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ECONOMICS – FINANCE – WORLD NEWS – GREEK DEBT

All according to plan – US set to grow 3%; China’s slowdown on purpose

Over the weekend…
the UK lost its Fitch-assigned AAA rating on the back of the weak economy and poor outlook. Moody’s downgraded the country in February, but also assigned a negative outlook, while Fitch is optimistic that the UK will return to credit-worthy prosperity around 2014/2015. read article

In Italy, Giorgio Napolitano was re-elected President for the coming seven years on Saturday. The independent is expected to propose a bipartisan cabinet, considering that he was elected by both sides of the political spectrum to avoid another round of elections. Everybody except for Beppe Grillo seems happy; he had called Napolitano’s re-election a coup d’etat. read article

The G20 meeting ended with everyone promising to not engage in competitive devaluation of currencies, defending Japan’s monetary policy as appropriate and targeting domestic demand. read article

This morning…
word got out that the US will see 3% growth in July, due to a reform of the methodology behind government statistics. 21st century GDP also takes film royalties and R&D spending into account:

Billions of dollars of intangible assets will enter the gross domestic product of the world’s largest economy in a revision aimed at capturing the changing nature of US output.” read article

Meanwhile in China, central bank Governor Zhou Xiaochuan justified the country’s below-expectations growth rate of 7.7% in the first quarter of 2013, saying slow growth was necessary as structural reforms are being put into place. read article

Otherwise the counter-austerity voices are getting louder again, this time it’s Pimco’s Bill Gross (not that surprising) and Jose Manuel Barroso of all people, the President of the European Commission. Could this be the beginning of the end of Angela Austerity Merkel’s dominance in European policy? Probably not.

So long.

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The things about guaranteed debt – China edition

There won’t be an update until Monday, 22 April 2013.

Yesterday…
the aftershock of the events in Boston continued to dominate the front pages, with President Obama speaking to the nation in the early afternoon, saying the FBI was investigating the explosions as an “act of terror”. read article

The IMF cut its global growth forecast for 2013 again from 3.5% to 3.3% in its World Economic Outlook, which left the 2014 forecast at 4%. Last week, Managing Director Christine Lagarde‘s argued that a three-speed [economic] world was developing, in which some countries are still very far away from recovering. Lagarde also embraced the quantitative easing approach and argued that Japan was moving into the right direction. read article

It’s things like this that could make for an uncomfortable atmosphere at this week’s G20 meeting in Washington, especially with regards to Japan. read article

This morning…
London is dressed in metal barricades as Margaret Thatcher’s funeral is putting more or less everything on hold until the afternoon.

In China, the poultry sector has recorded losses of CNY 10bn ($1.6bn) since the outbreak of bird flu virus H7N9. So far 77 people have been diagnosed as infected; 16 people died. read article

Also in China, a local auditor has said that regional government debt was OOT and it was only a matter of time until a bigger-than-American-housing crash if things were to continue. Here just a taste of how we got here:

Local governments are prohibited from directly raising debt, so they have used special purpose vehicles to circumvent these rules, issuing bonds under the vehicles’ names to fund infrastructure projects.

and

Bonds issued by government-owned investment companies almost always receive top-tier credit ratings from domestic agencies because they are seen as being guaranteed by the provinces and cities that back them.

Right, because that has never been a problem before… Last week, Fitch cut China’s credit rating on the back of “underlying structural weaknesses.” further reading

So long.

