Death Star Economics



A new hope: lifting the debt ceiling a 76th time

It’s T-52 days until the United States may or may not bump its head on the debt ceiling, ‘may not’ being the more likely option. Since 1960, the US debt ceiling, the limit of how much it can borrow, has been lifted 75 times, last in August 2011. So why is this still front page news? Probably because of the drama it brings and the attention that it diverts from Spain and Italy. So let’s be appreciative and talk about it for a bit. Now more than ever, Republicans are opposed to any new tax increases. And now more than ever, Democrats think that not enough has been done. Hmm. Technically, the US hit the borrowing limit that’s currently at $16.4tn on 31 December, but some miracle accounting postponed the deadline to March. read article

Thanks to Gerard Depardieu, who is a Russian citizen now, Francois Hollande is apparently reconsidering his 75% tax. He’s busy arguing about gay marriage with the Catholic Church anyway. read article

And in Japan, businesses will profit from almost $5bn in various government stimuli, including lending schemes for technology R&D, low-interest loans for SMEs and support for acquisitions of foreign companies. read article

In a perfect example of lobbying, the banks have convinced the truly unbiased Basel Committee on Banking Supervision to lower their super strict post-global-blow-up liquidity requirements. Someone [Scott Talbott] has done their job right. Lower liquidity standards mean that the  requirements for what qualifies as a suitable high quality liquid asset has been loosened  When Basel III first came up, the assets allowed were cash, T-bills, medium to fantastic corporate debt. This list is a lot longer now. Additionally, the full implementation of the new rules has been delayed until 2019 (originally 2015), meaning that banks will only need to comply with 60% of the requirements by 2015. read article

News from the same category: in a last cleanup after the US mortgage crisis, 14 major banks agreed to a $10bn settlement deal for “flawed paperwork and botched loan modifications“. Money from the deal will be used as cash relief for Americans whose homes were subject to foreclosure during 2009 and 2010. read article

Meanwhile, Google Executive Chairman Eric Schmidt and Bill Richardson, Governor of New Mexico, are in North Korea. Although Schmidt said this wasn’t a work trip, not even his co-traveller believes that his motives are that pure. After all, don’t be evil doesn’t mean don’t do business. read article

So long.


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Black Monday: 25 years later, the world hasn’t learned much

Half time at the EU summit, we don’t have much but a step forward on the banking union front. From 2013 on, “a single supervisor“, i.e. the European Central Bank, will monitor certain undecided actions of an undecided number of banks in Europe. For EU standards, that’s a pretty solid plan. Monsieur Hollande of la France commented most eloquently:

There was an agreement, a good agreement, on timing and about the banks as [a] whole.

Aha. Oblivious to the Spain issue (not to mention the Italy issue), which is likely to be on the agenda for today, Hollande continued:

Tonight, I have the confirmation that the worst is behind us […] We are on track to solve the problems that for too long have been paralyzing the euro zone and made it vulnerable.

Thank you, France, you’re dismissed.

On the little detail there is, we know that all of the around 6,000 banks within the European Union will fall under the ECB supervision until 2014, presumably starting with those that were bailed out by their respective governments. read article

Today‘s part of the summit is likely to focus on what they didn’t agree on yesterday: a time line, followed by another press conference geared at Germany-for-all-and-all-for-one sentiment.. At this point, nobody knows when exactly the ESM will be able or allowed to inject money into [Spain’s] banks. Any debate regarding the increased fiscal integration that will save the continent, has been pushed back until the end of the year.

Google accidentally released its earnings report during the trading day as opposed to after the closing bell last night. And the numbers weren’t great, with earnings per share and revenues coming in 15% and 4% below estimatesGoogle’s shares fell 10% on the news, were then suspended, but registered an overall drop of 8%. Contrary to all of that, CEO Larry Page made a statement regarding the strong performance of the company last night. read article

Today is the 25th anniversary of Black Monday, the day in 1987 when the Dow Jones Industrial Average plunged 23%, erasing about $1tn between October 19 and October 22. Time to reflect on what we have learned and whether things are better now. Considering the above, the jury is still out. read article

Weekend reading

– “Would I have done Bear Stearns again knowing what I know today?”, why governments should be careful in suing banksread article

– another one bites the dust: Newsweek discontinues print edition, read article

– James Bond in numbers: Pierce Brosnan most badass (what!!), Daniel Craig on way to alcoholism, read article

– Sallie Krawcheck, former president of Merill Lynch on why she worked more hours than any man she knows, read article

Have a good one.

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Gold standard, question mark?

The Republican Party is in the process of setting up a “gold commission” to monitor the Fed’s monetary policy decisions and revive the link between the dollar and gold. Excuse me, says you. Indeed, says I. It looks a lot like areturn to the gold standard. Thanks, Ron Paul. And it’s getting better:

The proposal is reminiscent of the Gold Commission created by former president Ronal Reagan in 1981, 10 years after Richard Nixon broke the link between gold and the dollar during the 1971 oil crisis.

