Death Star Economics



Eurozone recession here to stay, UK gets ready for exit

David Cameron and his comrades of the Conservative Party published a policy draft for a referendum for a possible EU-exit of the UK. The draft says the referendum has to be completed by December 2017, given the Tories win the 2015 elections. I think the campaigning just began. read BBC

While the global “recovery” continues to force deficits to skyrocket and imports to slump, India has managed to become the outlier in the trend on Monday afternoon. Taking advantage of the low gold price, imports rose 138% since April 2012 to $7.5bn, or 18% of all imports, while the trade deficit hit 17.8bn. read Zerohedge

And of course the drama over Bloomberg‘s use of user data continued… read FT Alphaville

This morning…
there was a flood of data, with the German economy growing 0.1% from 4Q12 to the first quarter of 2013, undercutting the depressing estimate of 0.3% growth. The French economy contracted by 0.2% over the same period of time. read Bloomberg
Franco-German relations haven’t been great since Hollande got into office, but this morning’s result may just worsen the atmosphere of any policy discussion. The eurozone as such, contracted 0.2% in 1Q13. The recession continues…

Simultaneously, Mervyn “it’s-almost-his-last-day” King of the Bank of England raised the outlook for the UK economy [with lower inflation] and raised his eyebrows at eurozone performance, as well as the continental Financial Transaction Tax. read Guardian

Meanwhile, the US is preparing to become the model student again. The Congressional Budget Office is forecasting the deficit to fall as far as $378bn by 2015, much faster than anticipated. The 2013 forecast was cut by $203bn to an overall $642bn. read Reuters
And that is not all: Formerly the largest corporate debt market in the world, providing ample opportunity for the Michael Milken followers of the world to make money, China is going to take that spot within the next two years, according to S&P. Soon America will be debt and deficit free and flow with milk and vodka (we’re all grown-ups here). read Financial Times

In the kerfuffle over whether Jamie Dimon is allowed to stay in in his double-role as chairman and CEO of JPMorgan seems to be blowing over (much like Lloyd Blankfein expected), as fewer shareholders than expected are looking to back the leadership reform. Another bullet dodged for the industry. read Financial Times

And in case you’ve been in a good mood this morning, have a look at this: 10 Scenes from the ongoing global economic collapse (Zerohedge)

So long.


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Cypriot banks re-open, German unemployment higher

word got out that UK banks Lloyds and Royal Bank of Scotland, both backed by tax money, needed to raise an additional £9bn in correspondence to capital requirements set by international banking regulators. The additional cash needs to be on the balance sheets (£3bn for Lloyds, £6bn for RBS) by the end of this year. read article

This morning…
Cyprus is making history by being the first EU country to impose restrictions on capital flows, “with limits on credit card transactions, daily withdrawals, money transfers abroad and the cashing of cheques.” The withdrawal limit seems to be €300 per day, while transfers of more than €5,000 will require central bank approval. read article

German unemployment rose by 13,000 people, as opposed to an expected drop, while German 10-year bunds dropped to their lowest yield since early August 2012 (1.255%).

Meanwhile in Asia, the Bank of Japan has already exceeded its self-imposed limit on asset purchasing limit (well done) and South Korea cut its 2013 growth forecast from 3% to 2.3%.

Easter reading… – a list of people who are investigating JP Morgan, read article
– what extremely successful people were doing in their 20s, read article
– greatness of nations: India vs China, read article

Happy Easter, have a good one.

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Budget cuts and peripheral misery

Today at midnight (Saturday morning in the old world), the US is facing the much discussed spending cuts, decreasing government spending by €85bn until the end of the federal budget year in September. Maybe it’s time to depart from discussing the sheer possibility of this scenario. If you believe Bernankethe pain will be close to intolerable, slowing the economy down by 1.5%. The Congressional Budget Office estimates a 0.6% decrease in GDP. If you believe Fortunecompany earnings are strong enough to allow ignoring the issue. Without a budget fix, the automatic cuts will continue in the following financial year. read article

And things aren’t pretty in Europe’s periphery either. First, numbers out of Spain showed that Spanish corporations faced the largest decrease in earnings ever recorded in Q4, including Bankia’s €19.2bn net loss. Meanwhile in ItalyBersani rejected all rumors regarding coalition talks with Berlusconi. Over in Greece, 2012 revenue targets were missed and the burden of unpaid taxes increased, causing skepticism in Brussels, where the next loan instalment, worth €2.8bn, can be withheld if Greece’ financial report is not satisfactory. At the same time, the IMF, usually in bed with the EU, was more positive, saying Greece had collected more taxes recently and could avoid a further reduction in government salaries.

