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ECONOMICS – FINANCE – WORLD NEWS – GREEK DEBT

Europe is the new Japan – ECB cuts rates

Yesterday…The Fed’s FOMC meeting notes showed that we’re moving away from the “let’s close the money tap” idea and back to “whatever it takes” – meaning easing or no easing. The statement said that policy action will be taken with an eye on how the economy will progress. read Alphaville (interestingly, Matthew Yglesias of Slate has interpreted this as a call for stimulus)

Apple‘s mega bond of $17m helps the company to avoid $9bn in taxes. If Apple would have had to bring in money from abroad to pay dividends to shareholders, that’s what it would have cost them. Of course, the average Apple customer, like me, doesn’t care about tax avoidance (it’s not even illegal), but the American state is upset, as it’s trying to crack down on offshore tax avoidance like never before this year. read FT

Otherwise, an infographic to yesterday’s ADP employment report. view graphic

This morning…
all eyes are on the ECB, which just announced a benchmark interest rate cut by a quarter point to 0.50%. A press conference during which Mario Draghi will wear a suit made of money is set to follow at 1.30 BST. Let the excitement begin. Money for everyone.

UBS is holding an investor meeting today, during which the bank may be urged to split its investment banking and wealth management units [again]. read Reuters

So long.

Death Star Economics
ECONOMICS – FINANCE – WORLD NEWS – GREEK DEBT

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Slovenia slides down the bailout slope

Yesterday

The Fed is considering tougher capital requirements over worries that banks could be playing the [Basel III] system. Currently, the international agreement sees equity capital at only 3%. Basel brought that up significantly, but also gave the parties involved more room for… creative accounting. Give a bank a loophole. read FT

Moody’s downgraded Slovenia to junk with negative outlook (ouch), which is unfortunate, because the country was planning to auction off some debt. read FT
And now the pathway to an EU bailout: (read Bloomberg)

Rising loan losses resulting from a housing bust and a second recession in two years have left a hole of about 7.5 billion euros ($9.9 billion) at Slovenia-based lenders, investment bank Keefe Bruyette & Woods estimates. That’s a lot for a 35 billion-euro economy: A bank bailout would push government debt above 70 percent of economic output.

Apple issued $17bn in debt – the largest corporate debt offering ever – in six tranches to return money to shareholders and avoid repatriation taxes on overseas funds. read WSJ

In New York, the Empire State Building was lit up in FT-pink to celebrate the 125th anniversary of the newspaper.

This morning…
is quiet due to Labor Day in vast parts of the world.

Later on, we’ll get some data from the US, including the ADP employment report, ISM manufacturing data and the post-FOMC meeting statement from the Fed (ex Bernanke press conference). The ISM is expected to drop below 50, as it last did in November of last year and several months in 2009.

So long.

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Letta new Italian PM; Apple profits drop for first time in decade

Yesterday…
It was a dark day for the European economy, with April PMIs across the globe disappointed, except for France, which beat expectations and soared to four-months highs. China and Germany on the other hand, undercut expectations – Germany even fell below the magic mark of 50, to 48.8, the lowest level in six months. read Bloomberg

After all the united G20 talk of appropriate monetary measures, S&P said that there’s a 30+% chance that Japan will lose its AA rating. The reasoning: it’s great to have quantitative easing, stimuli and private sector involvement, but that strategy doesn’t work if all you do is print money. read Reuters

Meanwhile in Portugal, the government is planning to lower corporate taxes to attract business. Good timing. read WSJ

Right after close, the Twitter account of the Associated Press was hacked, posting a tweet about attacks on the White House. The Syrian Electronic Army claimed responsibility. read Alphaville read BBC

Otherwise, it was all about Apple. The tech giant posted first quarter earnings,showing that profits dropped for the first time in a decade in year-on-year comparison. Alongside quarterly results, the company also announced an expansion to its now $100bn share buyback program to return money to investors. read WSJ

This morning…
Italy is set to announce a new Prime Minister. The current candidates are Guiliano Amato (Prime Minister 1992-1993 and 200-2001), Matteo Renzi (Mayor of Florance) and Enrico Letta (center-left deputy leader), all of which are less crazy than Berlusconi and none of which have worked for Goldman Sachs. read Reuters
BREAKING: Enrico Letta set to become Italy’s new prime minister

In anticipation on next week’s ECB meeting, rumor has it the Mario Draghi is likely to cut another quarter of a point off current interest rates, as inflation rates are below target and the eurozone finds itself back in recession. read Reuters

So long.

