Death Star Economics



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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Cyprus to exit the news

Over the weekend…

actually right before, Fitch but the UK on its watchlist for downgrades.

The United States Congress is working on reforming the taxability of debt and equity, changing the traditional debt-bias (i.e. tax-deductible interest payments) to an equity-bias. read article

The Basel Committee on Banking Supervision received at hat tip that there was a MASSIVE loophole in the Basel III regulation that imposes, among other things, higher capital standards on banks. What it doesn’t regulate, however, is the use of credit default swaps to handle riskier assets that count into those capital standards. Changes to be made. read article

Speaking of Basel – after Switzerland came under scrutiny (again) by facilitating tax avoidance, the US Department of Justice has now asked Lichtenstein to hand over documentation of American-held accounts. read article

Over night…

The Eurogroup of Finance Ministers approved troika-sponsored bailout plan for Cyprus, totalling €10bn. In short, bank deposits under €100,000 will be guaranteed, while larger deposits are facing a crazy haircut, possibly up to 40% (others say the cuts will be capped at 20%). After ten days closure, Cypriot banks re-open todayread article

And let’s not forget that besides all this, we’re still waiting on Italy.

Have a good week.

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Splitting up – Barclays reconsiders investment bank, Catalonia favors seperatism

Barclays may have to follow the seemingly unavoidable path of European banks and split. The bank’s shareholders have demanded that new CEO Antony Jenkins should let go of investment banking operations, along the lines of UBS‘ shut down of its fixed income business last month that eliminated 10,000 jobs. The Swiss bank was fined £30m by the British FSA in connection to the $2.3bn insider trading loss that Kweku Adoboli got seven years for. Of course, axing the division would help Barlcays get around ringfencing investment banking and retail operations and may therefore be desirable from a regulatory point of view. read article

All of this coincided with Qatar Holdings selling a pile of Barclays shares this morning. read article

Yesterday, Spainish region Catalonia held elections, which saw a slight reduction of seats of CiU (Convergencia i Union), the party that demands a referendum. But those seats lost, were picked up by ERC (Esquerra Republicana di Catalunya), which demands independence from Spain without a referendum and as soon as possible. Four parties in favor of separating from Spain, holding 87 of 135 seats, are now present in the Catalan parliament. Gaining independence from the Spanish mothership would neither be simple nor quick. Catalonia is contributing 7-8% of its output to the central government in Madrid, and could cause an overhaul of Spain’s fiscal politicsread article

In terms of reforms, there is a new idea from Germany’s Finance Minister, who wants to force banks to write a restructuring manual for a bankruptcy scenario. Lawyers and advisory firms just collectively ordered new cars.

Otherwise, it is Cyber Monday, which is estimated to be the biggest online shopping day of the year for the third time in a row, says the Associated Press.

In Brussels, the “Eurogroup meets for third go at kicking can down the road” and to assess Angela Merkel’s campaign strategy in conjunction with Christine Lagarde’s hopes and dreams of a Greek debt haircut.

In the week to come, we’ll get the new governor of the Bank of England (330 pm today), updated US GDP, the Spanish budget, Chinese manufacturing and all unemployment number of the rainbow, with France on Tuesday, Germany on Thursday and eurozone on Friday.

So long.

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Renault found the eurocrisis advantage

The US is closed for the Turkey feast and the rest of the world is in and out of meetings, with the EU summit kicking off today in Brussels and the ASEAN summit in Phnom Phen just finished.

With the US at the table to stay in the loop of what’s happening around the Pacific, it seems like the non-interference politics of ASEAN are changing on the very topic they started out on: the South China Sea. read article

Staying East, preliminary Chinese manufacturing data shows above-trend growth in November for the first time in over a year, restoring faith in China’s economy across the globe until further notice. read article

Just two days after mentioning the underperforming French [car] industryRenault came out with the following plan: if the French unions make life difficult for you, while European car sales are doing terrible, why not take your production to a place where everybody is desperate for a job? No, not London. Renault will create 1,300 jobs in Spain, as Spanish labor unions jumped on the low-wage deal. Let’s appreciate how good an idea this is: Spaniards are happy, Renault is happy, the unions would be happy if they’d be capable of expressing anything but discontent, and the EU is happy too, because nobody needed to leave the continent to make this happen. read article

There’s also default news from a country that is not Greece. Yep, you heard me, this is not about our favorite producer of Feta cheese, it’s about Argentina. A New York District judge ruled that Argentina has to proceed to pay the holders of its defaulted bonds a total of $1.33bn. The original ruling from October 26 was under consideration until today. Besides the above payment, Argentina also has to pay $3bn in repayments of restructured government debt. Sam Jones of the FT says that JP Morgan says December 31st is the date to watch in this case. If the Argentina fails to fulfil its financial obligations, it could revisit 2001, when it first defaulted on $95bn of debt. read article

So long and happy Thanksgiving.

