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Obama ready to cut social security for budget deal

Yesterday…
it was all about central banks: the Bank of Japan expanded its asset purchasing program to JPY7tn per month, which will increase the Japanese monetary base to JPY270tn – double – by early 2014. read article

Both the Bank of England and the ECB left their policies alone. Mario Draghi shared mixed views of the European economy, saying it was to benefit from improving financial markets sometime soon, while bank lending was negative and needed encouraging. Interest rate cuts are possible again.

This morning…
we’re waiting for US non-farm payrolls, expected to show 190,000-200,000 jobs added in March (according to Bloomberg and Dow Jones respectively), as opposed to 236,000 in February, with a steady unemployment rate of 7.7. read article

President Obama is willing to cut social security spending to finally get a budget deal together, the White House announced this morning. The new proposal would see cuts worth $1.8tn over the next decade and will piss off a lot of Democrats and unions. read article

Weekend reading…
women and Wall Street (again) read article
– why the French are an un’appy folk, read article
– the deal with interest rates, read article

Have a good weekend.

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Black Friday after Black Thursday; FT Deutschland shuts down

It’s Black Friday, THE day in the world of retail, except some companies started early this time around. Firms included Wal-MartTarget and Toys”R”Us offered their traditional Black Friday discounts on Thanksgiving day itself. What was that good for? MarketBeat says it raised the bar: on expectations and stock prices.

On EU issues, this summary says it all:

First it was Greece, which Europe couldn’t “resolve” on Monday night despite Juncker’s vocal promises to the contrary, and was embarrasses into postponing until next Monday when everything will surely be fixed. Now, the time has come to delay the “resolution” of the EU budget, which was supposed to be implement[ed] last night, then a decision was delayed until today, and now every European government leader is saying a new meeting will likely be needed to resolve the budget impasse.

The FT reports that the deadlock between the EU’s North and South could delay a budget deal until the new year. So far, rumors say the overall size of the budget, approximately €1tn hasn’t changed – much to the displeasure of the UK and Sweden. As mentioned before, the European common agriculture policy takes the biggest share of the budget, and received an additioanl €7.7bn.

In other news, Bolivia has been invited to join Mercosurthe association between Brazil, Argentina, Paraguay, Uruguay and Venezuela, while Argentina has criticized yesterday’s decision of a New Yorker judge that the country has to proceed with its debt repayments and reimbursements to its hedge fund bond holders, sparking new fears about another South American defaultread article

The gender battle about the next appointment to the ECB’s board has been won by Yves Mersch of Luxemburg. Politically, Mersch is part of the German anti-inflation party. The German edition of the Financial Times is officially shutting down on 7 December, slashing 364 jobs in Hamburg, Frankfurt and offices abroad. I am deeply upset.

Weekend reading:

– Deutsche Bank and the [unbiased] case for the “universal” mega bankread article

– Is Ben Bernanke the new Wizard of Ozread article

– Gaza in an infographic, read article

– Inflation measured on the price of turkeyread article

Have a good one.

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Europe blazing, Apple releases Christmas-iPad

German business confidence fell for the sixth month in a row, on the back of PMI data that missed expectations, and maybe also general scepticism towards Germany’s role in Europe. On the other side of the world, the same indicator for China showed a much better result and eased the fears over slowing growth.

The ECB’s Mario Draghi is in Germany today, discussing the legality of the ECB’s bond purchasing program that could save Spain and the world with the Bundestag’s committee for finance, budget and European affairs. Adding a legal struggle to the idea, could have obvious devastating effects to the development of Europe’s peripheral disaster. The OMT, Outright Monetary Transactions program, introduced by the ECB in September, is exceeding the bank’s mandate and leaves many questions about the administration of the program unanswered, says the German government. At this point, Spain has still not requested a bailout, maybe because the ECB has not figured out their role in it yet.

Meanwhile in the UK and US, authorities seems to be ready to pump some more money into the economy: the US despite it’s modest improvement, and the UK despite its best efforts so far. The Bank of England’s Mervyn King warned of the limits of quantitative easing and asked for patience to see results. Alphaville on UK vs US development throughout the crisis.

