Death Star Economics



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


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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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“Biopolar enthusiasm” and the fiscal cliff

The Daily News Brief is going on Christmas holiday for a while and will be back in the new year.

The general consensus says we are making progress to make an outline to make a plan to move away from the fiscal cliff. Today even more so than yesterday. After Boehner’s proposal yesterday (look he has a chart), Obama came back suggesting tax increases for those with $400,000+ annual income, but apparently that is not his last offer. Then why even bother analyzing it? Reuters says, the mad velocity by which the negotiations are taking shape, “put[s] a deal realistically within reach.” read article

ZeroHedge sums it up:

By this point it has become clear to everyone that all fact-based news can be safely ignored […] it is clear that following yesterday’s detailed disclosure, the market is convinced, that a deal is virtually assured. This is a start contrast to 48 hours ago, when it thought the opposite. […] the latest bubble of bipolar enthusiasm which has now shifted to euphoric for the time being.

Also in the US. the Massachusetts Security Division of the SEC is kicking of the year in review part of 2012, reminding us just how much was blaming and blogging [about the blaming] was going on around the Facebook IPO, the company’s valuation and the decline of its stocks. Seven months later, almost to the date, Morgan Stanley was fined $5m for having failed to supervise its staff during the time of the IPO, i.e. for trying to influence research analysts right before the offering. Morgan Stanley paid up without denying or admitting to anything. Citigroup has already been fined $2m for “improper disclosures” and both Goldman Sachs and J.P. Morgan have been subpoenaedread article

J.P. Morgan is also being sued by the US Credit Union for Bear Stearn’s creation of mortgages worth $3.6bn that were distributed to clients under false information and later blew up in their faces. J.P. Morgan acquired Bear Stearns in 2008. read article

Meanwhile, Europe is entirely out of office now – the biggest news are that Germany‘s Bundesbank is expected negative GDP growth in Q4, while the European Commission gave the okay for the €3.9bn bailout of Monte dei Paschi di Siena, Italy’s third largest bank. Monti’s candidacy for the 2013 Italian election circus will stay up for discussion until Friday morning, so most Italian news will continue to be dominated by Berlusconi’s upcoming wedding. Brussels also filed a report regarding Spain‘s public debt, which is likely to keep rising if the country fails to reform its pensions system. According to the report, Spanish pensions will exceed the average EU spend until 2060. The other nation at risk, in part due to its pension spending, appears to be Cyprus which received aid from Brussels in June. read article

So much from me, happy holidays!

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Joining the dark side of the force: Disney buys Lucasfilm

After two days of storm, an exploding power plant, the shut down of three nuclear plants, almost 19,000 canceled flights, closure of public transport systems, 10,000 911-calls every 30 minutes in New York City and 14ft of water, America’s east coast is getting back on its feetWall Street will re-open, as well as airports and the rest of normal life.

But it won’t surprise you that the story on my mind today is Disney’s acquisition of Lucasfilm. For $4.05bn the Walt Disney empire bought 100% of George Lucas’ production company, which owns the Star Wars franchise. The deal marks the second biggest acquisition in Disney’s history, only exceeded by the $7.6bn takeover of Pixar. And really, this is like a family reunion. Pixar used to be a division of Lucasfilm, which was launched in 1979, but spun out of the parent company in 1986. George Lucas, the godfather of Star Wars, will get about $2bn in cash from the proceeds of the sale, adding to his net worth of $3.2bn. Disney announced that three new Star Wars movies will follow, starting in 2015read article

Google is joining Starbucks in facing a parliamentary tax inquiry in the UK. Google is channelling most of its corporate sales through its headquarters in Dublin, thereby avoiding UK taxes on it. According to Margaret Hodge, chairman of the committee the corporation will face:

Apple, Google, Facebook, eBay and Starbucks [i.e. all the poster children of globalization] have avoided nearly £900m.

It is estimated that the UK loses approximately £5bn annually due to tax avoidance.