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War of the roses: IMF vs EU

There won’t be a news brief tomorrow, Wednesday, 14 November 2012.

Everything seems a bit unsettled today: the EU and the IMF had there biggest falling out yet, Swiss banks face more fraud investigations now that Switzerland is opening up more and more to bi-lateral data sharing agreements, the investigation of ex-CIA head David Patraeus‘ private affairs are getting increasingly confusing, adding more people to what started as a simple affair (as simple as an affair with the head of the CIA can be…), and the FSA is investigating the potential manipulation of prices in the British gas market. It’s messy, that’s what it is.

“Just this time, we’ll let you get away with it, you hear me?”

That is what EU finance ministers decided to tell Greece yesterday. What’s one concession when everything else is working according to plan? So Greece got a two-year extension to balance its budget. Except, that’s not what the IMF wanted to hear them say. Lagarde insists to stick with the 2020 target for Greece to decrease the deficit to 120%. The decision about further rescue funding is postponed to November 20, when all parties step back into the ring. While Eurogroup chairman Jean-Claude Juncker, who has admitted to lie to the press at times, indeed wants an extension of the deadline for Greece, Lagarde is in favor of another haircut, to help the country meet its targets. In Germany, Angela Merkel is worried about these developments; she has an election coming up in September 2013 and big losses for the German taxpayers would be ill-timed. read article

Also in Germany, 50 clients of struggling Swiss bank UBS are being investigated for tax fraud. The personal details of clients were obtained on CDs with information of Swiss bank accounts held by German citizens, which were purchased by German tax authorities in 2010. Last week, the same authorities started an investigation of UBS employees for aiding said tax fraud. Switzerland is just not what it used to be anymore.

Meanwhile, the New York stock exchange has to suspend trading of 216 companies due to a technical fuckup, and the UK inflation exceeded expectations by 0.2% for October, hitting 2.7% due to an increase in tuition fees and food prices.

In post-election AmericaGlenn Hubbardeconomist and dean of the Columbia University Graduate School of Business, said the US could make significant steps away from the January fiscal cliff by increasing taxes on high income earners. The crux: Hubbard was one of Mitt Romney‘s led economic advisors throughout his presidential campaign. Awkward.

So long.

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Sovereign crises stream of consciousness


There won’t be a News Brief tomorrow, Tuesday, 21 August, 2012.

The ECB, obviously tired of the 7% yield-of-death benchmark, is said to implement a high-yield interest rate threshold, which would forbid any buyers to purchase government debt of struggling economies when their borrowing costs exceed a certain percentage. And then? Then, the ECB will step in an take on that debt. This is following the bank’s August statement that it would only start buying Spanish and Italian bonds if the countries explicitly request aid. Contradictory. Needless to say, ze Germans are against this. read article

Aha! Look at that, the ECB is annoying denying everything.

But speaking of Germany… Angela Merkel is meeting Antonis Samaras in Berlin on Friday, where he will fail to say “thank you” and she will push Greece’ compliance with the initial targets and conditions that were set as part of the €130bn bailout package. Otherwise, this Monday marks another day on which Greece did not default. To commemorate the day, the ECB’s Joerg Asmussen told the Frankfurter Rundschau the following:

Firstly, my clear preference is that Greece should remain in the currency union. Secondly, it is in Greece’s hand to ensure that. Thirdly, a Greek exit would be manageable. It would be associated with a loss of growth and higher unemployment and would be very expensive – in Greece, Europe as a whole and even in Germany.

