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ECONOMICS – FINANCE – WORLD NEWS – GREEK DEBT

US budget deficit decreases; ECB rate cut likely

Yesterday…
The IMF warned of the Asian bubble, saying too much FDI was leading to explosive credit growth and property prices, and it was to get even worse if Japan’s monetary policy was to have the intended effect on the Japanese economy (hold your horses, Christine). read FT

Deutsche Bank is issuing €2.8bn of new stock to improve its capital base. According to WSJ, Deutsche Bank has one of the lowest capital ratios among European banks. read WSJ

This morning…
The Dutch Queen Beatrix abdicated, to be replaced by her son Willem-Alexander. She will be demoted to Princess Beatrix. read BBC

The US Treasury is expecting the first lowering of the budget deficit since 2007 between April and June 2013, when it is looking to repay $35bn, against the February estimate of shouldering another $103bn in debt. The deficit cut is due to tax increases, spending cuts and tax revenues recoveries. read FT

There was a whole flood of data out of Europe this morning: both Eurozone and German inflation came in at 1.2%, lower than expected, making a rate cut by the ECB on Thursday more likely. German unemployment added to its rise in March, but the adjusted rate is still only marginally above the two-decade low of 6.8%. Eurozone unemployment climbed to 12.1%. No surprise there, when has it not been rising… read Alphaville

Spain reported GDP growth for the first quarter – keyword ‘growth’ – at -0.5%, leading the Bank of Spain to lower it 2013 growth expectations from -0.5% to -1.3%. read CNBC

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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Portugal is this week’s Cyprus

Over the weekend…the collective attention was brought back to Portugal, where the country’s highest court ruled that spending cuts in public sector salaries as well as state pensions were unconstitutional. Sounds like a bit like something Greece would do. Needless to say those cuts weren’t just for fun and games, but indeed to keep Portugal out of the EU’s dog house and on track for its €78bn bailout package.

Luxembourg‘s Finance Minister Luc Frieden said that the country would stop opposing the sharing of banking data within the EU, going along with the trend of increasing transparency in [former?] tax havens. read article

This morning…
there is the weakening JPY reacting to Tokyo’s new harder better faster stronger QE measures that will increase monthly asset purchases to JPY7.5tn. In fact, then yen hasn’t been this weak since May 2009. read article

While Japan’s 2% inflation target until 2015 seems a bit fishy to some [most recently China], following the above, Christine Lagarde of the IMF is a big fan. According to her, it will improve global demand, and the inertial upswing in the US economy was proof enough of that. read article

As for the rest of the week, the Fed’s Open Market Committee is meeting on Wednesday, continuing the discussion regarding when and how America’s money tap can be turned off. Otherwise, there will be industrial and trade data from China and various European countries, as well as a review of bailout programs in Portugal and Ireland. in other words, Portugal is this week’s Cyprus.

Have a good week.

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IMF joins Cyprus creditors; Fannie Mae records first profits in 6 years

There won’t be an update tomorrow, Thursday April 4th.

Yesterday…In the US, people are getting more nervous about the Fed’s spending spree. Eyeing over to Japan, that might be fair. Once again, it’s Jeffrey Lacker, President of the Federal Reserve Bank of Richmond, who doesn’t beat around the bush when it comes to disliking monetary policy. read article

Fannie Mae, which received a total of $116.1bn in bailout finance from the US Treasury since the financial crisis, officially returned back to black. For the financial year 2012, the mortgage business recorded $17.2bn in profit. Finally. Although things are looking up, $84.7bn of its bailout package remain outstanding. read article

Speaking of earnings, the SEC has given companies the okay to announce earnings and other news via Facebook and Twitter, throwing off all those institutions (read banks) that blocked social networking sites for their employees. read article

Cyprus’ Minister of Finance resigned, saying he had done his deed in negotiating the bailout deal. In related news, the IMF stated today that it will pay €1bn of the total €10bn bailout package for Cyrpus, spread out over three years.

This morning…
there’s little to talk about. By 9.45am the most striking news were that Apple may release two new phones this year, and even that was a story from yesterday. read article

Spanish Prime Minister Mariano Rajoy is looking towards Brussels to get the growth in Europe going (good luck with that) and stop the austerity vise (even more luck for that), asking for countries in the position to do so to spend more to stimulate the economy. read article

So long.

Death Star Economics
ECONOMICS – FINANCE – WORLD NEWS – GREEK DEBT

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The next thing – gold price fixing

Things to know today: The new pope is Argentinian (or Argentine if you will) and the first non-European in 1,272 years; the US continues to fail at making the budget happen; Libor, Euribor, now gold and silver, ALL PRICES ARE FIXED.

