Death Star Economics



An attempt at revival

This week…

Things in Turkey continued to be messy, as Erdogan’s stern view of protesters continues to spark new anger among the masses and sent the Turkish Lira falling. read Bloomberg
On Thursday, Erdogan re-iterated that he was losing patience with the protestors. Today, the government and its counter movement reached an agreement, while Germany delayed further EU accession talks with Turkey. read WSJ

In Greece, the doors of Hellenic Broadcasting Corp closed, sending 2,500 former employees out onto the streets. It is meant to be relaunched later this year in a slimmed-down version. read WSJ

In the UK, jobless claims dropped, suggesting that the recovery is well on its way (remember how we’ve been here roughly 700 hundred times now..?). read Bloomberg

And then there was Wednesday, when literally everyone with an audience called the bond bubble, for example Jim O’Neill (formerly of Goldman Sachs) and Bill Gross (Pimco)

Around the same time, Iraqi officials said the country was looking to increase its oil production by 29% in 2014 and 159% by 2020, showing that a) they can and b) they have buyers. read Emerging Frontiers

Then there was a new price fixing scandal [yes, there are still some products left]; this time in FX. read Felix Salmon

Meanwhile on Wall Street, notes on correlations with Japan: read WSJ

In Brussels, important issues like the size and curviture of bananas and cucumbers has been pushed aside as Washington’s lobbyists walked in to ensure EU privacy regulations wouldn’t get so strict that they could hurt US investigations overseas. read FT

Rupert Murdoch is divorcing Wendy Deng, could this be the actual reason for splitting News Corp? read New Yorker

The week ahead…

The G8 meet on the outskirts of London on Monday and Tuesday; anti-globalization protesters will ironically stick to central London, where they will follow a scavenger hunt-like course through the West end, mapped out here. Please refrain from buying condiments at Fortnum & Mason until the weekend, as you may otherwise be questioned about the social legitimacy of your job.

Otherwise, it’s going to be a Bernanke-dominated week – again – as the Fed is meeting and press conferencing. Although Bernanke tried to nullify the comments about an end of easing, saying that it would take “considerable” time until that would happen, everybody seems to think the US is going to turn the money tap off. read WSJ

Have a good one.


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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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Portugal is this week’s Cyprus

Over the weekend…the collective attention was brought back to Portugal, where the country’s highest court ruled that spending cuts in public sector salaries as well as state pensions were unconstitutional. Sounds like a bit like something Greece would do. Needless to say those cuts weren’t just for fun and games, but indeed to keep Portugal out of the EU’s dog house and on track for its €78bn bailout package.

Luxembourg‘s Finance Minister Luc Frieden said that the country would stop opposing the sharing of banking data within the EU, going along with the trend of increasing transparency in [former?] tax havens. read article

This morning…
there is the weakening JPY reacting to Tokyo’s new harder better faster stronger QE measures that will increase monthly asset purchases to JPY7.5tn. In fact, then yen hasn’t been this weak since May 2009. read article

While Japan’s 2% inflation target until 2015 seems a bit fishy to some [most recently China], following the above, Christine Lagarde of the IMF is a big fan. According to her, it will improve global demand, and the inertial upswing in the US economy was proof enough of that. read article

As for the rest of the week, the Fed’s Open Market Committee is meeting on Wednesday, continuing the discussion regarding when and how America’s money tap can be turned off. Otherwise, there will be industrial and trade data from China and various European countries, as well as a review of bailout programs in Portugal and Ireland. in other words, Portugal is this week’s Cyprus.

Have a good week.

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Budget cuts and peripheral misery

Today at midnight (Saturday morning in the old world), the US is facing the much discussed spending cuts, decreasing government spending by €85bn until the end of the federal budget year in September. Maybe it’s time to depart from discussing the sheer possibility of this scenario. If you believe Bernankethe pain will be close to intolerable, slowing the economy down by 1.5%. The Congressional Budget Office estimates a 0.6% decrease in GDP. If you believe Fortunecompany earnings are strong enough to allow ignoring the issue. Without a budget fix, the automatic cuts will continue in the following financial year. read article

And things aren’t pretty in Europe’s periphery either. First, numbers out of Spain showed that Spanish corporations faced the largest decrease in earnings ever recorded in Q4, including Bankia’s €19.2bn net loss. Meanwhile in ItalyBersani rejected all rumors regarding coalition talks with Berlusconi. Over in Greece, 2012 revenue targets were missed and the burden of unpaid taxes increased, causing skepticism in Brussels, where the next loan instalment, worth €2.8bn, can be withheld if Greece’ financial report is not satisfactory. At the same time, the IMF, usually in bed with the EU, was more positive, saying Greece had collected more taxes recently and could avoid a further reduction in government salaries.