We shouldn’t forget, however, that despite the mess that is Southern Europe (oh yes, I made that generalization), there are still countries out there that want to join the union and currency. Poland, for example, which originally wanted to have the euro by 2012, is now discussing meeting all criteria (the same criteria that Greece met once…) by 2015read article

In India, Q4 GDP growth dropped to 4.5%, as the government announced a more pro-business deficit-reducing budget for the coming year. read article

Otherwise, Andrew Mason removed from his position as CEO of discount firm Groupon, which recorded losses in the last two quarters of 2012. In his own words:

After four and a half intense and wonderful years as C.E.O. of Groupon, I’ve decided that I’d like to spend more time with my family. Just kidding – I was fired today. If you’re wondering why… you haven’t been paying attention.

Weekend reading

– The “Because I Can” attitude of senior managementread article

– Dear Banker, this is how we’ll pay you in the futureread article 1 read article 2

– the European Union and Ricardian equivalenceread article

Have a good one.

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Central bank center stage: light winds from Canada

Today’s agenda is full, with the ECB press conference this afternoon, future Bank of England governor Mark Carney being quizzed in the UK parliament and the aftermath of the sudden overnight re-ignition of the rate-fixing scandal(s).

Starting with the latter, the Libor investigation has led to fines all around already, but now it uncovered the unfortunate wordings of some RBS traders (to be read here). FYI, I like both steak and sushi. Meanwhile, Japanese banks, as well as RBS’ Tokyo division, have been accused of manipulating Tibor, the Tokyo Interbank Offered Rate, which they have done, of course, because why would something like this be contained in London. On the continent, the investigation of Deutsche Bank’s Euribor fixing is progressing and has led to the suspension of five traders in Frankfurt. More fun to come.

While all that is happening, Mark Carney, former governor of Canada’s central bank and incoming governor of the Bank of England, is facing the Treasury Select Committee. Prior to the session, George Osborne declared how upset he is about the UK’s monetary policy, asking for more easing to stimulate growth. All questions are really just trying to get to the point of one thing: what’s going to change now? We already know about his nominal GDP-targeting idea, but what else? He stressed the importance of flexibility in meeting inflation targets again and gave the current BoE regime his support, praising its “entirely possible, in fact probable” positive impact on the economy. read article.

As for the ECB, Mario Draghi will hold a press conference at 1.30pm London time. Presumably on the agenda are the LTRO repayments, the euro and the latest ECB Bank Lending Survey, which indicated tighter lending conditions due to bank’s capital requirements. Maybe, Draghi will comment on Ireland’s debt burden, which the ECB reportedly eased.

Meanwhile, the People’s Bank of China noted the increased inflation risks due to QE exercised by the US and Japan, which “may push up commodity prices and make global capital flows more volatile.” China reports its January inflation rate tomorrow; it is expected to come in at 2%, as opposed to 2.5% in December.

In other news, India lowered its growth forecast from 5.5% (prior to last week at 5.8%) to 5% and Cathay Pacific decided to up the value of its cargo, switching from e.g. apparel to transporting diamonds and pharmaceuticals to boost revenues. Also, the EU-leaders summit kicked off in Brussels today.

So long.

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Abe takes Japan, China and India predict slower growth in 2013

With Christmas only one week away, the world is winding down for the holidays and the news are more or less reduced to a simmering of unresolved issues like the fiscal cliff and Europe as such.

Over the weekend, Shinzo Abe returned to the office of Prime Minister in Japan, where he won the general elections and put the liberal democrats back into the driver’s seat. He also opened the floodgates for unlimited monetary easing to stimulate the economy and redeem it from 20 years of stagnation. In response, the yen sank to a 20-month low. Japan’s debt amounts to 237% of economic output, making it the country with the highest debt to GDP ratio in the worldread article

In the US, fiscal cliff negotiations are slowly moving towards a compromise, with John Boehner proposing to raise the income tax on individuals with more than $1m annual income. Obama’s suggestion for a tax raise would hit everyone above $250,000 annual income. Rumor has it that Boehner’s proposal is contingent on Obama to cut spending, for example by raising the eligibility age for Medicareread article

China has loosened its Qualified Foreign Institutional Investor program, which limited foreign investments in Chinese stocks and bonds at $1bn per entity. Effective immediately, central banks and sovereign wealth funds

won’t have to comply with the $1bn limitation. After a policy meeting today, Chinese authorities also announced that the country will seek higher “quality and efficiency” of growth, i.e. accept slower growth, in 2013.