And of course nobody has thought about this:

Inflation has remained under control in recent years, despite claims that expansion of the Fed’s balance sheet would lead to runaway price rises, while gold has been highly volatileThe price of the metal is up by more than 500 per cent in dollar terms over the past decade. 

Somebody add an economic history book ( to that order of biology books that is being sent to Florida. read article

Glenn Maud, formerly of the real estate investment firm Propinvest, which entered into administration in November 2011, now has his expenses watched by the Royal Court of Guernsey. Indeed, the poor man who owns windows and door frames of Canary Wharf’s Citi Tower and Santander’s Madrid headquarters, is now required to keep his living expenses under £500 a week. As a journalist, I sympathize. Plus, hookers are expensive. There’s nothing worse then running out of £100 notes on a fucking Tuesday morning.

Propinvest’s Gemini portfolio, which holds 35 commercial real estate assets, is currently worth £437.5m with almost £1bn of loans attached to them. read article

The Greek Prime Minister Antonis Samaras is on the road in Western Europe: he is meeting Merkel today, Hollande tomorrow, and the day after that the queen’s child comes in. Both Merkel and Hollande, who previously had next to nothing in common, agree that Greece has to stay committed to the bailout terms and conditions. That’s really not too crazy a thing to ask. read article

Or as ZeroHedge put it:

Merkel Says Greek Acts Must Follow Promises. Is she insane? This. Is. EUROPE!

Weekend reading:

– just a chart: the price of a polar bear

– following the unforgettable fight of the century: Keynes vs Hayek, Alphaville brings us Hayek vs Randread article

– Elisabeth Murdoch’s criticism of News Corp, preparations for an awkward Thanksgiving, read article

– “Don’t be fooled by short-selling bans” by MC Gillian Tett, read article

Have a good one and don’t forget that Monday is a bank holiday.

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Greece contracts in a good way, Japan grows in a bad way

GDP digest:

The advanced reading of Greek Q2 GDP shows a 6.2% year-on-year contraction – and that’s the good news. The general consensus had been around -7%, so this is not only beating expectations but also the Q1 reading. Go Greece. Hm.

The other GDP announcement came from Japan, where economic growth slowed down to 1.4%. That is 4.1% less than the revised GDP growth of Q1 and around 1% below various forecast. Collectively, Asian indices went tumblingread article

Meanwhile, Spanish 10-year yields hit 6.91% and Mariano Rajoy is presumably busy preparing for that bailout request phone call. Also, the Philadelphia Fed has lowered its prediction of Q3 US GDP from 2.5% to 1.6%.

Otherwise, Francois Hollande is celebrating 100 days in office, though the celebration is somewhat tainted by all the sentiment polls showing that he’s doing pretty mauvaisread article

Google-owned Motorola Mobility is looking to cut 20% of its workforce, which amounts to about 4,000 employees, including 40% of its vice presidents.

Earlier the New York Times reported Google’s plan and said it was looking to shrink operations in Asia and India, by not just exiting unprofitable markets but also stopping asking low-end devices and focusing on a few cellphones instead of dozens. read article

Mitt Romney announced Ayn Rand-fanatic Paul Ryan as his choice of vice president on Sunday morning; Jerry Seib, bureau chief of the Wall Street Journal in DC, looks into his economic beliefsread article

So long.

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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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‘Fremdschämen’ for Barclays, China’s imports lower and the mess that is oil

Marcus Agius, resigned chairman of Barclays, is sitting where Paul Tucker sat yesterday: in front of the Treasury Select Committee. Tucker yesterday denied having intervened on Libor. Watching the hearing was an exercise in what the Germans call ‘Fremdschämen‘, feeling embarrassed FOR someone else[‘s actions]. The most asked question by the Treasury was “don’t you think that’s rather odd?” Full summary of the awkwardness here.

In terms of the Chinese data marathon that is this week, the country’s imports and exports both slowed down in June from May, with import growth almost halving to around 6% in June. Not only does that show the slowing domestic demand, but it is also hitting China’s trade partners and gives a reason for last week’s rate cuts by the People’s Bank. Its main import partners are Japan, South Korea, the US and Germany, most of which could really do with some growth right now, there are bailouts to be paid for…

After yesterday’s 10-hour Eurogroup meeting that led to nothing (statement here) we didn’t already know before, a blueprint for Spain‘s additional €100bn aid package was agreed upon, leading to the first tranche of €30bn being deployed by the end of the month, sourced from the ESM, which is not fully ratified yet. The German Constitutional Court is hearing arguments in favor and against the ratification of the fund today. A decision won’t be made until later in the day, but a positive response would give the bailout mechanism the ‘okay’ from its largest contributor. read article

The effect of Francois Hollande‘s introduction of the 75% maximum tax rate, a higher wealth tax for those with an annual income above €1.3m and taxation of foreign-owned French property is mostly felt by London’s real estate market, it seems. While housing prices in the rest of the country are falling at their fastest pace since Q4 2011, London, which is usually immune to price drops, sees a changing buyer profile: Les French. They’re buying fast and they’re buying big. The FT reports that luxury property sales to French buyers have picked up by 40% in the last three months, with the average price increasing from £1.1m to £3.9m.

