Death Star Economics



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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China grows less, because the new leadership has done a good job

This week has been quiet and it ends practically in silence.

China released preliminary GDP numbers, showing that 2012 ended on a positive note, with year-on-year quarterly growth pushed up to 7.9% by infrastructure investments. On the back of this, China lifted its growth forecast for 2013 from 8% to 8.2%. But slow down for a second, overall 2012 has seen the least expansion of the economy since 1999! Why the optimism? Oh right, because China’s leadership changed in November and the new guys need to look good. Meanwhile, the People’s Bank of China announced short-term liquidity operations to counteract inflation, “as it too has no choice but to ease although not by the conventional inflation targeting methods now used by everyone else.” read article

In the US debt ceiling crisis (yes, let’s just call it a crisis, it’s become the accepted synonym of any situation) is being complicated by tax refunds. On average, most taxes are being filed in February, says the FT, making it hard to forecast government cash flows:

For instance, in February 2012, daily tax refunds paid out by Treasury varied from a low of $140m on February 2, to a high of $14.7bn on February 8 – with significant spikes and drops within that range throughout February.

In the background, Reuters engages in a US-markets-default-scenario mind gameread article

The Handelsblatt says Commerzbank is looking to cut 6,000 jobs in Germany, joining all other banks in firing people restructuring their employee base.

In other news, David Cameron announced to delay his notorious EU speech in which may or may not set the tone for London-Brussels relations from here on out, due to the gas plant siege in Algeria.

Weekend reading:

– Obituary: Aaron Swatz, co-founder of Reddit, committed suicide last week, read article

– Things to fear in 2013, read article

– Getting behind the burning Boeing batteriesread article

– Off to round two, how history will see Barack Obamaread article

Have a good one.

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Bad PR for corporations as such

Today’s news are mostly dominated by the siege on an Algerian gas plant that started yesterday, triggered by French military action in Mali. All else seems to be on hold.

But there’s some drama: Tom Albanese, chief executive of Rio Tinto, British-Australian metals and mining company and gold star member of the companies-that-are-what’s-wrong-with-the-world club, has stepped down after the company had to admit to $14bn in impairment charges following unsuccessful acquisitions under Albanese’ supervision. In February 2012, one of these questionable assets, aluminum business Alcan, was written down by $9bn. read article

Thanks to a little €1.5bn incident in Italy, Deutsche Bank got bad PR again. In 2008, the aforementioned amount was loaned to Banca Monte dei Paschi di Siena, the world’s oldest established bank. As part of the deal, the Italian bank avoided a €367 loss on an old derivative contract and bet against Italian government bonds. A year later, Monte Paschi received a €1.9bn bailout from the Italian government, following by the December 2012 EU approval of a total €3.9bn bailout. It may raise a question of fairness, if not at least of proportion. While Monte Paschi is being investigated for manipulation and obstruction of regulatory activities (in Italy… that’s convincing), German authorities are trying to justify another investigation of Deutsche Bank. They promised to leave the machine guns at home this time. read article

As more or less all of Boeing’s Dreamliner fleet [globally] is now grounded for inspection, aircraft order numbers for 2012 were released. And guess which manufacturer has re-taken the number one spot after five years… exactly, Boeing. The difference to Airbus: 13 planes. And for all you know, those aren’t even fit to fly. In the US and Europe, it is not even the airlines that keep their fleet on the ground, the authorities have banned Dreamliners from flying until Boeing can resolve the risk of battery fires. read article

And the headline of the day: “Dimon Takes a ‘Whale’ of a Pay Cut

So long.

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EU cuts its losses on bank bailouts

The week starts relatively quiet with some news from Europe and last week’s news from Japan.

The EU is doing something that could be interpreted as cutting its losses: in a redraft of terms and conditions for countries whose banks sought a bailout from the European Stability Mechanism (ESM). Under the new proposal, the countries in question (Spain, Ireland, Cyprus) will have to co-invest [into the failing banks] alongside the ESM or guarantee indemnities for the EU fund. Fair enough, but why only now? Is it possible that the real smart guys in Brussels noticed that money is finite? read article

In the background S&P is riding the New Year’s resolution wave and announced that 2013 will be a turning point for Europe: it will quit smoking, lose weight and stop defaulting on debt. read article

And it generally seems to have been a busy weekend in Brussels. After UPS proposed a €5.2bn takeover bid for Dutch delivery firm TNT Express, the Commission now swore to block the deal under antitrust rules. In response, TNT’s shares fell by 49%. read article

In other news, Swiss watch maker Swatch bought luxury jeweller Harry Winston for $750m, AIG is suing the New York Fed over bond issuer rights and investment banks Credit Suisse and Deutsche Bank are considering bonus cuts of up to 20%.