We shouldn’t forget, however, that despite the mess that is Southern Europe (oh yes, I made that generalization), there are still countries out there that want to join the union and currency. Poland, for example, which originally wanted to have the euro by 2012, is now discussing meeting all criteria (the same criteria that Greece met once…) by 2015read article

In India, Q4 GDP growth dropped to 4.5%, as the government announced a more pro-business deficit-reducing budget for the coming year. read article

Otherwise, Andrew Mason removed from his position as CEO of discount firm Groupon, which recorded losses in the last two quarters of 2012. In his own words:

After four and a half intense and wonderful years as C.E.O. of Groupon, I’ve decided that I’d like to spend more time with my family. Just kidding – I was fired today. If you’re wondering why… you haven’t been paying attention.

Weekend reading

– The “Because I Can” attitude of senior managementread article

– Dear Banker, this is how we’ll pay you in the futureread article 1 read article 2

– the European Union and Ricardian equivalenceread article

Have a good one.

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Currency wars – silent edition

Over the weekend, the G20 did a great job in shattering trust in the system: after a week of publicly denouncing a currency war of easing until there’s nothing left to ease, while predominantly pointing the finger at Japan as the culprit, the outcome goes as follows. Everyone, including Japan, may do as they please as long as there is no public advocacy for devaluing currencies. So far, all that talking about it has done is making things worse. read article

In Spaintoxic assets on the books of the country’s banks have decreased by €24.1bn in December, after November had recorded the highest bad-loan ratio ever. And overall loans declined by around €80bn as well, as many underperforming ones have been poured into the ‘bad bank‘ the government set up in October, as a black hole for foreclosed assets and developer loans. From ZeroHedge:

[…] as El Pais reported yesterday, official Spanish debt (not counting the hundreds of billions in off balance sheet obligations), rose to €882 billion in 2012, a surge of €146 billion in one year, sending interest expense to an all time high €38.7 billion.

Elsewhere, Nicos Anastasiades, leader of the Cypriot conservative party, has one the first round of the presidential elections. Anastasiades is an austerity man, much like Merkel likes them, and his election would pretty much secure a bailout deal for Cyprus. read article

Meanwhile in Hong Kongbankruptcy filings have risen 62% from January 2012, measuring the highest rate in almost two years and highlighting Hong Kong’s weakened economy. read article 

Despite the US being closed for President’s day today, some important documents have leaked from the White House. Obama’s proposal for a reform of the immigration system would see illegal immigrants legally applying for US citizenship if they have been in the country for more than eight years. read article 

Have a good week.

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Currency wars – on land and on Twitter

There won’t be an update until Friday, 15 February 2013.

Today, there is a lot of opinion and analysis on North Korea’s third nuclear test; even China has joined in with the rest of the world in condemning the tests. 

The G7 have issued a statement telling the world they have not and will not target exchange rates as instruments to meet national fiscal targets, because they realize the negative impact it could have on economic stability. Assorted comments from across the globe loosely translated to a “well done on monetary policy, Japan,” sending the yen even lower, as Japanese official Haruhiko Kuroda, who could be in the running for the governor post at the Bank of Japan, said there could be more easing in 2013.

From a rather upset ZeroHedge:

In other words, let the FX wars continue and may the biggest balance sheet win, all the while everyone pretends nothing is happening.

Barclays has presented its restructuring plan “Project Transform” (seriously) this morning, cutting 3,700 jobs and £1.7bn in annual costs in a final effort to lift the bank out of crisis. read article

In the US, Twitter and American Express have launched a new service allowing Amex holders to buy products by sending a tweetTechCrunch explains:

Payments are made by tweeting a purchase hashtag, and retweeting the confirmation tweet from Amex within 15 minutes of receiving it. The product will be shipped to the account billing address synced with Twitter, and payment taken from your synced Amex account.

Hello 21st century. 

Elsewhere, Colgate-Palmolive will lose $120m (post-tax) as a direct result of Venezuela’s currency devaluation and the French company EDF Energy has knocked on the UK Treasury‘s door to guarantee [part of] the payment of three planned nuclear power stations across Britain, reviving a debate about the country’s future energy supply.

So long.

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Pope to resign; China beats US as biggest global trader

First things first, the Pope will resign on 28 February due to health issues. NYTimes op-ed tomorrow, leaving drinks Friday. Here the odds on who’s up next.

China has become the world’s largest trading nation in 2012, surpassing the US by $50bn with $3.87tn. Overall, however, the US economy dwarves that of China, being almost double in size. In 2011, America’s GDP totalled $15bn, while China only reached $7.3bn. For 2012, China expects inflation-adjusted GDP to reach $8.3bn. read article

In the old world, the Eurogroup is meeting in Brussels today. On the agenda: Cyprus and Greece and Italy and Spain. Later this week the G-20 will meet in Moscow and discuss further action.

With regard to Cyrpus, a new rescue plan may even be decided at today’s meeting, according to a confidential memo that made it into the hands of the FT.

The proposal for a “bail-in” of investors and depositors, and drastic shrinking of the Cypriot banking sector, is one of three options put forward as alternatives to a full-scale bailout. The ministers are trying to agree a rescue plan by March, to follow the presidential election sin Cyprus later this month.”