In other words: I don’t want the Grexit, but “there are Greek people living there,” so what are we going to do…

But speaking of defaulting countries. Belize is facing to default on its pile of debt worth $543.8bn on 19 September unless it strikes a deal with its creditors. Belize is asking its lenders to take a 45% haircut or to accept a delay in debt payments by 15 years. Sounds like a pretty bizarre case of blackmailing if you ask me. Recent history has taught us that potential defaults don’t really happen, but as the ECB isn’t involved in South American debt scenarios this may turn out differently (hello, Argentina!). read article

The commodity du jour is hay, after the hardly standardized product saw price gains above those of soy and corn. read article

The House of Commons and the Treasury have released a report to preliminary findings in the Libor probe, mostly blaming the Bank of England, then the FSA and then the bank again. The real report promises to be exciting holiday reading.

So long.


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Wednesday, #8

As I failed to explain the difference between an orderly and disorderly default last night, I will give it another try now…

An orderly default is the process of restructuring, meaning that public debt is cut and payment terms are changed in favor of the debtor. The haircut that has been heavily discussed in the press, can be considered part of an orderly default. If Greece was to default in this way, the eurozone countries would have to wait a very long time to get repaid. But honestly, who actually expects that Greece will EVER do that…
A disorderly default on the other hand, happens for the same reason: the debtor can’t pay the money back. But this time around there is no restructuring, no haircuts and definitely no more love from any other eurozone country. If Greece was to default disorderly, they would just not repay their debt. Period. The disorder is caused by the fact that there is no postponement (it’s difficult to prolong forever anyway) for the repayments, but that they just don’t happen.
In the end (or in the case of Greece), money will be lost either way. The question is just how much.
And because we (still) don’t have crystal balls around, nobody has the answer, but everybody knows it better.

Stock markets outside Europe (particularly in Asia) are doing pretty shitty today, because the uncertain demand in Europe (money is tight, y’know) makes it hard to sell stuff. Even Australian banks are having a bad time now; Commonwealth Bank, Westpac, Australia & New Zealand Banking Group and National Australia Bank fell 3% today. Mind you, Societe Generale fell 17% just yesterday…

And as if that wasn’t enough, German unemployment rate rose. It only rose a bit (by 10,000 jobless claims), but it rose while everybody expected it to fall. From afar that looks like the German economy could slow down and nobody wants that. Literally NO-ONE. read article

But let’s take a moment and feel sorry for Mario Draghi, who is probably having the worst month of his life. Imagine going into a new job and the first thing they want you to do it save a currency that spans over 17 opinions, sorry, countries… watch video

Finally, something more fun (mainly because it includes the philosophical concept of willingness to pay): Here’s a really interesting article about facebook’s ad revenue. read article

So long.

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Thursday, #4

Disclaimer: This news brief was circulated on Thursday, October 27, 2011.

Yesterday, the WSJ suggested the Eurovision Songt Contest to be a guide to solving the eurozone crisis, because if anything is worth fighting for, it is “Dana International, a transsexual from the little-known European country of Israel won, in Birmingham”.


Last night, a preliminary EU statement confirmed that by June 20, 2012, banks that have received government funding (that have been bailed out) need to have 9% of tier one capital (common stock, reserves, their own little savings account that their debit card isn’t linked to). For reference, the regulation framework Basel III had upped this capital requirement by 2% to 6% last year. Banks are meant to raise through “private capital” and “restructuring”. So essentially, instead of having banks own a whole lot of random financial institutions, like insurance business etc, private equity firms and investment managers will own them. Good for me, guarantees my job.
read statement




And as of this morning, we got a 50% haircut (no hair but only debt is cut, so why not call it debtcut) and a “four- or five-fold [increase] suggesting it could provide guarantees for around €1 trillion, or about $1.4 trillion, of bonds issued by countries such as Spain and Italy.” That haircut could be tied to an additional €30bn from the mean mad private sector, or a new fund made up from the EFSF and extra-European investors like (mean mad) China.
read article 



The UK (or rather George Osborne) said they don’t want to have anything to do with the EFSF, which I find outragous and ridiculous. All they want to participate in is IMF action. Osborne also said that the EU has a “chilling effect” on the UK. His face has a chilling effect. He’s just pathing the way for pushing the responsibility for the UK’s own debt chaos to Brussels. NOT THAT SIMPLE! Moron.


But on the plus side, stocks and treasury yields seem to be very happy about all of the above. Woohoo.


And to end it on something fun, here a brief history of web standards: view infographic 


So long.

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