After the London Whale shook all of JP Morgan‘s senior management, prompting six of the 15 members of the firm’s operating committee to leave, the bank is now issuing a report for its board of directorsblaming CEO Jamie Dimon, ex-CFO Doug Braunstein and ex-CIO Ina Drew for the losses incurred. The board will vote on whether the report should be made public tomorrow, a day ahead of the firm’s earnings report. read article

So long.

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Saying sorry to the 1.5%

When the most interesting headline of the day regards shipping finance and the auditing thereof, you know its a slow news day. The sector is suffering from the slowing of world trade, says the Handelsblatt, and it’s massive capacity doesn’t help the matter. But thank God that any sector’s misfortune is a hedge funds lucky day. Alternative investors, including hedge funds as well as private equity firms, are starting to buy both distressed assets and loans of distressed shipping companies at low cost, anticipating that the world won’t always look so bad (2014 could be our lucky year). read article

And that’s kind of where the exciting stuff ends.

Some merged and acquired: Arab new network Al-Jazeera, which is owned by the Qatari government, acquired Al Gore’s Current TV to finally move into the US market, and Avis bought Zipcar for $500m.

And while the US is edging from fiscal cliff to debt ceiling (Obama signed the legislation dealing with the former this morning in Hawaii), John Boehner is saying sorry to the American 1.5%. Fair enough, after all Boehner wants today to mark his re-election as speaker of the Housenot his return to Ohio. All discussion about progressive taxation aside, it is true that the richest 1.5% of America’s citizens will be worse off. In fact, they will be worse off than they have been since 1979says the Atlantic:

[…] it looks like the top 1 percent could end up paying more overall in federal taxes next year than at any time since at least 1979 […] The country’s richest households will be paying a bit more than 36 percent of their income to Washington — higher than the most recent peak of 35.5 percent in 1995, or 35.1 percent in 1979.

Finally someone said sorry.

The beneficiary of the rich’ increased tax bill are really the banks (sort of). Because one thing that was left out of the fiscal cliff joke of a deal was the exemption of US income tax on foreign income of US banks. Better known(?) as “subpart F exception for active financing income” it is, of course, a loophole that is big enough to let billions of dollars disappear in it – $150bn if you want to believe the estimates quotes by the FT. Established as a temporary relief measure by Bill Clinton in 1998, it does what it’s designed to do: letting US institutions do business cheaper and be more competitive. This isn’t the time to change that, just as much as it’s not the time for anyone to raise their corporation taxes.

So long.

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US corporate tax up for discussion, BoE changes course (towards Canada)

There won’t be a News Brief tomorrow, Thursday, December 13, 2012.

There are actual news regarding the fiscal cliff, with President Obama and House Speaker John Boehner putting corporate tax up for discussion. Reforming the corporate tax rate, currently between 15% and 35% depending on the state, would be part of a policy package that could yield $1.4bn in new revenues, as opposed to $1.6bn as proposed earlier. Some sources say that an overhaul of the current corporate tax regime could reduce the maximum rate from 35% to 28%. Obama’s current proposal also includes lifting the debt-ceiling and increasing infrastructure spendingread article

Germany has gently (read harshly) reminded Silvio Berlusconi to leave blaming Germany for Italy’s economic policies out of his election campaign. Berlusconi said that Monti’s government had employed German-centric policies and Berlin had used the spread between German and Italian bond yields to cause his last cabinet to collapse. read article

Meanwhile in the UK, i.e. New Canada, Mark Carney has had the entire BoE‘s senior management stumble as he announced the central bank needed more radical measures, steady rates, numerical unemployment targets and maybe consider leaving inflation alone for now and replacing it with nominal GDP targeting. Mervyn King is real happy about his successor right now. read article

Today also marks the day when the libor scandal creeps back onto the front pages. A former trader for Citigroup and UBS and two employees of interdealer broker RP Martin were arrested and questioned regarding the rate-rigging that was uncovered in Spring 2012. Barclays paid $450m in settlement charges in June in connection to the scandal. read article

So long.