The US is seeing Republican and Democratic budget proposals this week, with the former having been released on Tuesday. So far so good, surely a compromise can be found, right? No. In an interview with ABC Obama admitted that the two proposals may be too different to be combined in any shape or form, particularly if the Republican idea only relies on cutting social security and healthcare benefits. read article

The Commodity Futures Trading Commission (CFTC) has begun an inquiry in the gold and silver market in London. Though not a ‘real’ investigation yet, the Commission is looking into price fixing, much as they did with Libor. The banks involved in gold price setting in London are BarclaysDeutsche BankHSBCBank of Nova Scotia and Societe Generaleread article

The troika, composed of the EU, ECB and IMF, has decided to delay the latest bailout tranche for Greece, worth €2.8bn, due to “outstanding issues”. One of these could be firing public servants:

Identifying redundant positions and putting in place a system that will lead to mandatory exits for about 150,000 civil servants by 2015 is a so-called milestone that will determine whether the country gets a 2.8 billion-euro aid instalment due this month.

Otherwise, Eurostat released a handful of data including rising Greek youth unemployment (record) and low overall European employment (lowest since 2006). In Brussels, the European leader summit has begun. Rumor has it that France, Spain and Portugal will get more time to shrink their deficitsread article

So long.

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Return to the headlines, Iceland and Ireland don’t want to pay

Like the ghost from Christmas past, Iceland and Ireland are making headlines again, both on the topic of not repaying their debts. Iceland, which held a referendum concerning the repayment of bailout debt to the UK and the Netherlands in 2010, has been relieved from the remaining £2bn outstanding to the British government. The reasoning of the EFTA (European Free Trade Association) court? They’ve learned their lesson. Meanwhile in Ireland, the ECB rejected a debt relief proposal regarding the €30bn EU-IMF bailout of Anglo Irish Bank. At present, Ireland has to repay €3.1bn per year, ending in 2023. read article

Another potential problem looming for Irish banks is the next round of stress tests, set for this autumn. With the domestic economy still shrinking and mortgage arrears much higher than anyone expected, the banks may require additional capital.

The investigation into batteries used in Boeing’s Dreamliner took pressure off of manufacturer GS Yuasa, shifting the attention to the battery monitoring unit, produced by Kanto Aircraft Instrument. The Dreamliner fleet has been grounded since January 17. All Nippon Airways has cancelled 459 flights until January 31 so far. Until about five years ago, Japanese airlines used Boeing jets almost exclusively. Deregulation opened the market to Airbus, which seems to be winning more ground as the Dreamliners stay on the ground. read article

In other news, Queen Beatrix of the Netherlands is abdicating in April, leaving the throne to her son Prince Willem Alexander, Sarah Palin was paid almost $16 per word as a commentator on Fox News and the German governing coalition has agreed to hold the national elections on September 22.

Also, as opposed to what you might have gathered in some of today’s headlines, France’ Labor Minister did NOT say France was bankrupt, he was merely mocking the past government’s take on the country’s finances. 

Finally, a post-mortem of the Davos ‘thank god we got over this crisis’ meetingread article

So long.

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Politics is about expectations: a referendum, taxes and inflation

Brace yourselves, it’s a Europe-heavy news day.

The big news of today is David Cameron’s EU speech, announcing a UK membership referendum sometime between now and 2017. Britons are applauding, while the rest of the EU is in a state of frustration. With the words of Laurent Fabius, Foreign Minister of tax hell France: “If you join a football club, you can’t say you want to play rugby.” Well, no. But was that what he was doing? Not really. Good analogy nonetheless. It set the tone for European politics this yearread article 

Eleven European countries (Germany, France, Italy, Spain, Austria, Portugal, Belgium, Estonia, Greece, Slovakia and Slovenia) have proceeded to drafting legislation for a financial transaction tax on the trading of stocks, bonds and derivatives. That sounds specific, but really isn’t, as Brussels hasn’t decided on specifics at all. So one of the best reasons not to go on a rant of the ineffectiveness of the policy that is meant to generate €57bn for various rescue vehicles, is that it might be stuck in parliaments across the continent for a while, despite its scheduled implementation of January 2014read article

In Israel, Benjamin Netanyahu has been re-elected, though not exactly by a landslide. In the sobering words of the BBC:

It was relief more than real jubilation. The simple truth was that the combined list of candidates headed by Prime Minister Benjamin Netanyahu had performed disappointingly. But politics is about expectations.

