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Letta new Italian PM; Apple profits drop for first time in decade

Yesterday…
It was a dark day for the European economy, with April PMIs across the globe disappointed, except for France, which beat expectations and soared to four-months highs. China and Germany on the other hand, undercut expectations – Germany even fell below the magic mark of 50, to 48.8, the lowest level in six months. read Bloomberg

After all the united G20 talk of appropriate monetary measures, S&P said that there’s a 30+% chance that Japan will lose its AA rating. The reasoning: it’s great to have quantitative easing, stimuli and private sector involvement, but that strategy doesn’t work if all you do is print money. read Reuters

Meanwhile in Portugal, the government is planning to lower corporate taxes to attract business. Good timing. read WSJ

Right after close, the Twitter account of the Associated Press was hacked, posting a tweet about attacks on the White House. The Syrian Electronic Army claimed responsibility. read Alphaville read BBC

Otherwise, it was all about Apple. The tech giant posted first quarter earnings,showing that profits dropped for the first time in a decade in year-on-year comparison. Alongside quarterly results, the company also announced an expansion to its now $100bn share buyback program to return money to investors. read WSJ

This morning…
Italy is set to announce a new Prime Minister. The current candidates are Guiliano Amato (Prime Minister 1992-1993 and 200-2001), Matteo Renzi (Mayor of Florance) and Enrico Letta (center-left deputy leader), all of which are less crazy than Berlusconi and none of which have worked for Goldman Sachs. read Reuters
BREAKING: Enrico Letta set to become Italy’s new prime minister

In anticipation on next week’s ECB meeting, rumor has it the Mario Draghi is likely to cut another quarter of a point off current interest rates, as inflation rates are below target and the eurozone finds itself back in recession. read Reuters

So long.

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China slows, Greece set to grow again

Over the weekend…
Venezuela has elected a new President, after re-elected Hugo Chavez died in early March after long illness. Nicolas Maduro is the man Chavez singled out as a worthy candidate himself, and the election result may have been driven my emotions more so than politics. read article

This morning…
China reported Q1 GDP growth, which came in lower than expected. Year-on-year, the country’s economy grew at a rate of 7.7% in the first three months of 2013. Prior estimates had suggested 8%; Q4 2012 came in at 7.9%. Again, we are facing a week of panic over the Chinese slowdown. read article

Otherwise, troika officials are arriving in Portugal today to assess the country’s austerity plans and post-bailout progress. Simultaneously, the body, composed of the EU, the ECB and the IMF, released a report claiming that Greece could return to growth next year. read article

The week ahead…
will bring us the first batch of earnings from New York-listed corporates, including a bunch of banks like Citigroup, Bank of America and Goldman Sachs, and tech companies Google, Microsoft and IBM.

The Italian parliament will try to elect a new President in the coming days. Officially, the process to find Giorgio Napolitano’s successor begins on Thursday, but it is expected to last a couple of days.

So long.

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

Yesterday…
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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Laiki depositors to lose up to 80%, Poland turns against euro

Yesterday…The Spanish central bank forecasts its economy to contract by 1.5% in 2013, while unemployment is seen to rise to close to 30%:

The economy will be marked by weak domestic demand, a fragile labor market and tight financial conditions, the bank said.” read article

Meanwhile in Poland, Prime Minister Donald Tusk is floating the idea of a euro referendum. The country has been pushing to join the foreign currency pretty much as long as it has existed – proximity to Germany would bring an additional trade advantage (despite the disadvantage for cheap manual labor). Anyway, now Poland is not so sure anymore. The political opposition claims the eurozone has changed too much since 2004, when the country joined, for a decisions to possibly still be valid. read article

The US economy must be improving, because it’s not getting worse. That was the idea of the morale following the data announcement of January home prices rising at the fastest rate since summer 2006 and an increasing demand for durable goods. read article

In other news, the Financial Times has found that the group of AAA-rated countries has decreased by 60% since 2007, and Warren Buffet will become one of Goldman Sachs’ ten biggest investors after exercising some warrants issued in 2008. read article

This morning…
Cyprus‘ central bank announced some details on the impending haircuts, saying uninsured deposits at Cyprus Popular Bank (Laiki) could be cut by 4/5th. The estimated 40% haircut seems to remain the benchmark for larger insured deposits. According to WSJ:

Based on estiamtes from government officials, the losses would affect some 19,000 deposit-holders at the Bank of Cyprus who, combined, hold some €8.01 billion in uninsured deposits. Uninsured savers at Cyprus Popular Bank, who hold a combined €3.2 billion, will lose most of that.

The Bank of England said British banks were facing a £25bn capital shortfall with regards to compliance with new banking standards. read article

So long.

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Judgment day for J.P. Morgan

There won’t be an email on Monday and Tuesday of next week, 18/19 March 2012.