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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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G20 and currencies: off the record, we’re not friends

The G20 are meeting today and the biggest topic on the agenda is currencies. Since the G7 issued a statement saying they would refrain from using currency targets to revive economic growth on Tuesday, the message has become less consistent by the day. Most politicians still stick to the chant that a race to debase is bad for everyone involved, and on the record nobody wants to point their finger at Japan. Well, until today. read article

In Europe, banker bonuses will be capped at 100% of fixed salary, unless approved by two-thirds of the institution’s shareholders. This decision came in yesterday, initially proposed by Ireland, which currently holds the Presidency of the Council of the European Union. Needless to say, the UK is opposing such plans, suggesting that there could be a different (but probably similar) set of rules for the City of London. read article

And in general, there was a lot of uninspiring news out of Europe yesterday, including eurozone GDP falling 0.6% in Q4, contracting economies in Italy (-0.9%), Portugal (-1.8%) and Germany (-0.6%), and Greek youth unemployment reaching 62%. Today, the UK reported poor January retail sales, down 0.6% from December, and blamed it on the Britain’s very own snow “disaster” earlier this year. read article

In other news, BlackBerry co-founder Jim Balsillie, who used to be co-CEO, sold his entire 5.1% stake in the firm yesterday. Seems like someone isn’t so keen on the Blackberry 10. Meanwhile, Airbus decided to stop using lithium-ion batteries in its jets to avoid the crisis that arose (I want to say ‘ignited’) at Boeing last month, and Warren Buffet partnered up with private equity firm 3G Capital Management [although he likes to publicly hate on said investors] to buy ketchup brand Heinz for $23bn.

In the background, negotiations on a US-EU transatlantic trade and investment partnership started. Such an agreement could add 0.6% to European GDP and 0.4% to American GDP by 2027. read article

Weekend reading
– the designated tumblr page for the FT’s 125 year anniversary

– The Sun‘s and the Oscar Pistorius story, read article

– the deal with off-shore tax havensread article

– the physics of mosh pitsread article 

Have a good one.

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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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Remember when the Greek elections didn’t achieve anything?

(note: the headline regards the eurocrisis and not Greece by itself)

It’s funny how the lead up to some event is drenched in anticipation from virtually the entire world, but when it occurs the reaction is so unimpressive. In other words, Antonis Samaras can build a coalition on all he wants, all eyes are back on Spain [and Italy] and they were already yesterday.

So let’s go back to Spain. Yesterday, its bond yields exploded and stayed above 7%, and today, its short term borrowing costs (12-18 months) hit the highest levels since 1997. But that’s not all. The bad loans on the books of the country’s banks have reached the highest level in 10 years as well – 10 years ago, when the euro was introduced to make everything better…

ING said Spain would need another €250bn to get anywhere with its bank refinancing – €250bn the EFSF isn’t set out for. So then it goes back to the legal issue that is the ESM, which is not actually active yet and has different voting requirements from the EFSF. Here the ZeroHedge summary.

The bottom line seems to be this: while concerns used to focus on the willingness, or lack thereof, of European leaders to commit to strategy to battle the crisis, i.e. setting up the ESM, pushing eurobonds, injecting money here there and everywhere, it now (finally) shifted to a question of how much is actually possible. The answer is more or less unanimous: Spain can’t be paid for in the same way that Greece was. And we don’t even have to talk about Italy. So what are we going to do about it? Wrestle Angela Merkel down and force her to agree to eurobonds, i.e. piss off the one person who is paying for the whole charade (note: this is a simplification of actual circumstances)? Having said that, I’m pretty sure that Merkel knows exactly that she will have to give in to all the pressure unless she wants to foot a never-ending bill (see below).

In Greece, Pasok leader Evangelos Venizelos has allegedly expressed his support of NewDem leader Antonis Samaras, who is still in the process of pasting a coalition government together. And since Syriza said they’re out, Samaras just pitched another left-wing party, the Democratic Left, making the proposed government a center-center-left coalition. An agreement is meant to be reached today, and as we know Greeks are very precise and efficient people, so I’m taking this at face value (so far, the Democratic Left has not decided what to do). read article

In Mexico, the G20, first and foremost David Cameron, is pointing fingers at the bodiless mess that is European collective action. In Gideon Rachman’s words:

David Cameron is taking a break from irritating the Germans. Instead, he has decided to piss off the French.

It is going to be an entertaining week if this continues. The agreement that emerged from Monday’s meeting was to work on a “more integrated financial architecture” in Europe. I imagine Angela Merkel didn’t enjoy her stay.