More analysis from Israel, here: read article

In Davos, where the World Economic Forum [attended by both Merkel and Cameron – awkward] has begun, Russian Deputy Prime Minister Arkady Dvorkovich has admitted that Russia’s perception abroad is bad for foreign investments and is holding the country back. watch video

Overseas news bring us the policy decision of the Bank of Japan, which is braced to do what new PM Abe talked about all January: pump money in the economy to meet the 2% inflation target. In fact, Japan has never had a firm inflation target like that, so you’d expect it to be big news. Yet, nobody, from analysts to the IMF’s Christine Lagarde, seems overly impressedread article

In the background, Deutsche Bank has to simulate a breakup of its consumer and investment banking units. read article

So long.

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Leadership: Obama’s 2nd term and maybe Merkel’s last

There won’t be a newsletter tomorrow, Tuesday, 22 January 2013.

In the US, which is closed for Martin Luther King day today, President Obama has officially been sworn in againcommencing his second term in the Oval Office. read article

Overall, this week is full of high profile meetings, with the Eurogroup coming together in Brussels today and tomorrow and the World Economic Forum kicking off in Davos on Wednesday. Also on Wednesday, David Cameron will hold his long anticipated speech on the UK’s future in the EU.

There will also be some economic data out of Spain, where Prime Minister Mariano Rajoy just celebrated his anniversary in office. One of the figures likely to emerge, 26% unemployment, with 6 million Spaniards out of work. read article

As a taster for the general elections scheduled for September, the German state of Lower-Saxony held elections on Sunday. The coalition of social democrats and the Green Party defeated the incumbent conservative-liberal coalition by just one seat. For Angela Merkel, who is running for a third term to lead the EU Germany, this means a much harder campaign than she might have hoped for. read article

In other EU matters, Cyprus bailout package has been delayed again, and while the Cypriot government says it’s due to a review of capital needs conducted by PIMCO, it now becomes apparent that the IMF demands more debt relief before doing a thing (or Halloumi as collateral). So far, Cyprus’ clockwork hasn’t stopped because Russia has agreed to a delayed repayment of a €2.5bn loan. Thanks Russia, maybe you’d like to launder some money here in return. read article

And while Starbucks is offering cheap mediocre coffee on this morning’s free London newspapers, the company continues to serve as the scapegoat for corporate tax avoidance in the UK, which, according to HMRC, has risen by 48% in 2012. read article

In other news, Bejing is trying to get its air pollution problem under control by targeting the real culprits: outdoor BBQers, and Mario Monti has launched his re-election campaign in Italy.

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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Japan’s recursive debt dilemma; Papandreou’s mother evaded taxes on €550m

The morning news sang the song of positive Chinese manufacturing data as the savior of the world economy. Quietly, in the background, the CEO of the Bank of Tokyo pointed at the systemic risk deriving from government debt exposure of Japanese banks. According to the Bank of International Settlements, Japan’s lenders hold 900% of their tier 1 capital in Japanese government bonds. For comparison: since 2002, the equities to tier 1 ratio is capped at 100%.

As usual, things are messier in Europe, where Moody’s downgraded the credit worthiness of the ESM super-duper rescue fund over the weekend, while Greece announced its intention to buy €10bn in debt back.

Angela Merkel said in a weekend interview that she was willing to consider a Greek debt haircut in a possible world in which Greece got its finances back under control and doesn’t require additional debt. In other words, she isn’t really.

In other Greece news, Margaret Papandreou, the former prime minister’s 89 year-old mother is the beneficiary of an HSBC account worth €550m in Geneva. Oh well that is awkward. Switzerland has loosened its privacy laws on bank accounts to give the troika a better look at Greek tax evasionread article

In an embarrassing attempt to market Paris as a location, Christian Noyer of the Banque de France as argued that it was intolerable for the eurozone to have its financial center, i.e. London, outside the monetary union. Under normal circumstances, one should laugh at Noyer for being French […] and ridiculous [……..], but he has influence in the ECB, which will be have power over all European banks as soon as the banking union is agreed upon. read article

In the world of aviation, Delta, the world’s second largest airline after United Continental, is considering buying the 49% stake in Richard Branson’s Virgin Atlantic that is currently held by Singapore Airlines. In 1999, the stake was wrth £600m. If the deal goes through, Delta’s partners in crime Air France-KLM could acquire part of Branson’s 51%. Delta’s motivation for buying into the airline is (surprisingly) not the midnight ice cream-trolley on 34,000 feet, but Virgin’s slots at Heathrow, where it is ranked third in terms of take-offs and landings per week. read article

No room for news from the fiscal cliff, in a word: deadlockread article

So long.

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