Death Star Economics



No trillion-dollar coin, and no budget either – the US on hold

The White House has announced to delay the submission of the 2014 budget talks until the fiscal cliff is dealt with entirely. In other words, the US might enter 2014 (fiscal year begins three months before) without any clue where to spend how much money on what. read article

After much hoping that Ben Bernanke would help re-enacting The Simpson’s episode “The Trouble with Trillions” and mint a trillion-dollar coin (coin, note, same difference), he responded to questions regarding said piece of metal saying “I’m not going to give that any oxygen.” Fine then. He continued defending his policies and claiming that their ineffectiveness was merely due to a too small scaleread article

Even Norway is now jumping on the QE band wagon. The deputy governor of the Norwegian central bank indicated that something would have to be done about high interest rates if the NOK continues to be so strong.

The preliminary reading of Germany’s fourth quarter GDP says the country’s economy contracted by 0.5% from Q3, bringing annual growth down to 0.7% from 3% in 2011. Ouch. But not actually that far off what economists had predicted. At least Germany is running a teeny tiny surplus of 0.1% again – the first one since before the financial crisis. Yay. read article

After solar panels and telecommunicationsChina and the EU are fighting about another traded good: steel. The European Commission says China has paid illegal subsidies to steel companies to dodge the market price of organic coated steel, making Europe’s manufacturers pay higher import tariffs on Chinese products. read article

The British business press is full of American Pie (The Day the Music Died) puns, as high street music retailer HMV is going into administration. Considering Virgin closing one superstore after the other, this is just another battle won by AmazonApple and co against the old world of retail.

And while Apple shares dropped 3.6% to a still ridiculous $501.75 yesterday, Dell is struggling to find a new direction in life. For months, reports the WSJ, the computer company has been in talks with Silver Lake and TPG Capital, two huge American private equity buyers, who could emerge as dis-/joint bidders for the business. Delisting a $19bn company would be quite expensive and mark the largest buyout since KKR’s acquisition of First Data Corporation in 2007. Founder Michael Dell owns 14% of the company’s shares, which rose almost 13% in response to the news. read article

So long.


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Deutsche Bank profits from Libor fixing (maybe and also, duh!)

Whether any of today’s apparent top stories are actual top stories remains to be seen. There is Deutsche Bank’s profits from Libor trades (or not), ECB action (or not), and the suspiciously low Vix volatility index showing that all problems are solved (or not). Hm.

So the Vix hasn’t been this low in 5.5 years. Now that the US didn’t fall off the cliff, there’s hardly anything left to worry about… Is it going to stay like this? Of course not, there’s a debt ceiling on fire, spending cuts lying around and an earnings season to come. This merely seems to be a reflection of ‘stopping to care’ and ‘calming the f*uck down’. read article

Months after the Libor scandal unravelled and shook the City of London, the Wall Street Journal reported that Deutsche Bank recorded €500m in profits from trades linked to the notorious benchmark rate in 2008. In the worldwide rate-rigging investigation, the bank had not been charged with any fines yet. In response, Deutsche Bank emailed Bloomberg, outraged, saying trades relied on analysis and “not on any belief that the bank could inappropriately influence interbank lending rates.” Of all global players, Deutsche Bank has been bashed significantly less than other investment banks. Only in home-sweet-home Germany, where traditionally all social democrats hate the firm, things are a bit more difficult.

AIG decided against participating in a shareholder lawsuit against the US government for not being nice enough during the insurer’s $40bn bailout yesterday. The case is being pursued by former AIG CEO Maurice R Greenberg, whose Starr International Corporation used to be a shareholder of the insurance company. In short:

The suit contends the US government extracted too-onerous terms in its rescue package for AIG, and seeks about $25bn from the government. A federal claims court in Washington ruled in July that the case could proceed, after the US government sought to dismiss it.

In the background, Barack Obama has chosen his chief of staff Jack Lew as Treasury Secretary and the ECB is meeting to discuss this month’s policy decision, which are unlikely to result in anything new if you believe a Reuters poll. (Aha, there we go, nothing happened.)

So long.

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Saying sorry to the 1.5%

When the most interesting headline of the day regards shipping finance and the auditing thereof, you know its a slow news day. The sector is suffering from the slowing of world trade, says the Handelsblatt, and it’s massive capacity doesn’t help the matter. But thank God that any sector’s misfortune is a hedge funds lucky day. Alternative investors, including hedge funds as well as private equity firms, are starting to buy both distressed assets and loans of distressed shipping companies at low cost, anticipating that the world won’t always look so bad (2014 could be our lucky year). read article

And that’s kind of where the exciting stuff ends.

Some merged and acquired: Arab new network Al-Jazeera, which is owned by the Qatari government, acquired Al Gore’s Current TV to finally move into the US market, and Avis bought Zipcar for $500m.

