Death Star Economics



OMG, Japan is actually growing

US jobless claims came in higher than expected and housing data disappointed as well, raining on the American recovery 2013 parade and adding to the uncertainty over the future of the Fed‘s asset purchasing program. read New York Times
At the same time, those with disposable income seem to be working on a new housing bubble of sorts. read Bloomberg

Japan reported its economy grew in the first quarter of the year, leading to a 3.5% annualized growth leap and supporting Shinzo Abe’s approach since his inauguration in September. Most of the growth is attributed to private consumption. read Bloomberg

Meanwhile, Japanese companies prefer to look for opportunities elsewhere, for example the US, where a handful of corporates bought into the US shale gas market for several billion dollar. read Financial Times

Following the Bloomberg user data debacle, Citigroup has banned its fixed income traders from participating in Bloomberg chat groups to shield the banks from any security breaches. read Financial Times

This morning…
Lloyds Banking Group might just be short of fully returning into private sector hands, as the bank’s shares rose higher than the government’s cut-off point for a sale of 61.2 pence per share. Over the past weeks, David Cameron had reiterated that bailed out and partly nationalized institution shouldn’t stay government owned for longer than needed. read Reuters

Word got out that Qatar spent up to $3bn on supporting the Syrian opposition since 2011, the same year in which Libya’s rebels also received support, fueling rivalry over political influence between Arab countries. read Financial Times

Other than that, there is not much going on, time to get on the below.

Weekend reading…

Bangladesh, globalization and the price of your t-shirts, read New York Times
– from pork bellies to ruling the world – a brief history of the Chicago Mercantile Exchange, read Economist
gold bulls vs bears, read Alphaville
– Super Abe and the fight for a prosperous Japan, read Economist leader
– on the uselessness of asset management, read Harvard Business Review

Have a good one.


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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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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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Bad PR for corporations as such

Today’s news are mostly dominated by the siege on an Algerian gas plant that started yesterday, triggered by French military action in Mali. All else seems to be on hold.

But there’s some drama: Tom Albanese, chief executive of Rio Tinto, British-Australian metals and mining company and gold star member of the companies-that-are-what’s-wrong-with-the-world club, has stepped down after the company had to admit to $14bn in impairment charges following unsuccessful acquisitions under Albanese’ supervision. In February 2012, one of these questionable assets, aluminum business Alcan, was written down by $9bn. read article

Thanks to a little €1.5bn incident in Italy, Deutsche Bank got bad PR again. In 2008, the aforementioned amount was loaned to Banca Monte dei Paschi di Siena, the world’s oldest established bank. As part of the deal, the Italian bank avoided a €367 loss on an old derivative contract and bet against Italian government bonds. A year later, Monte Paschi received a €1.9bn bailout from the Italian government, following by the December 2012 EU approval of a total €3.9bn bailout. It may raise a question of fairness, if not at least of proportion. While Monte Paschi is being investigated for manipulation and obstruction of regulatory activities (in Italy… that’s convincing), German authorities are trying to justify another investigation of Deutsche Bank. They promised to leave the machine guns at home this time. read article

As more or less all of Boeing’s Dreamliner fleet [globally] is now grounded for inspection, aircraft order numbers for 2012 were released. And guess which manufacturer has re-taken the number one spot after five years… exactly, Boeing. The difference to Airbus: 13 planes. And for all you know, those aren’t even fit to fly. In the US and Europe, it is not even the airlines that keep their fleet on the ground, the authorities have banned Dreamliners from flying until Boeing can resolve the risk of battery fires. read article

And the headline of the day: “Dimon Takes a ‘Whale’ of a Pay Cut

So long.

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Globalization, vertical integration and buying commodity firms

Japan is edging towards more QE, as the country’s exports fell most since the earthquake in March 2011. Most of it is attributed to the general performance of the global economy, but also the dispute with China, causing Chinese demand for Japanese goods to fall and factories to close. According to JP Morgan, the dispute will shrink Japan’s Q4 GDP by 0.8%. Besides, the strong yen, makes Japanese goods unattractive for importers. read article

Angela Merkel is getting a taste of her own medicine. She’s having an argument about austerity measures with David Cameron. After Cameron stated that the UK will veto any EU budget proposal that sees spending increases in any shape or form, Merkel, being efficient, sees no point in holding the November budget meetings. The German take on the EU budget is to cap spending at 1% of GDP, around €900bn, for the years to come. read article

In other EU news, tomorrow, the proposal that would impose a 40% female quota in boards of European companies will fail. A number of predominantly liberal politicians have stated to vote against the regulation, 11 out of 27, enough to make it fall through. In the background, the European Parliament is trying to fill a position on the board of the ECB. Prime candidate Yves Mersch seems to bring one major disadvantage: being maleread article

But there really seems to be just one theme today, and that is buying commodities businesses.