Apple released another new product: the ultimate bridge between the not-really-that-necessary iPad and the much-more-necessary-but-did-it-really-have-to-be-taller iPhone, is an iPad in Kindle-size for the bargain price of £269. Take a wild guess which competitor that’s aiming at. The pricing of Christmas-iPad is a source of investor worries, as it is still much more (more than £100) expensive than Amazon’s Kindle or Google’s Nexus. read article

After the EU regulation imposing a women-quota of 40% in company boards was rejected in the European Parliament yesterday, presumably to the disappointment of center-left parties, the World Economic Forum Global Gender Gap Report 2012, released today, shows that equality is slowly improving. Of the 132 countries in the survey, 82 improved their equality ratings from 2011 to 2012, closing 60% of the global economic gender gap. Only 60%. The UK (#18) and Germany (#13) have each lost two ranks, while China’s gender gap has actually widened a bit. Unsurprisingly/Traditionally, the top 5 countries were Iceland, Finland, Norway, Sweden and Ireland.

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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Fixing Libor, fixing the law

After the worst of the storm has gone, the Financial Services Authority has announced its reform of Libor. Unfortunately, the quest for an alternative benchmarking index failed, and so the new-old-Libor will just use transaction data instead of banks’ estimates to calculate the London Inter-Bank Offered Rate. However, there is no rule on the publishing of said transaction data so far.The BBA, the British Banker’s Association, will be stripped of its responsibility for monitoring the rate, passing the job on to the FSA, at least for the interim. The BBA’s administrator role will be publicly tendered (apparently, Bloomberg has its own proposal).

Alphaville summarizes: more banks will be involved (i.e. transactions from more banks will be taken into account), rate submissions will be kept confidential for three months, daily fixings will be reduced to 20 (from 150 and five less for currencies), the FSA will approve every individual in the banks involved in submitting rates, banks will need to add an explanation/reasoning to their rate estimates, the BAA will be replaced and manipulation will become a crime.

The Spanish budget was announced, featuring all those expected austerity measures that are likely to infuriate the Spanish people. According to the new plan, government spending will be cut by 8.9%, while tax revenues are forecasted to rise by €5bn to €175bn in 2013, partly through an increase in sales tax. Although Spain’s Finance Minister Luis de Guindos said the EU had still not specified the terms and conditions of a possible bailout, the new budget follows many of Brussel’s recommendations.

Also on the budget bandwagon: France. In an effort to reduce the budget deficit, the FT calls it the harshest budget in 30 years. Despite the sensationalist sound of that, they may not be far off. Tax revenues will increase by €20bn, mostly through increased taxes on corporations and the upper income tax brackets. And yes, that includes the 75% marginal income tax rate on earnings above €1m. Most people who are subject to this tax increase will have left by now, or are heading to the airports as I type. At least, it spares France the kind of austerity measures and cuts that cause riots in other parts of Europe. For 2013, France’ debt to GDP ratio is expected to be 91.3%, with net debt issuance falling by €8bn [to €170bn] from this years rate. read article

With quarter three ending today, the spotlight turns to the US presidential election. According to the German Handelsblatt, George Soros put $1m towards Obama’s re-election last night. Gillian Tett writes in the FT’s Market Insight column that according to a recent study by Absolute Strategy Research shows that in terms of economic data, voters care most about real estate prices. Following the housing bubble and subprime mortgage crisis that tore holes in the US economy, this is little surprising.

Weekend reading:

– Gender debate: Heidi Miller (formerly JP Morgan) an how women are weakread article

– The US’ states of play: an election infographicread article

– China’s first aircraft carrierread article

– Popculture explosion: “Gangnam style” actually made it into BusinessWeek, read article

Have a good one.

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If it’s not rates, it’s drugs: a new banking scandal

Today’s headlines refreshingly deviate from previous days, with HSBC’s involvement in money laundering and financing drug trafficking, terrorism and everything else that is bad. Surely, the paranoia behind and intensity of the bank’s investigation isn’t helped by the Libor scandal, which in itself isn’t helped by the financial crisis or Occupy Wall Street or all those bad-banker stories (Hello, Greg Smith, hello, Bruno Iksil…) that have been around lately.

Also, the IMF has slashed global growth forecasts in appreciation of the sticky molasses that is the world economy right now. The new forecast for 2012 is growth of 3.5% globally, with the eurozone shrinking by 0.3%. The UK, so it says, will only expand by 0.2% this year. This comes as inflation hits a 32-month low of 2.4%.