And while the US is edging from fiscal cliff to debt ceiling (Obama signed the legislation dealing with the former this morning in Hawaii), John Boehner is saying sorry to the American 1.5%. Fair enough, after all Boehner wants today to mark his re-election as speaker of the Housenot his return to Ohio. All discussion about progressive taxation aside, it is true that the richest 1.5% of America’s citizens will be worse off. In fact, they will be worse off than they have been since 1979says the Atlantic:

[…] it looks like the top 1 percent could end up paying more overall in federal taxes next year than at any time since at least 1979 […] The country’s richest households will be paying a bit more than 36 percent of their income to Washington — higher than the most recent peak of 35.5 percent in 1995, or 35.1 percent in 1979.

Finally someone said sorry.

The beneficiary of the rich’ increased tax bill are really the banks (sort of). Because one thing that was left out of the fiscal cliff joke of a deal was the exemption of US income tax on foreign income of US banks. Better known(?) as “subpart F exception for active financing income” it is, of course, a loophole that is big enough to let billions of dollars disappear in it – $150bn if you want to believe the estimates quotes by the FT. Established as a temporary relief measure by Bill Clinton in 1998, it does what it’s designed to do: letting US institutions do business cheaper and be more competitive. This isn’t the time to change that, just as much as it’s not the time for anyone to raise their corporation taxes.

So long.

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Happy new year, happy old problems

Welcome back to the party, folks.

It’s a new year and despite the problems largely being the same, this is a time of anticipation. 2013 still has potential to be the best year ever.

After all, both British and Chinese factories recorded better output in December and shipping company Maersk says trade between Europe and Asia is set to expandNorth Korea‘s leader Kim Jong-un has announced his intent to make peace with South Korea. Also, Oil cartel Opec recorded $1tn in net revenues in 2012, providing more money for Middle-Eastern sovereign wealth funds to invest in London real estate.

Against the odds (…), there was progress on the fiscal cliff on the New Year’s Eve day. Senate approved Obama’s solution package and the House of Representatives followed suit last night. The summary:

Boehner voted to enact “Obama’s tax cuts”, the new de facto Bush tax cuts (which expired yesterday), and which will raise the budget deficit over the next decade by $4 trillion, yet which at the same time paradoxically also hiked taxes on nearly three quarters of Americans with an emphasis on the wealthiest 1%.

Strictly speaking, we did fall off the cliff, but as Jan-1 doesn’t count as a real day, things just about worked out. Of course, the deal is a half-baked mess of even less baked compromises and is already calling for reform. But there’s no time for that, because the debt ceiling is next in line. It would like to get lifted.

In two months, the U.S. will face the need to increase its borrowing limit. Additionally, the delayed $110 billion in spending cuts will again kick in. read article

In Europe, French president Francois Hollande is holding on to the most recent tax hikes of 75% income tax on income above €1m. Besides ruining is popularity ratings, Hollande pledged to solve France’ massive unemployment issue, he said in his New Year’s address. read article

Which brings us to the negative side of thingsEurope is still burning, despite the current absence of drama, and output from the eurozone’s factories continues to slump, led by Germany. Maybe we could bailout all of European manufacturing. Or the ECB could buy all the output, drive production up and create a whole new wholesale market of manufactured goods. Brussels could use the agriculture policy as a blueprint.

In the background, Denmark is trying to contain a four-year old financial crisis of its own.Triggered by a real estate bubble that got Danish banks in trouble after 2008, Denmark now has to cut costs and increase welfare. Yes, INcrease. With the rest of Scandinavia just a Smørrebrød’s throw away, Denmark welfare needs to stay competitive. The Danish economy is expected to have contracted by 0.4% in 2012. read article

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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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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US corporate tax up for discussion, BoE changes course (towards Canada)

There won’t be a News Brief tomorrow, Thursday, December 13, 2012.

There are actual news regarding the fiscal cliff, with President Obama and House Speaker John Boehner putting corporate tax up for discussion. Reforming the corporate tax rate, currently between 15% and 35% depending on the state, would be part of a policy package that could yield $1.4bn in new revenues, as opposed to $1.6bn as proposed earlier. Some sources say that an overhaul of the current corporate tax regime could reduce the maximum rate from 35% to 28%. Obama’s current proposal also includes lifting the debt-ceiling and increasing infrastructure spendingread article

Germany has gently (read harshly) reminded Silvio Berlusconi to leave blaming Germany for Italy’s economic policies out of his election campaign. Berlusconi said that Monti’s government had employed German-centric policies and Berlin had used the spread between German and Italian bond yields to cause his last cabinet to collapse. read article

Meanwhile in the UK, i.e. New Canada, Mark Carney has had the entire BoE‘s senior management stumble as he announced the central bank needed more radical measures, steady rates, numerical unemployment targets and maybe consider leaving inflation alone for now and replacing it with nominal GDP targeting. Mervyn King is real happy about his successor right now. read article

Today also marks the day when the libor scandal creeps back onto the front pages. A former trader for Citigroup and UBS and two employees of interdealer broker RP Martin were arrested and questioned regarding the rate-rigging that was uncovered in Spring 2012. Barclays paid $450m in settlement charges in June in connection to the scandal. read article

So long.

