Death Star Economics



Cyprus to sell €400m in gold; bailout to total €23bn

Barack Obama submitted a budget proposal to Congress, totalling $3.77tn and including policies to curb social security and medicare expenses. The proposal foresees a $744bn deficit for 2014. read article

While the minutes from the latest Federal Open Market Committee meeting were expected today, they were accidentally sent out early to lobbyists, Citigroup and Goldman Sachs. Oops. The notes supported the thesis that the Fed’s QE program could end by year-end 2014, given improvements in the job market. read article

This morning…
Over in Cyprus, €400m worth of gold are up for sale, as the country has to up its contributions to the bailout program that so far consists of €9bn from European institutions and €1bn from the IMF. Another €10.9bn will free up in the winding down of Laiki Bank. And yes, all that money, €23bn, will be needed to just keep the country afloat until the beginning of 2016. read article

China has seen a massive influx of foreign capital. In Q1 of this year, the country’s forex reserves exploded to $3.44tn from only $130bn in the previous quarter. New financing grew by 58% from the same period last year. read article

Next door in Japan, central bank governor Kuroda said the BoJ had done all it could at this point, and the asset purchasing program wouldn’t be expanded any further any time soon. read article

So long.


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Abe takes Japan, China and India predict slower growth in 2013

With Christmas only one week away, the world is winding down for the holidays and the news are more or less reduced to a simmering of unresolved issues like the fiscal cliff and Europe as such.

Over the weekend, Shinzo Abe returned to the office of Prime Minister in Japan, where he won the general elections and put the liberal democrats back into the driver’s seat. He also opened the floodgates for unlimited monetary easing to stimulate the economy and redeem it from 20 years of stagnation. In response, the yen sank to a 20-month low. Japan’s debt amounts to 237% of economic output, making it the country with the highest debt to GDP ratio in the worldread article

In the US, fiscal cliff negotiations are slowly moving towards a compromise, with John Boehner proposing to raise the income tax on individuals with more than $1m annual income. Obama’s suggestion for a tax raise would hit everyone above $250,000 annual income. Rumor has it that Boehner’s proposal is contingent on Obama to cut spending, for example by raising the eligibility age for Medicareread article

China has loosened its Qualified Foreign Institutional Investor program, which limited foreign investments in Chinese stocks and bonds at $1bn per entity. Effective immediately, central banks and sovereign wealth funds

won’t have to comply with the $1bn limitation. After a policy meeting today, Chinese authorities also announced that the country will seek higher “quality and efficiency” of growth, i.e. accept slower growth, in 2013.

Simultaneously, India cut its growth forecast for 2013 from 7.9% to 5.9%.

Finally, Italy is awaiting Mario Monti’s decision regarding his candidacy in next year’s general election. Center-right politicians (and really most people who can’t believe what Berlusconi is doing) are urging him to run, while some Italian press has already reported that he won’t.

So long.

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€1.45bn fine for electronics cartel, capital gains at heart of US negotiations

In the UK, George Osborne is currently delivering the Autumn Statement, a summary will follow tomorrow.
Before the announcement, the Telegraph says that Italy is the only country with a slower growth rate than the UK in the G7, while the BBC said

If the figures are as bad as many expect, the chancellor could be forced to abandon two key coalition targets: A five-year plan to eliminate the underlying deficit, which could be stretched to eight years, and his commitment to have Britain’s debts falling as a share of GDP by 2015.

Another point of concern that is likely to be covered are new rules for pension funds’ reporting standards. Under a new “long-term view on projected returns,” numbers could smoothed to a five-year average. Not sure how that’s going to solve the problem. Looks like a layer of opaque glass to me.

The fiscal cliff has turned into the continuation of the presidential election campaign, with the Republicans fighting against an increase in capital gains tax. It was proposed that alongside other tax increases to step away from the cliff, capital gains tax should be raised from 15% to 23.8%. While the tax increase on dividends, that could cross the 40%-mark seems much less of an emotional issue, capital gains tax is as important to the GOP as guns. read article

In Australiaeconomic growth slowed slightly, as the government is implementing spending cuts in trying to meets its budget surplus targets for 2013. BUDGET SURPLUS!

In the world of retailTesco has decided to abandon its American Dream and let go of Fresh & Easy. While Wal-Mart is a potential buyer of the stores, Tesco will probably have to write part of the investment £1bn off. Fresh & Easy is expected to have lost £850m by February 2013. Although Wal-Mart is doing well overall, it also got the home advantage. Elsewhere, the company may face legal chargesIndia only lifted its FDI-ban on retailers in September of this year, but Wal-Mart snuck its way in all the way back in 2010, by investing in a consultancy that had started its corporate existence as a retail holding. read article

Taiwanese electronics firm Chunghwa Picture Tubes blew the whistle on a cartel that had been fixing prices of TV and monitor cathode-ray tubes for the last 10 years. The European Commission fined Phillips, Panasonic, Samsung, Toshiba, LG, Samsung, Technicolor and selected affiliates a grand total of €1.45bn for violating antitrust laws. Chunghwa seems to have learned – two years ago it had to pay towards an overall fine of €648m against a cartel of LDC manufacturers.

So long.

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US closed for business, Dutch form government

The US is closed until further notice until ‘Sandy’ has blown over. The last time Wall Street closed due to weather conditions, was in 1985 for hurricane Gloria. The decision was based on low expected trading volumes that could show disproportionate responses.