That links nicely to the decline in foreign direct investment in China, which is down almost 7% or $12bn from last year. The FT debates whether slower growth is the right way for the country. read article

The US unemployment rate, which hasn’t undercut 8% in 41 consecutive months, which could change monetary policy with regard to additional quantitative easing. The Keynesians, mostly Paul Krugman of course, are jumping up and down crying out to leave the inflation rate alone to stimulate job creation. read article

Marissa Mayer has been appointed CEO of Yahoo. She was previously an executive and spokesperson for Google. She is the company’s fifth CEO within four years. For feminists Mayer may just become a poster child: head of a tech/internet company and pregnant when she got the job. That’s right, Mayer may only stay with Yahoo over the summer, as she’s expecting a child in October. But that’s just marginally interesting, because with its search business continuously losing ground and its online ad share declining to 9% this year, Yahoo’s future is a little bit all over the placeread article

Otherwise, German investor outlook for the coming 6 months (ZEW index) is down and Moody’s downgraded 13 Italian banks, including the country’s largest lenders.

So long.

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Would Murdoch want to be new Greek finmin?

So about Greece… I’m sorry, but it’s one of those days. Finance minister Rapanos resigned yesterday due to health issues and prime minister Samaras announced that he will not be able to fly for two months due to his eye problem. What the… Rapanos may be replaced by Yiannis Stournaras, professor of economics at the University of Athens and one of those who hasn’t fled the country yet. Both the details and results of his health check are yet to be disclosed.

Newscorp is looking into splitting the company into separate entertainment and publishing divisions. What does this mean? Well, the legitimacy of the WSJ’s report on the story is up for discussion, as the journal is of course part of Newscorp. But Murdoch could stay in control of both parts, only mitigating the storm around the British newspaper units that were involved in the phone-hacking scandals, and not actually solving the problem that a demerger should presumably address (namely Murdoch owning everything). More importantly, a split would make it harder for the publishing division to find investors, despite its prime newspaper assets, because its growing at a much slower pace than the entertainment branch. Not really surprising, you’re comparing the WSJ and the Times to 20th Century Fox here… come on.

A new proposition from Brussels authored by the presidents of the Commission, Central Bank, Eurogroup and Council (mostly to set the stage for the summit later this week): In Dan Davies words [blatantly stolen from Twitter, yay for 140 characters]:

1. Pan-European single banking regulator – ie completely irrelevant to crisis, pure and simple power grab.

2. European deposit insurance & resolution schemes, backed by ESM – ie repurposing of existing fund, not in treaty. Nothing from ECB

3. “pooling of decision making on budgets” ie power grab

4. “issuance of common debt could be explored” – ie, jumping someone else’s train of ERF and Eurobills. No original work

5. “A full fiscal union” and what’s the most urgent issue about that? yup “it would need a central budget“.

6. “Towards an integrated economic policy framework” – equal parts sameold “stability and convergence” guff and power grab.

7. “Oh yeah, democratic legitimacy”. Insultingly brief 2 paragraph section, which just points you at Protocol 1 of TFEU.

(or read article)

In other European news, Cyprus has officially requested a bailout, the terms of which have not been finalized, but it’s like to be €8-10bn, and France is set to raise the minimum wage by 2% come July 1.

The woman in the news today is not Angela Merkel for a change, but Facebook’s Sheryl Sandberg, who is now director of the company’s board, which so far had only been comprised of men. Well done Sheryl, girl power and all that.

At last, a chart and a reason why we shouldn’t be looking forward to September: according to a study by Luc Laeven and Fabian Valencia of the IMF, which relies on 147 cases over 41 years, September is the month of banking crisesread article

So long.

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Spain is down on its knees, but not officially.

Today seems slow as everyone is still rolling around in the news that came out of China and the US yesterday. Essentially, it’s the same issues as always in the headlines: the push for eurobonds, Merkel’s stubbornness, downgrades and negative forecasts.What else is new?

Well, maybe this: Reuters brings us an exclusive saying that Spain will officially ask for an aid package as “early” as tomorrow. The ‘tomorrow’ bit being the actual news. Both in Madrid and Brussels officials deny ever having spoken of a bailout. A guessing-game that’s left to play is just how much money the EU will pump into Spain’s financial system. The IMF estimated €40bn to be necessary to recapitalize all the banks, Fitch, which just downgraded Spain to BBB with negative outlook, says it would rather be €60-100bn. So there’s that. It also remains to be seen which fund the money would be coming from. The ESM, which will only be fully implemented by July, seems like the better option, because its rule framework is more flexible. But because of the implementation delay, the funding could come out of the EFSF, which requires unanimous consent before throwing money at someone. Hmm. Difficult.