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Cyprus rejects Russia, EU deadline looming

Cyprus… failed to reach a deal with Russia, as reported very early on this morning, but is said to discuss an EU solution in parliament today. That would include a bailout program for Cypriot bank Laiki, splitting it into a ‘good’ and ‘bad bank’. Jobs would be saved and deposits under €100,000 would be guaranteed, the rest would go towards the bank’s dark side. Besides this proposal, the parliament has six others to discuss. read article

Yesterday…

The US House of Representatives voted to prevent the government from shutting down by the end of the month and supported Paul Ryan’s budget proposal. This means that both government agencies and programs will stay in place until the end of the fiscal year on September 30. Ryan’s budget on the other hands, cuts taxes, healthcare and social costs to lower the budget over the next decade. It is expected that the Democrats’ counter example of a plan will be passed in the Senate today. This has brought us nowhere. read article

In some last minute action, Blackstone, together with Southeastern Asset Management, is considering a bid for computer company Dell. Silver Lake Partners and founder Michael Dell have put in their bid in Feburary, but the official deadline is only todayread article

This morning…

German business confidence, measured by the IFO index, reported a slump after a 10-month high in February. Surprising or not, this is hardly a sign that even Germany is going under, and is following a lower manufacturing PMI as well. read article

Finally, family traits: Raj Rajaratnam’s brother has been accused for insider tradingread article

Weekend reading…

– how Obama is trying to solve the Israel-Palestine conflict, read article

– next up in Venezuelaread article

– Nicholas Sarkozy and elderly women, read article

– Cyprus cartoonsread article

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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UK triple-dip on steroids; finance lobby fights in DC

There won’t be an update tomorrow, Wednesday, March 13th. 

In the UK, George Osborne announced that his Funding for Lending scheme, which has yet to prove effective in any way, will be extended and enhanced, in his words put on steroids. Currently geared to drive down mortgage prices, the reformed scheme will also benefit SMEs. Meanwhile, the county fears the reality of its third recessionsince the financial crisis as manufacturing output shrank again – at the fastest rate since July. read article

Over in the US, the financial services lobby is marching on Washington, much as it has in Europe, just with more funding. The matter at hand are not bonuses, but policy proposals that could lead to the forcible restructuring and breaking up of big banks. Goodbye, Citigroup, goodbye, too big to fail. read article

The Mexican government is taking on billionaire Carlos Slim, who ownes large parts of the country’stelecommunications sector. The proposal would force Slim to sell assets and open the market for foreign competitors. Upon Enrique Pena Nieto‘s election in July 2012 hopes for economic reform, particularly in Mexico’s oil market, rose. read article

Hungary passed an amendment to its constitution, allowing prosecutors to choose the judges that will hear their cases. Both Brussels and the US are skeptical of the vote and even more skeptical of the state of democracy in Hungary following the change. In December 2011, there was a letter exchange between Jose Manuel Barosso, President of the European Commission, and Viktor Orban, Prime Minister of Hungary, regarding the country’s funding from Brussels and its compliance with EU laws, showing Hungary’s drive for independence while expecting full financial backupread article

So long.

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Central Bank Center Stage: UK prepares for future easing

Today’s central bank action shows the Bank of England and the Bank of Japan leaving things as they were. In the UK, the budget, to be announced on March 20th, will give the BoE more leeway in reaching the 2% inflation target. In other words, it will be a Go! sign for the printers and for new governor Mark Carney to save the day. As for Japan, this was the final monetary policy meeting for current governor Masaaki Shirakawa. Whether his successor will employ this new found conservatism is uncertain. Meanwhile in Brussels, the ECB‘s policy meeting has begun; no changes are expected.

In the US, the Fed’s beige book survey showed moderate economic growth and easing employment conditions. At the same time, the FT (and Bloomberg) is running an article about the 750,000 people who could be out of work by the end of the year if the sequester doesn’t get amended.

A reduction of 750,000 jobs translates into about 0.4 percentage points higher on the unemployment rate. That, in turn, could mean it takes at least six months longer to reach the US Federal Reserve’s threshold of 6.5 per cent for a first rise in interest rates.