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No growth for Europe, Starbucks wants your love back

German central bank has cut its economic growth forecast for 2013 from 1.6% (June estimate) to 0.4%. Estimates for 2014 are back at 1.9%. Oh well, so we’ll wait another year and pour more money into Europe’s open wounds. No biggie. Yesterday, the ECB said if the recovery was to kick in in the second half of 2013 as hoped [Draghi would have said ‘expected’], the eurozone will grow 1.2% in 2014read article

Also in Germany, financial regulator BaFin sat in on Deutsche Bank’s audit committee meetings during the financial crisis and should therefore have known about the skewed numbers that may have saved the bank from requiring a government bailout. The SEC, who’s investigating the derivative mis-valuations, is bound to be pissed off. read article

When Starbucks started to write your name onto its white paper cups, that was an effort to make you feel more at home, more individually loved in each stock-standard store. Then the company was part of a tax avoidance case worth millions of pounds. Today, Starbucks issued an open letter from its UK managing director, promising to pay up to £20m more in corporate tax just to be nice. Of course, that is an image-protecting half-truth, because Starbucks, Google and Amazon had become the poster children of tax avoidance in the UK. Yet, paying so much money for a one-page add just to remind me that there will always be a barrister barista waiting for me, almost got me walking into a Starbucks this morning. Then I remembered that the coffee’s not that good.

In fiscal cliff news, everybody has returned to the negotiation table, or so it seems. On that note, a depressing visualization of US debt.

The US is also awaiting jobs data that will be completely distorted by Sandy. Meanwhile, Hillary Clinton is convinced that Russia is planning a new Soviet Union and must be stopped. read article

And finally, bidding farewell to the Financial Times Deutschland.

Weekend reading

– The New Yorker goes for lunch with Warren Buffetread article

– The FT got balls: In this opinion piece on the Autumn Statement, George Osborne became G-Dawgread article (click here for a picture of the print version)

– Why Dilma Rousseff needs a new economic advisorread article

– The US could create jobs by building a Death Starread article

Have a good one.

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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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SEC investigates big four, Boris Johnson wants EU referendum

The American SEC is investigating the Chinese operations of the big four (Ernst & Young, KPMG, Deloitte, PwC) + BDO for failing to cooperate with the Commission investigating potentially fraudulent behavior of Chinese companies that went public in the US. The auditors could be sanctioned or even excluded from operating within the US. read article (including another angry picture of enforcement director Robert Khumzami)

In fiscal cliff newsrepublicans put a new (old) proposal on the table, which already got rejected by the White House this morning. The proposal included $800bn in tax increases over the next 10 years, paired with a number of cuts, including scarping $600bn from Obama’s Medicare program. According to the Wall Street Journal, the proposal looked a lot like a the outlines of a budget deal discussed by Obama and Johgn Boehner, speaker of the House of Representatives, in 2011, the last time America stood at the cliff. Interestingly, Boehner’s proposal “also did not specify how Congress would address the $110 billion in spending cuts set to take effect Jan. 2 in defense and discretionary spending.” read article

But that’s not the only thing on Obama‘s mind. Another one is how to compensate those who have raised the most funds for his re-election. One of them is Anna Wintour, editor-in-chief of Vogue US and the very original devil in Prada. And to say thank you, Obama might make her the American ambassador to the UKread article

The IMF has released a staff paper saying that capital controls may be beneficial to countries whose economies are struggling and unable to deal with the volatility attached to capital inflows. Previously, the IMF was vehemently against capital controls, despite their use in some emerging economies. Now, however, it argues like this:

The experiences of Spain and Indonesia, as well as Brazil and Korea during the global crisis, highlight how regulations or re-imposition of restrictions on certain transactions can mitigate the build-up of vulnerabilities.

Spain!!! You know what that means. Next thing we know, there will be capital controls all over Europe’s peripheryread article 

Meanwhile, at a morning conference in London, major Boris Johnson said that a renegotiation of the UK’s relationship with Brussels was a necessary step forward and should lead to a straight forward referendum regarding the current terms and conditions that tie Britain to the single market. read article

In Doha, British Energy Secretary Ed Davey said the UK was going to put £1.8bn towards the battle against climate change. This will include financial support to cut emissions in developing countries. Britain is the first G7 country to commit to the project. read article

So long.

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