Otherwise, Norway has reached an agreement over pensions claims with its oilworkers, preventing the country’s resource industry to shut down. Important fact in this regard, the government can actually force these worker, who count as the country’s top earners back to work. Norway is the world’s eight largest exporter of oil and the 16-day strike over lowering the retirement age from 65 to 62 cost the country more than $500m. Meanwhile in Iran, which ranks number four in terms of oil global reserves, oil production has fallen to a 20-year low in response to international sanctions. It’s all a bit messy.

So much for today, let’s hope tomorrow has more new news…

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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It’s a weird day when North Korea announces a tablet

I think I will refrain from telling you anything about the EU summit until tomorrow when the dust will have settled. Right now it might be too confusing and dramatic for any of us to handle, it looks like the final clash of the titans. Yesterday, Angela Merkel called short-term measures to depress Italian and Spanish borrowing costs “eyewash [mouthwash?] and fake solutions.” Again, tonight’s soccer match between Germany and Italy is politically loaded. A short summary to the starting positions of the four horsemen of the apocalypse, Merkel, Monti, Rajoy and Hollande, on MarketBeat this morning.

The Netherlands, who were sure they experienced a recession in Q1, revised their figures and guess what: no recession anywhere! The national bureau of statistics had been off by 0.5%, reporting negative growth of 0.2% in April. But au contraire, the Dutch economy had been growing by 0.3%. This is the most significant miscalculation the bureau has ever made. What is this, Greece? read article

After yesterday’s introduction of the ‘Brixit’, we might as well talk about a Gerxit. Yeah, that’s right, I mean Germany exiting the euro. Here’s the thought experiment as proposed by and economist and an investor. read article

On that note, a YouGov poll found that 28% of Germans would vote against the EU membership, if presented with the opportunity.

Otherwise, everybody and their mother is developing their own version of the iPad: Microsoft, Google, North Korea… wait what? Indeed, a North Korean tablet computer called Samjiyon, produced in China and unable to connect to the internet, is said to hit the market.

Barclays is having a bad day. After the rate manipulation scandal that was washed up on shore in the past days, which Barclays was fined £290m for, the banks’ shares slumped by more than 10% today.
Also in London: It is one of the two development projects in the City that are re-shaping the skyline of the Thames: The Shard (the other one is, or will be the Pinnacle on Bishopsgate). Here’s Felix Salmon [who is not in London] on why it is a metaphor for the cityread article

Finally, this is Warren Buffet singing along with Bon Jovi. Hands up whose belief in capitalism is not entirely restored!

So long.

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Christine vs Angela: another fight of the titans

Another Friday, another fight of another pair of titans. This time: Christine Lagarde vs Angela Merkel. We all know Mekel’s view on eurobonds by heart at this point, but Lagarde has just launched a new attack. Her main point: more money for everyone, detailed in this IMF memo. The whole eurobond extravaganza would presumably fall under long-term structural reforms. In the short-term, however, all available funds would just be poured into the emerging wholes in the [banking] system. But hang on a minute, she may well be French, but Lagarde is not acting on behalf of Europe here. If anyone is, it’s probably Merkel. Looks like the latter is being squeezed off her throne… read article Also, it kind of reminds us once more of the quota formula issue at the IMF, which denotes the distribution of voting rights and contributions from member countries. read article

All this is overshadowing the meeting of Monti, Merkel, Rajoy and Hollande in Rome this afternoon. (Reuters is bringing us the best possible picture for it; click here) We shall see what this pre-summit summit brings. Mario Monti sure has managed to preemtively add a sour taste to it all, when he declared the inexorable onset of a political and economic death spiral in case next week’s EU meetings don’t yield a practical solution [I repeat, practical!]. read article

Moody’s downgraded every bank they could find, reminding me of an interview I had back in December, where I was told that there is no such thing as a triple-A-rated bank and we should stop pretending there ever was or will be. To mark the event, the FT wrote an obituary of global banks as we know them. read article

After yesterday’s meeting of the Eurogroup, word got out that Spain may need more than the €100bn it already got to save its banks. Surprise! It is estimated that the country could face a €52-62bn capital hole if the economic downturn continues. In other words, Spain is facing a €52-62bn capital hole and something has to fill it. read article

Meanwhile, Larry Ellison, CEO of Oracle, bought 98% of the Hawaiian island Lanai. He probably could have gotten all of the Aegean Sea for the same price, which remained undisclosed but was estimated to be “a ton a money.” (actual quote on Bloomberg: “hundreds of millions of dollars”)

Have a good weekend!

May the more economically stable country win the game tonight (…), I’m expecting at least this. New Greek Prime Minister Antonis Samaras won’t be able to watch, by the way, he was hospitalized with a retinal detachment issue today.

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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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