But while everybody is staying at home, US consumer spending rose 0.8% in September, beating expectations. read article

With everything on hold on the east side of the Atlantic, attention and pressure has been diverted the other way (employing the Eurocentric world map) to Japan. The Bank of Japan is meeting tomorrow, giving its biannual outlook report. Finance Minister Koriki Jojima is pressing the Bank to do something about the country’s deflation. The general expectation seems to be a JPY10tn ($125.7bn) extension of the country’s QE program. read article

In the Netherlands, the incumbent VVD (People’s Party for Freedom and Democracy) that secured most votes in September’s election, has struck an agreement with the PvdA (Labor Party) to form a coalition agreement. Budget negotiations that would bring the Dutch budget down to the EU-set benchmark of 3% are already taken care of. read article

After rumors last week, publishing houses Pearson and Bertelsmann announced today that they would join forces and create the largest trade publisher in the world: Penguin Random House. 53% of the new joint-venture will be held by Random House’s parent company Bertelsmann, while Penguin’s parent Pearson will hold the remaining 47%. read article

The FT’s headline of the weekend was that US money market funds have overcome their fear of the eurozone explosion and went back to making investments in Europe, increasing their exposure by 16% in September. So maybe Francois Hollande spoke to them before announcing that the worst of the crisis was over.

Meanwhile, a Greek newspaper published a list of individuals with Swiss bank accounts, causing the editor of the investigative magazine Hot Doc to be arrested on Sunday for suspected tax fraud. Greece’ sloppy way of handling its tax receipts (and the follow-up of those unpaid) has been a cause of criticism from its lender all along. read article

So long.

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Emerging markets: a snowball of negative scanning

After Brazil’s economic growth collapsed from 7.5% in 2010 to 2% in 2012, the government has now launched a stimulus package worth R$133 or $65.6bn. It involes improving the country’s appalling infrastructure by selling government owned highways and such to private companies. Now, just as a thought experiment, say Brazil slows down further… and further… and further. And the world economy doesn’t pick up come 2015. What happens next? Exactly, they host the Olympics. Ring a bell? read article

Meanwhile in another deteriorating emerging economy, foreign direct investment in China has fallen to the lowest rate in the past two years, amounting to 8.7% less than in summer 2011. But every attempt for China to boost investor confidence seems to stir adverse reaction, as everybody KNOWS what they’re trying to do, indicating that the slowdown is much more severe than expected. It’s like a snowball of negative scanning… read article

In Europe, Spain is about to receive $100bn in emergency funding for its banks, triggered by restrictions of the ECB concerning bank borrowing. These restrictions came into effect last month, when the ECB limited loans against government-guaranteed bonds, causing a planned loan for nationalized Bankia to fall through. Ergo, money needs to come from somewhere else. Oh no wait, it’s coming from the same place, but with a different labelread article

And BusinessInsider gave out a warning that we will soon have to start talking about Greece again. As though I ever stopped…

Banking scandal round-up:

Deutsche BankCitigroup, JP MorganRoyal Bank of ScotlandBarclays (duh), HSBC and UBS have been subpoenaed by New York state attorney general Eric Schneiderman to talk about Libor.

Tonight, the verdict concerning Julian Assange’s deportation to Sweden will be decided. WikiLeak’s founder is sitting around in the Embassy of Ecuador in London since June this year, to avoid his involuntary return to Scandinavia, where he his wanted for sexual assault. Ecuador has already decided to grant Assange asylum, but the British government has informed the South American country that it could have the embassy stormed if they would resist the deportation. All very dramatic.

So long.

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UK remains in recession, indicators point towards bad time

The UK’s preliminary GDP reading shows a 0.7% contraction in Q2, adding-on to fears that Britain will remain stuck in a recession for the rest of the year. It’s comforting to know that more than £9bn of tax revenues have been put towards the Olympics, the reasoning for which looks to be an example of overvaluing the possibility of positive results (hello, Daniel Kahneman). The British GDP has now been shrinking for 9 consecutive months. read article

And the wave of bad news continues… Moody’s cut the outlook of the EFSF to negative and Spain’s 2-year bond yields hit a peak of 7.14%. In Germany, the business climate index missed estimates, as did Apple‘s Q2 earnings. The biggest company in the world missed earnings forecasts by more than $2bn due to the crisis in Europe and the general economic slowdown.

This quarter was only the second time in the last 39 quarters in which Apple reported results that missed analysts’ profit and revenue expectations,

says MarketBeat. And Apple doesn’t expect things to get better any time soon: with the plans for an iPhone 5 uncertain and a low-cost iPad planned for this year’s Christmas sales, the company is decreasing its margins. Moreover, Apple’s lower figured drag expectations down for their Asian suppliers.

Speaking of Asia, the IMF is pointing its finger at China for its “moderately undervalued” currency and its investment-reliant economy, while China is adopting more of a “who, me?!”-response.

In the USTim Geithner is spending today and tomorrow justifying the New York Fed‘s actions of the last years to different financial committees in Washington DC. After both the Libor rate-rigging and the JPMorgan Whale-trade loss went past the Fed without any intervention, it’s time for some questions. Dealbook sums it up: read article

Just yesterday, Geithner had proclaimed that the looming austerity measures in the US, tax increases and around $100bn cuts in domestic and military spending, will damage the US economy. He also added that he believes the eurozone would survive the crisis in its current form, mostly based on European leaders having said so… Wishful thinking? Well, let’s leave it at that.

So long.

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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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