heathrow, the third busiest airport in the world. The stake will be acquired from Spanish infrastructure investor Ferrovial, which currently holds 5.7% of Heathrow’s holding company, which will acquire an additional 4.3% to guarantee CIC’s ownership of 10%. It’s busy days at the European Competition Authority, which is still in the middle of reviewing the purchase of 20% of the airport by Qatar’s sovereign wealth fund. Since 2007, Heathrow has been involved in debates as to whether or not the airport would get a necessary third runway.

Otherwise, JP Morgan has filed a case against the supervisor of the Bruno Iksil, the London Whale, in London’s High Court of Justice. Javier Martin-Artajo, who has left the bank along with a number of other people associated with the $5.8bn loss, has not been served yet. Details of the bank’s legal arguments or the amount of money the whale watcher is being sued for are are not publicly available.

And while JP Morgan continues to be under investigation from the FBI concerning the above, Barclays was fined $470m for manipulating California’s electricity market. The fine includes a $35m disgorgement for the period from 2006 to 2008. BP and Deutsche Bank are also under investigation of the Federal Energy Regulatory Commission. Maybe it’s time to manipulate utilities in another state? One that’s less experienced in law suits against big corporations maybe? Just a thought.

So long.

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An era of errors and structural reforms

India experienced a bit of a flash crash this morning, when the S&P Nifty Index slumped by 15.6%. For once, this had nothing to do with algorithms, but resulted from 59 erroneous orders [read erroneous quantities] and led to the brief disappearance of $58bn. Oops. read article

Of course this is only two days after the latest NASDAQ glitch during which Kraft Foods rose 30% or $12 in practically no time due to an algorithmic error.

In yesterday’s press conference, the ECB’s Mario Draghi made clear that the central bank was ready to buy some bonds, if an unnamed country [Spain] was to submit a bailout request. According to Daghi, purchases would take place for a month or two at a time and be suspended during the following assessment stage. read article

Otherwise, the trend of the day seems to be structural changes in investments banks, led by Barclays intend to remodel their investment arm entirely, merging the equities and fixed income business into one division. At J.P. Morgan, Barry Zubrow, Head of Corporate and Regulatory Affairswill leave the company.

In the past three years, six executives have left Mr Dimon’s operating committee – an elite group that currently has 15 members and represents all the firm’s key decision makers.

(One of these resignations was Ina Drew, see Weekend reading.)

Finally, there is Morgan Stanley, which announced possible job and bonus cuts in 2013 to save money that can be paid out as dividends to shareholders.

On SundayVenezuela is holding general elections, with the incumbent president Hugo Chavez of the United Socialist Party of Venezuela being challenged by Henrique Capriles Radonski of the center-right Justice First party. The Guardian’s data blog has an overview of reforms since Chavez took office 14 years ago. read article

Weekend reading:

– Dilma Rousseff on growth, an interview with Brazil’s president, read article
 the Amish and Mitt Romney, fight of the religious minorities, read article
– Erik Hobsbawm’s obituary: “The Last Intelligent Marxist“, read article
– Ina Drew and Wall Street: after it took her 23 interviews to get her first job in which she said she cried every day, she became J.P. Morgan’s CIO, and took the fall for the ‘London Whale’ trading lossread article
– the case for the Liikanen reviewread article

Have a good one.

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Great expectations, or the state and finance

Overall, this week is about Wednesday [and Thursday]. On September 12, we’ll see the two-day FOMC meeting begin (see below), the German constitutional court ruling on the ESMDutch national elections [round 1] and Apple’s presentation of the new iPhone. Considering the current situation of the world at large, at least one of these is going to result in catastrophe. But for now, we remain stuck in act 4, falling action, the boredom before the storm.

MarketBeat kicks us off with expectations:

Economists at Goldman Sachs predict the probability is “now above 50%” that the Fed will unveil a third round of quantitative easing, or QE3, on Thursday, when the Fed’s two-day policy meeting comes to an end. Barclays expects an extension of the Fed’s low-rate policy into 2015 and a reactivation of open-ended asset purchases, which would include the buying of both U.S. Treasuries and mortgage-backed securities.

More QE “remains a close call even if the chances of it happening have increase,” wrote Barclays analyst Guillermo Felices. “If it does, we think it would weaken the U.S. dollar and support risk appetite.”

The big bailout news of the day are coming out of the US, where the taxpayer en generale, represented by the US Treasury, is reducing its stake in AIG. The American International Group had received $182bn in bailout funds back in 2008. Now $20.7bn of the share is going up for sale (According to WSJ it’s only $18bn.). The Treasury’s, pardon me, the taxpayer’s stake will be reduced to less than 20% upon completion of the divestment. read article

Some $23bn of their overall investment remains unpaid. Combined with the share offering and the valuation of the remaining stake, the US Treasury probably will eventually book a profit on its rescue of what was once the world’s largest insurer.

Volcker (US) and Vickers (UK) are getting a new friend: Erkki Liikanen. With some more effort we could have made that an alliteration, but hey. Liikanen is the governor of the Bank of Finland and the man behind the Liikannen report (Report of the European Commission’s High-level Expert Group on Bank Structural Reform BLAH), which is to be published in a month’s time. The man behind the man behind, however, is Michel Barnier, the secret puppeteer of Europe who stands behind every new and potentially ineffective piece of financial regulation that is created in Brussels. According to rumors overheard by the FT, the report will combine the UK and US approach, meaning banks will be forces to ringfence the shit out of everything and stop trading with their own money.

If we’re lucky, this will inspire an intelligent and necessary conversation about effective policy. More likely, however, is the introduction of an overly complex framework, to reach implementation five years from now, which will mostly do one thing: create a lot of opportunity for lawyers. I guess that is one way of stimulating the economy.

So long.

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