Meanwhile, the House of Representatives voted in favor of a last-minute legislation that gives greater flexibility to government agencies that are subject to the spending cuts mentioned above, avoiding a government shutdown on March 27th. Next up: the [delayed] budget. read article

Time Warner is going to spin their Time Inc and IPC (publishing the likes of InStyle, Wallpaper* and NME) magazine arms off by the end of 2013 valuing the new public company at $2.4-3bn, after sales talks with publishing group Meredith had failed. In recent years, Time Warner also got rid of AOL and Time Warner Cable, all in the name of “strategic clarity”. read article

KPMG might lose its $81m auditing contract with HSBC, because the bank is considering a new pair of eyes for their books after 22 years. Hello there, regulatory pressureread article

Finally, France reached an unemployment rate of 10.6% in Q4 of 2012, representing the highest rate since 1999 and an increase for a sixth consecutive quarter. read article

So long.

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China curbs growth targets in light of social issues

There won’t be an update tomorrow, Wednesday March 6th.

News from China, where outgoing Prime Minister Wen Jiabao presented the country’s economic targets for 2013, including an unchanged GDP target of 7.5%, a lowered inflation target of 3.5% (down from 4%) and a budget deficit of RMB1.2tn, or 2% of GDPDefense spending will be boosted by 10.7%, a smaller increase than in any year since 1990. But the departing Premier also said that China’s growth model was unsustainable and on top of that paired with a whole array of social issues, like the income gap, increasing pollution and a real estate bubbleread article

Also in China, the SEC has been allowed to subpoena Deloitte’s China unit over accounting fraud at Chinese companies operating in the US. After initial co-operation between the American and Chinese securities regulators failed, this is a big step in terms of cross-border fraud investigations. read article

In other regulatory news, an undisclosed group of banks in the City of London have received a hat tip from law firm Shearman & Sterling that it was possible to fight the EU’s banker bonus cap [proposal] in courtread article 

Until then, enter George Osborne.

Otherwise, Apple’s stock fell to a new 52-week low yesterday, dragging the company’s market cap down below $400bn for the first time in over a year. 

So long.

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Budget cuts and peripheral misery

Today at midnight (Saturday morning in the old world), the US is facing the much discussed spending cuts, decreasing government spending by €85bn until the end of the federal budget year in September. Maybe it’s time to depart from discussing the sheer possibility of this scenario. If you believe Bernankethe pain will be close to intolerable, slowing the economy down by 1.5%. The Congressional Budget Office estimates a 0.6% decrease in GDP. If you believe Fortunecompany earnings are strong enough to allow ignoring the issue. Without a budget fix, the automatic cuts will continue in the following financial year. read article

And things aren’t pretty in Europe’s periphery either. First, numbers out of Spain showed that Spanish corporations faced the largest decrease in earnings ever recorded in Q4, including Bankia’s €19.2bn net loss. Meanwhile in ItalyBersani rejected all rumors regarding coalition talks with Berlusconi. Over in Greece, 2012 revenue targets were missed and the burden of unpaid taxes increased, causing skepticism in Brussels, where the next loan instalment, worth €2.8bn, can be withheld if Greece’ financial report is not satisfactory. At the same time, the IMF, usually in bed with the EU, was more positive, saying Greece had collected more taxes recently and could avoid a further reduction in government salaries.

We shouldn’t forget, however, that despite the mess that is Southern Europe (oh yes, I made that generalization), there are still countries out there that want to join the union and currency. Poland, for example, which originally wanted to have the euro by 2012, is now discussing meeting all criteria (the same criteria that Greece met once…) by 2015read article

In India, Q4 GDP growth dropped to 4.5%, as the government announced a more pro-business deficit-reducing budget for the coming year. read article

Otherwise, Andrew Mason removed from his position as CEO of discount firm Groupon, which recorded losses in the last two quarters of 2012. In his own words:

After four and a half intense and wonderful years as C.E.O. of Groupon, I’ve decided that I’d like to spend more time with my family. Just kidding – I was fired today. If you’re wondering why… you haven’t been paying attention.

Weekend reading

– The “Because I Can” attitude of senior managementread article

– Dear Banker, this is how we’ll pay you in the futureread article 1 read article 2

– the European Union and Ricardian equivalenceread article

Have a good one.

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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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