In an attempt to buy more time, Greek policy makers have agreed to push spending cuts worth €13.5bn and reforms through parliament. Greece is once again in danger of running out of money within the coming month. Today, the Greek parliament will vote on a bill scrapping the obligation for the government to own a minimum stak in formerly state-owned companies, which is expected to set the tone for developments in the near future. On November 12, there will be an EU summit officially dedicated to the management of Greek debt. It’s getting boring and all seems like a replay of last year. Count the days until someone suggests to devalue parts of the Euro again… read article

In the background, eurozone unemployment rose yet once more in September, gaining 0.1% from August and amounting to 11.6% overall. That means that 18.5 million people are currently out of work in the European Monetary Union (hello, Spain). Austria is maintaining the lowest unemployment rate of 4.4%read article

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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China vs Japan, round 81

Adding on to the trade war round-up from yesterday, conflicts between China and Japan are re-igniting just in time for the 81st anniversary of the Manchurian invasion by Japan. Awkward. Chinese protesters advocate the boycott of Japanese products, allegedly circulating lists. Canon has shut three factories until tomorrow, Sony shut two until EOP today, Panasonic shut three plants after attacks. Toyota and Honda suspended Chinese operations, and Nissan stopped production in two factories for the time being, as did Mitsubishi and Mazda. And that’s just a sample of industrial companies… The Chinese retailer for Uniqlo closed its Beijing stores; 7-11, which is owned by the Japanese company Seven & I Holdings, also shut its stores. You get the point, I take it. read article

Meanwhile, Europe is pretty mute.

In the UK, consumer price inflation for August came in at 2.5%, a slight decrease measuring 0.1% from July, matching the median forecast, despite rising energy costs. This, of course, given the Bank of England green light to pump more money into the economy. read article

On the opposite side of the pond in the US, we can observe the aftershock. Upon the QE3 announcement last week, inflation expectations have risen to new highs (highest since May 2006), measuring 2.78%. Both in 2008 and 2010, the Fed’s money printing didn’t have that effect. read article

But there is good news too. In Germanyinvestor confidence has not only risen, but also beaten expectations. Expected at 20, the reading came in at -18, as opposed to 25.5 in August. So things are better then? Well, let’s see. Since the ECB more decisive undefinable action in terms of stopping the crisis once and for all, the German market has seemed jolly and stocks rose to a 14-month peak on 6 September. But of course, the weak demand across Europe will weigh on the export economy, so the rest of the year may not look so rosy. read article

In the US, the Winkelvoss twins, famously screwed over by Mark Zuckerberg, have invested $1m into a social networking site. Hm.. That sounds strangely familiar and begs the questions why they didn’t just buy find themselves a new industry to play with. SumZero will focus exclusively on the investment community, featuring research and trading ideas. read article

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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Facebook down, US GDP awaited


There is literally nothing worth reporting on today. Yes yes, the Olympics are starting and we’re still not done with earnings season. On the latter note, Facebook‘s earnings have been embarrassing, causing the stock price to slump 29%. The operating margin of the company shrank by 10% since the last quarter, while revenues rose on the slowest pace ever. read article

But there is one other thing: US GDPExpectations fluctuate somewhere between 1.3% and 1.5%, depending on which news paper you choose to believe. The actual Q2 growth rate will be announced at 830 EST and some are bracing themselves for another recession scareread articleOtherwise, as mentioned above, there’s not a lot going on. Merkel and Hollande are on a call to talk about Spain, because for some reason France is still perceived to be an established economic power in Europe that should totally have a say in all the bailout action… or maybe, it is legit after all. Here’s an assessment whether France = Greeceread article

But speaking of Greece… Officials of the troika arrived in Greece for a re-assessment of the situation yesterday, leading to the IMF calling for a complete restructuring of the country’s debt before any additional money is provided. And after Mario Draghi’s positively received “the ECB will save the euro” statement yesterday, the German Bundesbank has once more said “nein” to a potential bond buying program by the ECB. read article

Weekend reading

– Condoleezza Rice on why AmUrica is the best country in the worldread article

– Adam Davidson and the merits of off-shore taxationread article

– The Pew Charitable Trusts have issued a report on federal subsidies in nine sectors, read articleread study

– Business Insider’s 25 ways to boost your intelligenceread article

Have a good one.