Today, the London Whale Senate hearing starts in DC, led by John McCain and including testimony from former CIO Ina Drew who left the firm in May 2012. The allegations include a failure to appropriately report on the $6bn trading losses, misleading regulators and investors. read article

Following the Fed stress testBank of America is set to buy back $5bn of shares and $5.5bn of preferred stock, while J.P. Morgan will buy back $6bn in common stock. Goldman Sachs will also be allowed to repurchase shares, but overall the Fed seems worried about J.P. Morgan‘s and Goldman‘s capital structures: the banks will have to submit revised capital plans by September. read article

The British Parliamentary Commission on Banking Standards (PCBS) stated that the UK didn’t need a ban on proprietary trading, mirrored from the American Volcker rule. The Commission suggested capital requirements as alternative tools and cited the difficulty of defining proprietary trading appropriately. Future BoE Governor Mark Carney agrees as well. read article

After months of investigations and grounded fleets, Boeing’s Dreamliners could be back in the air “within weeks”. The spontaneously igniting batteries have been replaced and “only” need approval from the Federal Aviation Administration to be ready for take-off. Japanese authorities remain skeptical and declined to put a date on when the Dreamliners could fly again. Either way, Boeing doesn’t have the capacity to replace batteries in all 50 active planes simultaneouslyread article

While the EU-US trade agreement is in the works, Japan has entered negotiations for a similar deal for Pacific nations. read article

Meanwhile, Greece, or rather the Hellenic Republic Asset Development Fund, is selling gas and gambling companies as part of its privatization campaign. Get in there while it’s cheap. read article

Last night, Samsung launched its latest smart phone in the Radio City Music Hall in New York. A review from All Things D, here.

Weekend reading:

– the America we used to know, read article

– the US is more energy self-sufficient, except China wants to own all their natural gas fueling stationsread article

– when hedge funds get personal: the Herbalife background storyread article

 Have a good weekend.

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Fed stress test: why the world is better now than in 2008

Today’s headline story is the results of the Fed’s annual bank stress test – and how Goldman Sachs and Morgan Stanley would be torn to pieces in the unlikely event of a loss of cabin pressure. If unemployment was to soar to 12.1%, while both housing prices and the stock market collapsed by 20+% and 50+% respectively, Goldman alone would suffer a loss of up $20bn (which is by far not the biggest in the report…), while Morgan Stanley’s tier one capital ratio would be slashed to 5.7% (from 13.9%). That’s the story you’re fed on the front pages. Both these banks have passed the Fed’s stress test however. The official source itself seems much happier with the results:

Despite the large hypothetical declines, the aggregate post-stress capital ratio exceeds the actual aggregate tier 1 common ratio for the 18 firms of approximately 5.6 percent at the end of 2008, prior to government stress tests conducted in the midst of the financial crisis in early 2009.

Aha! Nothing to see here, move along. read full unbiased report 

In the US, it’s jobs Friday, with a projected 160,000 jobs added, up 3,000 from January’s rate. From WSJ:

The trend isn’t important necessarily to see where we’ve been, but to project where we might go – and especially for the markets, when the unemployment rate might fall to a level at which the Federal Reserve feels comfortable to start winding down its massive bond-buying programs.

In China, February exports increased almost 14% more than the median estimate by 21.8%, indicating stronger global demand. At the same time, imports fell to their lowest rate in 13 months, suggesting that no, China is indeed not done recovering.

Otherwise, there is a lot of analysis of yesterday’s central banking action, which left rates unchanged across the board. The consensus seems to be that it is not a question of economic recovery, but rather a question on waiting to see what happens without a new round of easing. Stay tuned for the summer.

Weekend reading
– meet Mr Jones, Dow Jones, of Alma, Arkansasread article

– European horse meat sales are upread article

– just as we thought we were past this: is financial risk rising again? read article

– management consulting for the Poperead article

Have a good one.

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Budget time in Europe; US DoJ investigates Moody’s and Fitch

It’s budget time again in the land they call Europe and the usual suspects pulled an all-nighter in Brussels yesterday, trying to come up with a convincing plan, covering 2014-2020. For the first time in its existence, the budget has actually been reduced. In some last minute action, yet another €12bn were slashed last night. With €960bn on paper now, €33bn less than the current budget measures and down from €1.047tn initially suggested, the plan has to be approved by all 27 EU member states. read article

Over in the US, the Department of Justice has looked [an inch] beyond the obvious and is now considering legal action against Moody’s. The matter at hand concerns defrauding investors. At this point, however, the investigation is in its infancy, as too many resources are devoted to the S&P case. According to WSJ, New York’s Attorney General Eric Schneiderman, sworn enemy of what’s left in the post-Lehman world, has also requested insights into Fitch‘s business.