Germany’s response was something along the lines of “Sure we’ll help, we’d never let a man down. But, y’know, we need you to beg first.” That’s kind of weird, because this ‘begging’ also includes agreeing to EU-imposed austerity measures. But because a Spanish bailout would only regard the banking system and not the whole country (sort of), the requirements attached to the agreement would be less harsh as well, yielding the term ‘bailout lite‘.

The most obscure thing in today’s news, however, is probably this: Jean-Claude Juncker, prime minister of Luxembourg and currently still head of the Eurogroup, said the following in an interview with the Times (or for anyone with a Times subscription, read here):

I have always believed that, in spite of occasional bitterness, the European Union without Britain is no longer the European Union. For strictly national reasons and not out of any continental romanticism, the United Kingdom will become a member of the eurozone.

Excuse me? Continental romanticism? Occasional bitterness? The Brits don’t even believe that they’re geographically part of Europe!

And then there was the catfight on Greek TV yesterday, ending up with the spokesperson of the extremist Golden Dawn party being arrested for attacking two members of parliament (one with water, one with fists). read article/watch video

As for some weekend reading:

– the Economist on the human cost of India’s slowing growth read article

– Adam Smith‘s thoughts on income inequality in the Boston Review read article

– Gillian Tett tackling existentialism in her most bizarrely titled article yet in today’s FT read article

– a pro-inflation infomercial from 1933 America watch video

– how well Iceland is doing post-2008-implosion that the UK and the Netherlands paid for (mostly) read article

– and finally, what we can learn from the breakup of the ruble-zone twenty years ago read article

Have a good weekend!

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Liberté, égalité and working until the age of 40

In France, the retirement age for long term workers (41.5 years of pension contributions) and mothers of 3+ children was lowered from 62 to 60 yesterday, because working 35 hours a week is hard and pension funds are doing super well right now because of the good economic conditions. read article

Meanwhile, French unemployment rose to 10%, which is still less than the eurozone average of 11% [in April].

In Spain, or in Brussels rather, we’re still waiting to hear anything more explicit than edging towards a solution, which has, however, not been agreed on yet, because nobody really wants to deviate from their positions. Essentially, that means that Rajoy is still not ready to call it a bailout, because he’s afraid of stigmatizing Spain’s banksread article

Otherwise, David Cameron is meeting Angie Merkel in Berlin today to spread the egalitarian word. He, as so many others, wants her to put more money forward for a bigger European firewall, agree to eurobonds and finally put her foot down and cut the soft talk. We shall see how well that goes. Cameron doesn’t exactly have a track record for being diplomatic when it comes to talking to his continental counterparts about meaningful things, just as Merkel hasn’t been proactive on the compromise front recently. My guess: a statement on how much both nations agree that urgent action is required to strengthen the banking system and the economy and revive organic growth within the next years. I.e. things we’ve heard before. Please disregard. read article

Here’s some analysis to Merkel’s isolated position in Europe and the world and how she got herself there. read article

“There is a sense of concern [in Europe],” said Maria Draghi at the ECB’s press conference yesterday. Oh really? Here’s every chart on the ECB you’ve ever dreamed of.

Another chart, this time for Greek unemployment by age group. Do not open if you have a history of depression. view chart 

And finally, the number of the day: £752,785

That is the average house price in central London as of April 2012.

So long.

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Can we please talk about something else?

Reuters’ headline this morning: “EU wants Greece in euro, but plans for possible exit.” It might as well have read “EU wants to have its cake and eat it too.”

I don’t know why everyone (today it’s MarketBeat once again) is still saying that it is likely to get worse in Europe before it gets better… Likely? Isn’t it already getting worse by the week/day/minute?

The six-hour (not -course) dinner of EU leaders resulted in the typical EU soft talk of plans to make everything better, this time in form of keeping Greece in the euro. But just in case nobody believes them or they don’t believe themselves (…) plans how to manage the exit will be put in place. This might be worth talking about again when there are more tangible statements to work with. Having said that, I do hope they all enjoyed their food last night.

The euro slumped to its lowest value against the dollar in 22 months and remember, this charade is going to continue for at least another month, when Greece is taking another stab at electing a government.

The Facebook situation has turned into a fight of the titans NYSE and NASDAQ: apparently, Zuckerberg & CO are in talks with NYSE to switch exchanges. All parties involved declined to commentread article

I’m so tired of this, let’s talk about something else.

For example, how the British government is historically bad at managing its budgetno matter if labor or conservative (read article), or how Europe’s borders meandered on during the past 1000 years (watch video), or maybe income inequality, economic growth and fairness under the Obama administration (read article). Anything, really.

So long.

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