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ECONOMICS – FINANCE – WORLD NEWS – GREEK DEBT

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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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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IMF joins Cyprus creditors; Fannie Mae records first profits in 6 years

There won’t be an update tomorrow, Thursday April 4th.

Yesterday…In the US, people are getting more nervous about the Fed’s spending spree. Eyeing over to Japan, that might be fair. Once again, it’s Jeffrey Lacker, President of the Federal Reserve Bank of Richmond, who doesn’t beat around the bush when it comes to disliking monetary policy. read article

Fannie Mae, which received a total of $116.1bn in bailout finance from the US Treasury since the financial crisis, officially returned back to black. For the financial year 2012, the mortgage business recorded $17.2bn in profit. Finally. Although things are looking up, $84.7bn of its bailout package remain outstanding. read article

Speaking of earnings, the SEC has given companies the okay to announce earnings and other news via Facebook and Twitter, throwing off all those institutions (read banks) that blocked social networking sites for their employees. read article

Cyprus’ Minister of Finance resigned, saying he had done his deed in negotiating the bailout deal. In related news, the IMF stated today that it will pay €1bn of the total €10bn bailout package for Cyrpus, spread out over three years.

This morning…
there’s little to talk about. By 9.45am the most striking news were that Apple may release two new phones this year, and even that was a story from yesterday. read article

Spanish Prime Minister Mariano Rajoy is looking towards Brussels to get the growth in Europe going (good luck with that) and stop the austerity vise (even more luck for that), asking for countries in the position to do so to spend more to stimulate the economy. read article

So long.

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

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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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Across the board disappointing results: Japan’s deficit, Apple’s earnings, S Korea’s GDP

Over the past weeks, Japan has done a lot to try and convince the rest of the world of its [return to] well-being, but no distraction really did the job. And now this: Japan’s 2012 trade deficit hit JPY6.93tn ($78.27bn), the highest ever reported. Reasons are poor performance of its largest companies, rising fuel costs, the strength of its currency and the whole argument with China over the Senkaku Islands in the East China Sea. read article

South Korea’s 2012 GDP underperformed, recording the weakest growth figures since 2009. The country’s very own central bank had forecast the economy to grow 3% over the whole year – the actual number game in at 2%. To blame is the eurozone crisis, among other things, weakening demand for export products, which account for 50% of the South Korean economy. read article

The US House of Representatives approved a short-term extension on America’s borrowing spree, answering the question of whether the US will be able to pay its bills in the near future. This has bought some time to come up with a budget proposal to solve all problems – and without raising taxes, if you believe Paul Ryan, Chairman of the House Budget Committee. read article

The timing of the extension means the debt limit will be revisited after two other fiscal deadlines. Many members of both parties have said they want to revise of replace across-the-board spending cuts set for March 1, and they will need to renew funding by March 27 if they want to prevent a partial government shutdown. They are far apart on how to achieve both goals.

According to Reuters, the US Treasury will need the remaining $16.4tn the country is legally allowed to borrow until early March.

In Davos, Angela Merkel shows patience, saying that she was going to listen to David Cameron‘s complaints to work out the best possible solutions under which the UK would stay in the European Union. Wise words, after all, the UK’s vote would be helpful on her European budget proposal. Barack Obama also urged Britain to stop messing around and stay in the union. In the background economists polled by Reuters say that there is a 60% chance the UK will lose its AAA rating, which it has held since 1978, in the coming 12 months.

In other news, Apple announced earnings last night, showing the weakest increase in sales in 3.5 years, and the most disappointing profit growth since 2003. Since the shares of the world’s largest public company hit $700 in September, the price has fallen by 27%. Other technology companies like IBM, Google and Netflix did well and beat expectations in Q4 of the last year. Microsoft will report earnings tonight. read article

So long.

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Eurozone crisis: Just grow out of it, stupid!

After yesterday’s news of the shrinking German economy, Spanish PM Mariano Rajoy called on all those country’s who aren’t Spain, Portugal, Ireland, Greece, Cyrpus, really also Italy and maybe not even France, to implement growth stimulating policies as long as they can, because Spain sure can’t. This is the same Spain that still hasn’t called the ECB for help. Should someone break the news that Europe might not just grow out of this crisis? Maybe. But it’s siesta now. Let’s wait. read article

In the meantime, the German central bank is working on the logistics of getting 700 pounds of gold back into German vaults. At this point most of it is stored at the New York Fed, with the rest of it locked up in Paris, a precaution that is still in place from the cold warread article

The Netherlands‘ fourth largest bank SNS Reaal announced that it would need a restructuring due to its toxic property loans in autumn 2012. Now, the bailout will have to be carried out by the government. According to a decision by the European Commission, Dutch banks ING and ABN Amro will not be allowed to be part of the restructuring, because they received bailouts during the financial crisis. One scenario would be the creation of a bad bank for said loans, with all other big Dutch banks as shareholders. Hello over there at the Basel committee! Does this sound systemically risk-free to you? Altogether, it is estimated that SNS Reaal will need about €1.2-1.8bn to keep its doors open. In 2008, the bank received €750m from the government. read article

Otherwise, there are a number for “Facebook searching for revenue” headlines out there, because the website just launched its own search function, which despite it’s lose limits on Facebook itself, is stepping onto Google’s turf. Has that ever been a good idea? read article

And speaking of corporate catfights. It seems obvious that EADS has won the “massive plane”-round against Boeing. The Dreamliner (787), competitor aircraft to the A380, doesn’t seem to fly so well. This morning All Nippon Airlines and Japan Air grounded their 787 fleets for review, after yet another Dreamliner had to perform an emergency landing due to technical difficulties. read article

A whole truckload of banks announce fourth quarter earnings today, including JP Morgan, which has just announced to cut CEO Jamie Dimon’s salary in response to his responsibility in the London Whale case.

So long.

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Venezuela on constitutional cliff – at least we have a name for it

The news bear little excitement today. Between both Europe* and US growing quiet and the first earnings season of the year kicking off, there’s not a whole lot going on.

*except for the worry about the economy at large, Merkel’s rule in Germany, the fear of a what would happen to Europe without Merkel’s rule of Germany, and the general worry about what the hell the ECB is doing now.

Sources close to the Bank of Japan told Reuters that more quantitative easing could be announced at the policy meeting in two weeks. The central bank is also likely to support Shinzo Abe’s 2% inflation plan.

A couple of days ago, it was still assumed that Hugo Chavez, president re-elect of Venezuela, would be sworn in on 10 January. Last night, Vice President Nicolas Maduro announced that the ceremony would be delayed, as Chavez needs more time to recover. The problem is as follows: if Chavez doesn’t get sworn in, then his VP can’t steer the boat until he as recovered fully. Barclay’s calls this a “constitutional cliff”, others call it anarchy waiting to happen. read article

Otherwise, the US will record the lowest level of oil imports in 25 years in 2014, says the US Energy Information Administration. Imports haven’t been this low since 1987. In November 2012, the International Energy Agency had predicted that the US could become the world’s largest oil producer as early as 2017. read article

Yesterday, Bloomberg reported on a secret division within Goldman Sachs that continued to engage in proprietary trading even though that will be (Future tense! Important detail.) forbidden under the Volcker rule, which is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Today, FT Alphaville is investigating this investigative journalism and explains why no wrong has been done (probably) and why we should look at pictures of cats insteadread 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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