In the UK, four of the largest private equity houses in the world, KKR, CVC Capital Partners, Apax and Carlyle are allegedly looking into buying Urenco, a British government-backed provider of nuclear fuel solutions. Urenco was founded by the British, Dutch and German government in the 70s; today, it’s largest shareholders are the British state and two German utility companies.

In AustraliaArcher Daniels Midland, one of the largest processors and traders of agricultural products, has bought 14.5% of GrainCorp, a logistics and storage company that deals with a third of Australia’s wheat grain production, for $2.8bn. According to the UN Food and Agriculture Organization, global agricultural output could grow by 50% until 2050.

Meanwhile, the Canadian government is set to block the acquisition of Progress Energy Resources, Calgary-based owner of gas fields in British Columbia and Alberta, by Petronas of Malasia. The acquisition would be valued at $5.3bn.

And finally, BP sold 12.84% of TNK-BP for $27bn to Rosneft, i.e. the Russian government.

It’s a trend. Clearly.

So long.

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The changing face of finance

All eyes are on Mario Draghi once again, who is holding an ECB meeting in Brussels today. That once thing both Draghi and the rest of the world are waiting for is Spain‘s formal request for a bailout that would trigger the newly agreed bond-purchasing program of the Union’s central bank. Until that happens, however, nothing else will. Most likely statement to come out of today’s press conference is therefore probably a request for a request for a bailoutread article

Meanwhile, the European Banking Authority (EBA) has come back from it’s survey of 71 European banks, finding that only four of them fulfilled the new extra-super-crisis-resistant capital requirements of 9%. The survey did not include Spain’s Bankia or any Greek bank. The EBA said further that banks that don’t reach the prescribed ratios won’t be paying dividends or bonusesread article (read WSJ Deutschland)

Morgan Stanley, which had been rumored to be looking into selling its commodities division, has reportedly entered talks with the Qatari Investment Authority, the 12th largest sovereign wealth fund in the world that owns every other bit of London. The sale is motivated by new regulation through the Dodd-Frank Act and more specifically the Volcker rule, which prevents proprietary trading. read article

Similar news from J.P. MorganLDH Energy, currently owned by Louis Dreyfus and  J.P. Morgan’s hedge fund Highbridge Capital, will be sold to the CEO of Highbridge, Glenn Dubin, and founder of Tudor Investment Corp, Paul Tudor Jones. read article

Both these sales, though the former more so than the latter, are indicators of how post-crisis regulation is shaping the financial services sector into something new. The first result of this seems to be a cutting back of those bank divisions that that were added in the scope of expansions, during more pleasant economic times. Of course, this is not exclusive to commodities. Credit Suisse is looking to get rid of its $385bn asset management division as a “direct consequence” of not being a major asset manager, while Lloyds TSB has continuously offloaded its private equity assets, worth more than £1bn. Time to cut your losses and move on.

In the US presidential race, Romney won the first TV debateThe Atlantic said Obama lacked energy and enthusiasm, the Handelsblatt called him “pale” [which, of course, is a hilarious figure of speech here].

Greece, in its ineptitude of being a serious country, is on track to pool €100m to build a new formula one Grand Prix track. Bernie Ecclestone, CEO of Formula One Group, who is vainly trying to float the company on the Singapore stock exchange, has allegedly backed the project. Not necessarily related, GermanyFinland and the Netherlands have demanded to delay the next bailout tranche for Greece, worth €31bn, until November. read article

In other news, Facebook has hit the 1bn users benchmark. Fair enough, that IS cool. read article

So long.

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BP’s “culture of corporate recklessness”


There won’t be a news brief tomorrow, Thursday, 6 September 2012.

The story of the day is a commodities investigation roundhouse kick involving Shell, BP and Gazprom.