If foreign depositors and investors chip in, the size of the bailout could be reduced from €16.7bn to €5.5bn. By nation, Russia is one of the largest foreign depositors in Cyrpus, Russia’s personal Guernsey. Although the G-20 meeting is held in Moscow due to the current Russian presidency, this makes the choice of location more interesting than usual.

Last week Friday, President re-elect Hugo Chavez announced the devaluation of the Venezuelan Bolivar by 32%, causing a buying frenzy over the weekend. One result: Venezuela’s mountain of debt shrunk from $42.9bn to $29.3bn. Another one: home appliances are more or less equivalent to gold now. Yet, some say the currency remains overvalued and the government intervention would have needed to be more drastic. read article

In other news, Obama is giving the State of the Union address tomorrow, which will be centered around unemployment and economic issues. read article

Have a good week.

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“an intriguing day for monetary policy”

So there we go. Bernanke announced what everybody wanted to hear. For $40bn per month, the Fed will buy agency mortgage-backed securities until the labor market shows any signs of vitality besides twitching. Rates will stay locked in until summer 2015.

“We’re not promising a cure to all these ills,” Bernanke said at the news conference. “But what we can do is provide some support.”

It sounds like he really tried, although I’d also hope that the amount of crises we’ve been through has yielded a financial enlightenment that distances us from the conviction of quantitative easing as a panacea. Unfortunately, it sparked an avalanche of negative commentaryFT Lex appears outraged:

Markets had been expecting Federal Reserve chairman Ben Bernanke to refill the punch bowl. He did, but the forgot the fruit juice. The Fed is now ladling out straight booze.

Altogether, “an intriguing day for monetary policy.

In Japan, the yen rose against the dollar in response to the Fed’s action, leading policy makers to threaten currency intervention in response to the response, hoping to get the Bank of Japan to ease their policies in response to the response to the response. read article

Back in the USprocrastination is on the best way to be signed into law. Passed by the House of Representatives and now with the Senate, the bill in question allows lawmakers to postpone dealing with the government’s funding gap, including the eminent expiry of tax cuts in January, until after the elections. It will also keep the government from running out of money in October, as it guarantees another six month of funding of state agencies. The stopgap budget is the fence at the fiscal cliff, the overused term describing the above, but it is not the only looming problem for America’s finances. Remember last year, when there was too much debt and too little ceiling? Yeah, that will happen again, it’s just a matter of time. read article

Yesterday, Greek unions agreed to a general strike on September 26. Simultaneously, IMF officials said the country would need a third bailout and had only fulfilled 22% of the conditions of the last one. Greece denied the allegations.

After its presentation on Wednesday afternoon, Apple has already sold out of the new iPhone 5, just one hour after the presale opened online. That was quick. Those who still got an order in, will receive their device on September 21. Everyone else will have to wait for restocking, suggesting an even more positive Q4 sales forecast for Apple. read article

Weekend reading:

– One for the “awesome people hanging out together” list: Michael Lewis and Barack Obamaread article

– “If regretsapologies and promises to behave better were redeemable for cash, the world’s banks would be rolling in it,” read article

– The U.S. Employment-Population Reversal in the 2000s: Facts and Explanationsread article

– Bridgewater Associate’s CIO Ray Dalio on … everythingread article

Have a good one.

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Tuesday, #32: where is my money?

As the if around the eurozone-breakup becomes less and less of an absurdity (or maybe more and more of a plausible absurdity), the guys at Nomura sat down to figure out what the original European currencies could look like, if we were to go back to them. There are many reasons this projection is hypothetical. One of them is that in case of a breakup, some countries’ currencies, such as the Deutsche Mark or maybe the Dutch guilder, might appreciate much more in value than ‘feasible’, because of the relative economic strength of their countries. Where do the numbers that were used come from? It’s the real effective exchange rates + risk of inflation. Here the graphhere the article

While Merkel and Sarkozy worked on their master plan yesterday, S&P threatened to engage in another excessive downgrading round (it’s countries as opposed to banks this time, even Germany), which could be construed as a warning shot for the EU to hurry the fuck up.

Mario Monti proposed a €30bn austerity package, that made everyone feel better and borrowing for Italy cheaper (i.e. yields went down). First reaction from the general [Italian] public: a strike. Unions fear a rise of the retirement age (currently 65, or 60 for women in the private sector) and a cut in pensions. They don’t fear the total collapse of their economy, or so it seems… read article

All of this outshone the new Irish budget, which proposes a €3.8bn (please compare to 30bn above) austerity package with cuts in healthcare and welfare. There will be an increase in sales tax and a reduction of overtime wages, but also, if everything works out, a reduction of public debt from 10.3% this year to 8.6% in 2012. The goal is a 3% deficit [of GDP] over the next couple of years. So maybe the reason nobody got excited was that these cuts are just the first of many, many to come.

Michael Lewis discusses strategic choices of the 1% to turn the pay-gap back into a safe distance between the money they have and the others want. Humorous reading entertainment, if you don’t break out in emotion-infused lecturing upon hearing about the 99%. read article

So long.

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