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Mostly a question of timing




There won’t be a news brief tomorrow, Thursday, June 19, 2012.

David Bagley left his post as Chief Compliance Officer of HSBC in response to the allegations that the bank was involved in money laundering. However, Bagley will stick around until a successor is found. According to the Handelsblatt, around $7bn were transferred from Mexico to the US, suggesting to benefit drug trafficking.
The first notably positive effect of the Olympics has finally arrived in the UK, where unemployment has sunk to a 9-month low (8.1%). Just think of all the jobs created by putting the five rings up on Tower Bridge and either maintaining (long-term job creation) or taking them down again (short-term job creation).

Meanwhile in France, Francois Hollande has announced to slash tax breaks on overtime work, to indeed discourage any form of labor exceeding 35 hours a week. The reasoning behind it is to incentivize job creation… need I say more? read article

After its IPO “disaster”, it grew more quiet around Facebook and either way, they had a gazillion users to lean on at least. This seems to be changing. The US user base declined by 1.1% over the past six months, with similarly poor results in 14 other countries, according to Capstone. read article

The most entertaining news of the day are brought to us by the Italian press, declaring that the Greek island Ikaria is planning to join Austria [yes, the country], when its 100-year contract of Greek dependence expires next weekread article

Speaking of hilarious things, here is Bob Diamond’s essay “Citizenship: The Evolution of ‘Corporate Philanthropy as published in the Georgetown Journal of International Affairs in this summer/fall edition. I believe, this is pretty much the worst of all timings. read article

So long.




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The correlation between soccer and political power

At least now we know what it was really about… the peripheral problem children win the soccer and Europe agrees on the most egalitarian strategy yet, introduces eurobonds, makes Germany equal to Greece. In the words of Angela Merkel’s wonderful fake presence online:

A decisive solutions: using a fund that doesn’t exist to buy debt that won’t be repaid via a mechanism that hasn’t been agreed. #leadership

And right she is. The main outcome of last night’s negotiations is that the ESM fund, which doesn’t officially come into effect until July [and that’s just the scheduled time, who knows what will happen] will be able to recapitalize troubled banks directly, without messing with the country’s deficit. Naturally, this would be contingent on austerity-ish measures. Then, there was a rumor that the ESM bond program would only be limited to Spain, which may or may not be Merkel’s way of getting back at Italy (Che? NEIN!). And of course, there was the €120bn growth pact, mostly defined by its lack of definition, purpose and strategy, which Italy is set to block until short-term measures to depress bond yields come into play. read article

According to ZeroHedge the only important outcome is that there will be no additional money committed to any fund – here’s why.

But the bottom line, the question I want answered is this: who won? No-one seems to know, opinions differ from source to source. Maybe the score will be clearer tonight.

Another guessing game we could play today is just how large JP Morgan’s London-Whale-induced trading loss is really going to be. Dealbook went all out and called for $9bn yesterday, Reuters says it will amount to $4-6bn, the FT settles on $5bn.

Blackberry producer RIM, cut 5,000 jobs and pushed the introduction of its new operating system that was meant to come out this fall. All this is just a reminder for the private equity firms out there that this is a bargain waiting to happen. Or is it? read article

Otherwise, the US economy reported 1.9% economic growth in Q1 yesterday and Obama won another round in healthcare fight, with the Supreme Court ruling that fines for lacking health insurance under the new Medicaid plan from 2014 on are indeed not unconstitutional. read article

Weekend reading

– On the economics of giving blood, read article

– Pretending that the eurocrisis is over with the Atlantic, read article

– Recessionary shopping behavior, i.e. the lipstick-effect, read article

– The case for immigration/globalization, brought to you by the Economist which seems to be surprised at either, read article

As for next week [or the rest of “summer”], I’m expecting Citigroup and Nomura to be torn to shreds in the media, joining the other investment banks (just think muppets and whales and facebook…) in their public relations misery.

Have a good one.

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