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SEC investigates big four, Boris Johnson wants EU referendum

The American SEC is investigating the Chinese operations of the big four (Ernst & Young, KPMG, Deloitte, PwC) + BDO for failing to cooperate with the Commission investigating potentially fraudulent behavior of Chinese companies that went public in the US. The auditors could be sanctioned or even excluded from operating within the US. read article (including another angry picture of enforcement director Robert Khumzami)

In fiscal cliff newsrepublicans put a new (old) proposal on the table, which already got rejected by the White House this morning. The proposal included $800bn in tax increases over the next 10 years, paired with a number of cuts, including scarping $600bn from Obama’s Medicare program. According to the Wall Street Journal, the proposal looked a lot like a the outlines of a budget deal discussed by Obama and Johgn Boehner, speaker of the House of Representatives, in 2011, the last time America stood at the cliff. Interestingly, Boehner’s proposal “also did not specify how Congress would address the $110 billion in spending cuts set to take effect Jan. 2 in defense and discretionary spending.” read article

But that’s not the only thing on Obama‘s mind. Another one is how to compensate those who have raised the most funds for his re-election. One of them is Anna Wintour, editor-in-chief of Vogue US and the very original devil in Prada. And to say thank you, Obama might make her the American ambassador to the UKread article

The IMF has released a staff paper saying that capital controls may be beneficial to countries whose economies are struggling and unable to deal with the volatility attached to capital inflows. Previously, the IMF was vehemently against capital controls, despite their use in some emerging economies. Now, however, it argues like this:

The experiences of Spain and Indonesia, as well as Brazil and Korea during the global crisis, highlight how regulations or re-imposition of restrictions on certain transactions can mitigate the build-up of vulnerabilities.

Spain!!! You know what that means. Next thing we know, there will be capital controls all over Europe’s peripheryread article 

Meanwhile, at a morning conference in London, major Boris Johnson said that a renegotiation of the UK’s relationship with Brussels was a necessary step forward and should lead to a straight forward referendum regarding the current terms and conditions that tie Britain to the single market. read article

In Doha, British Energy Secretary Ed Davey said the UK was going to put £1.8bn towards the battle against climate change. This will include financial support to cut emissions in developing countries. Britain is the first G7 country to commit to the project. read article

So long.

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All talk, no results, but at least Glencore is happy.

If things continue like this, I’m going to start making news up. I hear it works for The Sun.

Japan’s exports to China fell by 12% in October, amounting to JPY948bn ($12bn) or the largest monthly trade deficit ever, in the hangover since the dispute about the East China Sea has re-arisen. read article

Meanwhile in the US, Ben Bernanke held a press conference reiterating every apocalyptic comment about the fiscal cliff and threatening recession in case of insufficient government action. Talks between the White House and Congress have kicked off this week, but it’s not going well so far.  read article

In Greek news, the Eurogroup of finance ministers failed to strike a deal on how to reduce Greece’ debt. After 11 hours of back and forth, the meeting was broken up, to be continued on Monday of next week. Allegedlya document was circulated at the meeting, now in the hands of Reuters, which proposed a haircut for official bondholders or a two-year extension for the 120% debt-to-GDP ratio. The former goes against Germany’s wishes, the latter against those of the IMF. Nothing is solved and tomorrow’s summit will be a disaster. read article

Twinkies and Wonder Bread parent company Hostess, which had struggled over the past couple of months,

will continue with the company’s liquidation, after it failed to find an agreement with the bakery workers union. Hostess had filed for bankruptcy in January, when the company had around $860m debt, and announced to close down operations on Tuesday. The private equity vultures are circling… (Hello, Sun Capital Partners.) read article

In other company’s news, the merger of Glencore and Xstrata has now been passed on to European antitrust authorities who are expected to approve the deal tomorrow, almost nine months after merger negotiations started. Besides the EU, China and South Africa also have to approve the proposed transaction, which would create the largest natural resource conglomerate in the world. read article

So long.