The US Department of Justice is charging BP with gross negligence and wilful misconduct in the case of the 2010 Deepwater Horizon disaster, upon which BP’s shares fell 3.95%. If gross negligence is proven, the fine could be up to $21bn according to the US Clean Water Act. BP, however, is only prepared to pay $15bn in total. The case is being heard in New Orleans, for the view, with unnamed lawyers of the Department of Justice saying the following in a leaked memo:

The behaviour, words and actions of these BP executives would not be tolerated in a middling size company manufacturing dry goods for sale in a suburban mall. Yet they were condoned in a corporation engaged in an activity [deepwater drilling] that no less a witness than Tony Hayward [former BP chief executive] himself described as comparable to exploring outer space.

No hard feelings.

But really, Deepwater Horizon ruined the fun for everybody. Shell, which has spent the past seven years in preparations of oil drilling in the Arctic sea north-west of Alaska, struggled so much with government licenses and environmental groups that it led many other companies to turn their back to those waters. Even more hilarious, however, is that the license agreement that Shell ended up securing, allows the Noble Discovery Rig to drill 1,400ft deep. That is about 4,000ft ABOVE the predicted oil reservoir. Hmmm.

Lastly, the European Commission has launched an investigation into Russian state-owned Gazprom. The investigation regards market barriers that keep countries from diversifying their gas suppliesAccording to WSJ:

EU said the probe will look at Gazprom’s behavior in eight countries. Russia supplies 36% of the EU’s natural gas, but it is the effective sole supplier to Bulgaria, Estonia, Latvia, Lithuania and Slovakia. According to EU data, it also supplies 82% of Poland’s gas, 83% of Hungary’s and 69% of the Czech Republic’s.

But no worries, EU officials said there are no problems with Russian gas deliveries, as this isn’t likely to piss anyone off at all.

Re: yesterday’s US manufacturing data:
WSJ Real Time Economics shared a chart mostly composed of the words ‘expanding slower’ and ‘contracting faster’… read article

In Germany, where both the government and most banks are vehemently against a European banking union that would establish the ECB as a central monitor of all European banks, Juergen Fitschen, Co-CEO of Deutsche Bank has spoken out in favor of such a union, causing quite some turmoil at today’s Handelsblatt banking conference in Frankfurt. read article

Otherwise, Australia’s Q2 GDP came in at 0.6%, undercutting the expected [massive] 0.7% and European retail sales dropped by 0.2% from June, to -0.1%. This can mostly be attributed to the poor state of consumer confidence, which is worsened by increasing energy prices (hello, EU! (see above)) read article

So long.


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Sovereign crises stream of consciousness


There won’t be a News Brief tomorrow, Tuesday, 21 August, 2012.

The ECB, obviously tired of the 7% yield-of-death benchmark, is said to implement a high-yield interest rate threshold, which would forbid any buyers to purchase government debt of struggling economies when their borrowing costs exceed a certain percentage. And then? Then, the ECB will step in an take on that debt. This is following the bank’s August statement that it would only start buying Spanish and Italian bonds if the countries explicitly request aid. Contradictory. Needless to say, ze Germans are against this. read article

Aha! Look at that, the ECB is annoying denying everything.

But speaking of Germany… Angela Merkel is meeting Antonis Samaras in Berlin on Friday, where he will fail to say “thank you” and she will push Greece’ compliance with the initial targets and conditions that were set as part of the €130bn bailout package. Otherwise, this Monday marks another day on which Greece did not default. To commemorate the day, the ECB’s Joerg Asmussen told the Frankfurter Rundschau the following:

Firstly, my clear preference is that Greece should remain in the currency union. Secondly, it is in Greece’s hand to ensure that. Thirdly, a Greek exit would be manageable. It would be associated with a loss of growth and higher unemployment and would be very expensive – in Greece, Europe as a whole and even in Germany.

In other words: I don’t want the Grexit, but “there are Greek people living there,” so what are we going to do…

But speaking of defaulting countries. Belize is facing to default on its pile of debt worth $543.8bn on 19 September unless it strikes a deal with its creditors. Belize is asking its lenders to take a 45% haircut or to accept a delay in debt payments by 15 years. Sounds like a pretty bizarre case of blackmailing if you ask me. Recent history has taught us that potential defaults don’t really happen, but as the ECB isn’t involved in South American debt scenarios this may turn out differently (hello, Argentina!). read article

The commodity du jour is hay, after the hardly standardized product saw price gains above those of soy and corn. read article

The House of Commons and the Treasury have released a report to preliminary findings in the Libor probe, mostly blaming the Bank of England, then the FSA and then the bank again. The real report promises to be exciting holiday reading.

So long.


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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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