Meanwhile, there are rumors that both Greece and Ireland will be granted a two-year extension of bailout terms, meaning forced austerity measures. Make a wild guess who’s not amused about that.

So long.

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Central banks and money and guns

Just in: the chairman of Cyprus Popular, the country’s second largest banking group says Cyprus needs $6bn in financial aid.

In the UK, George Osborne decide to inject £100bn into the economy. Note: this is not QE, but a support program for the British economy. At the heart of it: an incentive to improve loan conditions, which could fund up to £80bn new loans they say. read article

The news come just as the UK’s trade deficit rose by £1.4bn from April to May, mostly because of decreasing exports to the European continent (-6.8%). read article

Meanwhile, central banks all over the place are waiting in the wings for some coordinated easing action, which may or may not be accelerated by the potentially disastrous outcome of Sunday’s Greek elections [Headline of the day: Central banks reach for their guns over Greek vote].

On that note, here’s Alphaville’s FAQs for Sunday’s electionsread article

But MarketBeat reminds us:

The bottom line is the crisis won’t come to a screeching halt after Sunday’s elections, no matter who wins.

WHAT?! But I got all excited…

Moody’s cut the rating of all big Dutch banks and issued a warning on Greece. And here I was thinking that ‘Greece’ had finally become its own rating class below which there is nothing… read article

Elinor Ostrom, the first and only woman to ever win the Nobel Prize in Economics died on Tuesday afternoon from cancer. She was 78 years old. She received the Nobel Prize that she shared with Oliver Williamson in 2009 for her work on economic decision making outside markets. Project Syndicate published one of her last research articles on Tuesday afternoon. read article

From the Harvard Business Review: Ireland vs Spain, not in terms of soccer but economic similarities read article

Weekend reading:

An article that is all the hype on nerdy opinion pages and economics blogs: Are You With the Dumb Money or the Smart Money?

Otherwise, there will be the obvious fun thing to watch. No, not soccer, I mean the Greek elections. Unless you’re Mexican, in which case you’re probably set to engage in some early G20 protests for Monday’s meeting, which promises to be something like an enlarged eurozone summit.

Have a good weekend!

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G20: Let’s talk it over in Mexico

Over the weekend, the G20 nations met in Mexico City to talk money. The [biggest] issue at hand were future contributions to the IMF. The eurozone drama in 16 acts has reached a financial magnitude that requires more money to flow into bailout facilities to get us over the crisis once and for all(ish). But the US, China, Japan and also the UK are not willing to make new commitments before some more peace and quiet has returned to Europe. According to this NYTimes article, Angel Gurria, secretary general of the OECD said

“Let’s say a trillion from the European, half a trillion from the IMF. You put this kind of money together, and you announce that it’s going to be there, ready to deal with anybody that wants to mess with any other country. I think you’re never going to have to use it.”

But Gurria is not the only one advocating a bigger bailout fund, a whole truckload of economists are behind him. The problem: Well, where do we start… Greece needs to fully implement the newly imposed measures, stick with it after the April elections, it then probably requires a third bailout package, meanwhile the European firewall ESM (European Stability Mechanism) needs to be expanded, which is something Germany doesn’t want, and then there are elections coming up all over the place. read article

Otherwise, the German parliament is voting on the new Greece bailout package today. Although it will probably be approved, more and more government officials are losing patience with Greece. Over the weekend, Hans-Peter Friedrich, Minister of the Interior, clamored for a Greek exit from the eurozone. read article (note fantastic picture)

Also, Warren Buffet has named a successor to head Berkshire Hathaway when [meaning in case] he [should ever] retire[s]. But the lucky guy wasn’t publicly identified, leaving speculations to run wild. read article

Finally, the Oscars have lost value. At least if you assume that social media exposure = $$$: last night’s Academy Awards generated 3.4 million oscar-hashtagged tweets, while the superbowl got 12 million and the Grammy’s 13 million. In the time it took you to read this sentence, around 45,000 tweets were … uhm, tweeted. Written. Composed. read article

So long.

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