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China’s new lead, Europe’s new fall, BP’s new fine

China has completed its government reshuffle and named the new members of the Politburo Standing Committee, decreasing the number of members to seven and making Xi Jinping China’s new president. He will take over from Hu Jintao in March. But hopes of a reformed and more open China in the future, were diminished by the conservative selection of PSC members. The two contesters for positions in the PSC with the strongest background in political and economic reforms, were not elected; coincidentally, two positions on the committee disappeared… read article  Bloomberg’s guide to the PSC

Meanwhile, Europe, or at least the eurozone, is officially back in recession. With both France and Germany “growing” a grand total of 0.2% in the year’s third quarter, Europe’s German engine may be heading for contraction by year-end. That’s not rock bottom of course. After all, Germany could collapse, default on its debt or implode, but it may be one of the lowest points for Europe from an economic point of view. One of them. read article

Unfortunately, the corporate world doesn’t really look any better.

BP is about the receive the largest penalty the US Department of Justice has ever filed over criminal charges for the environmental disaster triggered by the Deepwater Horizon oil spill in 2010. The fine is so large, in fact, that the number has not been disclosed yet. To date, the prize for the biggest fine goes to Pfizer, sentenced to pay $1.2bn in 2009, after illegally promoting the anti-inflammatory drug Bextra. BP put $2bn aside for legal charges; rumor has it, it will have to pay up to $1.5bn, or if you want to believe the BBC between $3bn and $5bnread article

Over at Citigroup, shareholders have submitted an official proposal for the bank’s board to consider abreakup of its retail and investment banking divisions. Citigroup’s creation in 1998 went hand-in-hand with the creation of the Glass-Steagall act, making the merging of different banking operations possible.Sandy Weill, formerly Citi’s chairman, called for a repeal of the legislation in July, fueling debates about the bank’s future. Here’s some more firewood.

So long.

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“The ECB is by and large done [trying to help you]”

The moment when it’s not the Greeks who don’t live up to their promises: the troika wants to delay the next debt tranche despite the deal on austerity measures, to wait for a full report on compliance with the bailout terms. At the core of the issue is the €5bn repayment due next week, but the next bailout tranche is also connected to a two-year extension to 2016 for Greek aid. So far, so bad. While the EU seems to be mainly concerned with the restructuring of debt that will never be repaid, the IMF worries whether Greece will ever return to growthread article

Mario Draghi, fed up, announced the ECB was done supporting Greece. And you can’t blame the man who has been waiting for Spain to make one, just one, phone call for the past two months, and who is being chased by German lawmakers scared of inflation. As a last act of kindness, he said the  €12-15bn profits the ECB made on the €55bn of Greek debt it owns should go back to the country itself.

Meanwhile, France is expected to slip into recession by the time the year comes to an end. In SpainIberia, which is owned by IAG, just as British Airways, will cut the airline’s 21,000-people workforce by a quarter in an effort to turn the loss-making business around. That’s just what Spain ordered. read article

The Telegraph broke a story saying that UK tax authorities got a hold of the details of every British HSBC client in Jersey. Mind you, Jersey is a tax-haven, population 98,000 (and most of them are accountants). The list of names was obtained from a whistle-blower, who didn’t get the memo that the EU whistle-blower-incentive is not actually in place yet. It features drug lords, weapon smugglers and fraudstersHSBC, of course, will have to pay between $1.5-2bn for breaching anti-money laundering rules in the US and Mexico. For those that remain sceptical of a whistle-blower from Jersey or the journalistic standards of the Telegraph:

Early viewers of what promises to be a trashy little mini-series with a stale mix of guns, drugs, sun-soaked beaches and tax cops, were left with one stand-out question on Friday: Does HSBC have just 4,388 Brits holding offshore accounts on this Channel island?

Weekend reading

– Interactive infographic for real GDP, unemployment and inflation developments in Europe, read article

– El-Erian’s 4-point plan to save the US economyread article

– The Asian way: economic stability in the 21st century, read article

– Democrats and Wall Street, version 2.0 read article

– From law to oil to Paris to … the new archbishop of Canterburyread article

Have a good one.

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