In other news, China reported some positive trade data, with exports rising 25% and and imports rising 28.8% compared to next year, suggesting that the rest of the world has, in fact, not totally collapsed yet. Although…

Futures were delighted by the data, until someone pointed out that January 2013 had some five more working days than 2012 due to the calendar shift of the Chinese new year, and that adjusted for this effect exports were a far more modest 12.5% while imports rose only 3.4%. 

Following yesterday’s news from the European Central Bank, the FT has more details on the Irish debt deal, including the refinancing of €28bn of promissory notes. Meanwhile, Gavyn Davis gives a critical analysis of the ECB’s policy choices. The aftermath for Carney‘s parliamentary presentation can be found here.

And finally, Boeing is struggling with the “exploding battery fiasco”, seeing its orders collapse to only 2 from 150 a year ago this January. read article

Weekend reading:

– Michael Lewis‘ review of Greg Smith’s “Why I left Goldman Sachs“, read article

– Iceland‘s recovery, read article

– Too fast to fail, high-frequency trading and financial collapse read article

– Michael Bloombergmayor of London?, read article

Have a good one.

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Central bank center stage: the downside to repaying debt

In the US, the balance sheet of the Federal Reserve has exceeded $3tn in assets for the first time this week, resulting from its continuous stimulus policy. Only last week, the Fed purchased assets worth $48bn. In comparison, in the week before Lehman Brother’s collapsed, the Fed’s balance sheet measured $924bnAccording to Bloomberg:

One risk from a large balance sheet is the possibility that the Fed’s interest income could evaporate in coming years as rates rise, according to a paper released last week by researchs in the Fed’s monetary affairs division [surely, that’s the only division they have…].

Also in the US, Tim Geithner stepped down as Secretary of the US Treasury today.

Across the pond, the European Central Bank has announced that banks that borrowed cheap money under the ECB LTRO ‘funding for lending’-type scheme last year may repay some of the outstanding debt now. Estimated between €100-200bn, some reports say the repayments amount to €137.2bn. What’s disconcerting about people repaying their debt is that it will shed light on those banks that are doing poorly, throwing the EU for a loop yet again. read article

The UK sees its economy sliding in the general direction of a triple-dip recession (it’s starting to sound like ice-cream). In the aftermath of the Olympics, with lower manufacturing output and decreasing oil production in the North Sea, British GDP has shrunk 0.3% between October and December 2012. More than expected and frankly more than the UK can take if it wants to keep pretending to be a world power. read article

Another story shook the EU yesterday, with the Commission voting against actively supporting carbon prices in its emissions trading system, causing prices to collapse by 40% in just a couple of minutes. From the FT with no mercy:

The price collapse in the cornerstone of its climate policy is an embarrassment for the EU. It could also have far reaching implications at a time when other countries, such as China and South Korea, are testing or launching similar markets.

Weekend reading:

– Advance in data storage: let’s put it into DNAread article

– Tim Geithner on quitting, read article

– riding the 99%-wave – why suing Goldman Sachs doesn’t work when they’re not guilty, read article

– McSweeney’s guide to a middle manager’s principlesread article

– more on Cameron’s idea of the future EUread article

Have a good one.

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Venezuela on constitutional cliff – at least we have a name for it

The news bear little excitement today. Between both Europe* and US growing quiet and the first earnings season of the year kicking off, there’s not a whole lot going on.

*except for the worry about the economy at large, Merkel’s rule in Germany, the fear of a what would happen to Europe without Merkel’s rule of Germany, and the general worry about what the hell the ECB is doing now.

Sources close to the Bank of Japan told Reuters that more quantitative easing could be announced at the policy meeting in two weeks. The central bank is also likely to support Shinzo Abe’s 2% inflation plan.

A couple of days ago, it was still assumed that Hugo Chavez, president re-elect of Venezuela, would be sworn in on 10 January. Last night, Vice President Nicolas Maduro announced that the ceremony would be delayed, as Chavez needs more time to recover. The problem is as follows: if Chavez doesn’t get sworn in, then his VP can’t steer the boat until he as recovered fully. Barclay’s calls this a “constitutional cliff”, others call it anarchy waiting to happen. read article

Otherwise, the US will record the lowest level of oil imports in 25 years in 2014, says the US Energy Information Administration. Imports haven’t been this low since 1987. In November 2012, the International Energy Agency had predicted that the US could become the world’s largest oil producer as early as 2017. read article

Yesterday, Bloomberg reported on a secret division within Goldman Sachs that continued to engage in proprietary trading even though that will be (Future tense! Important detail.) forbidden under the Volcker rule, which is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Today, FT Alphaville is investigating this investigative journalism and explains why no wrong has been done (probably) and why we should look at pictures of cats insteadread 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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