Simultaneously, India cut its growth forecast for 2013 from 7.9% to 5.9%.

Finally, Italy is awaiting Mario Monti’s decision regarding his candidacy in next year’s general election. Center-right politicians (and really most people who can’t believe what Berlusconi is doing) are urging him to run, while some Italian press has already reported that he won’t.

So long.

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€1.45bn fine for electronics cartel, capital gains at heart of US negotiations

In the UK, George Osborne is currently delivering the Autumn Statement, a summary will follow tomorrow.
Before the announcement, the Telegraph says that Italy is the only country with a slower growth rate than the UK in the G7, while the BBC said

If the figures are as bad as many expect, the chancellor could be forced to abandon two key coalition targets: A five-year plan to eliminate the underlying deficit, which could be stretched to eight years, and his commitment to have Britain’s debts falling as a share of GDP by 2015.

Another point of concern that is likely to be covered are new rules for pension funds’ reporting standards. Under a new “long-term view on projected returns,” numbers could smoothed to a five-year average. Not sure how that’s going to solve the problem. Looks like a layer of opaque glass to me.

The fiscal cliff has turned into the continuation of the presidential election campaign, with the Republicans fighting against an increase in capital gains tax. It was proposed that alongside other tax increases to step away from the cliff, capital gains tax should be raised from 15% to 23.8%. While the tax increase on dividends, that could cross the 40%-mark seems much less of an emotional issue, capital gains tax is as important to the GOP as guns. read article

In Australiaeconomic growth slowed slightly, as the government is implementing spending cuts in trying to meets its budget surplus targets for 2013. BUDGET SURPLUS!

In the world of retailTesco has decided to abandon its American Dream and let go of Fresh & Easy. While Wal-Mart is a potential buyer of the stores, Tesco will probably have to write part of the investment £1bn off. Fresh & Easy is expected to have lost £850m by February 2013. Although Wal-Mart is doing well overall, it also got the home advantage. Elsewhere, the company may face legal chargesIndia only lifted its FDI-ban on retailers in September of this year, but Wal-Mart snuck its way in all the way back in 2010, by investing in a consultancy that had started its corporate existence as a retail holding. read article

Taiwanese electronics firm Chunghwa Picture Tubes blew the whistle on a cartel that had been fixing prices of TV and monitor cathode-ray tubes for the last 10 years. The European Commission fined Phillips, Panasonic, Samsung, Toshiba, LG, Samsung, Technicolor and selected affiliates a grand total of €1.45bn for violating antitrust laws. Chunghwa seems to have learned – two years ago it had to pay towards an overall fine of €648m against a cartel of LDC manufacturers.

So long.

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More stimulus for Japan, more consolidation for Europe (ex-Turkey)

Japan isn’t messing around. Today, the government announced a new stimulus package of almost double the size of the last one in October. With JPY880.3bn ($10.74bn), Japan is now living off all its savings to avoid having to sell more government bonds. The government expects the new stimulus to push GDP by 0.2%. JPY161.2bn will be put towards reconstruction of areas hit hardest by 2011 earthquake. read article

In Europe, the day starts with decisive words from the IMF and the ECB, demanding for Europe’s nations to consolidate their budgets and create a European banking union, also to oversee all banks within the union. The IMF also claimed that France needed to revisit its stubborn views on reform, as Italy and Spain could surpass the country by taking the necessary steps. read article

The German parliament has approved the latest Greek bailout shenanigans. Next up are the parliaments of France and the Netherlands. In the latter, prime minister Mark Rutte said he wants tighter European control over financial issues, while reconsidering powers that currently lie with Brussels but could be handed back to nationsread article

Otherwise, data for German and Greek retail sales (read German retail sales), Italian unemployment, Italian, Spanish and eurozone-wide CPI and Swiss industry, retail and wholesale all missed estimates. Happy days. Eurozone unemployment seems to be the only thing that came in as expected – at a record high of 11.7%.

Meanwhile, Turkey is still holding a grudge against Brussels for not having been able to join the EU yet. Prime Minister Tayyip Erdogan, who recently said the EU had to make a decision on Turkey’s accession by 2023, before the country will turn east, has now commissioned a “giant mosque that will be visible from all across Istanbul.” According to the plan, it would hold 30,000 people. According to Reuters

It is symbolic of Turkey’s tilt to the east under Erdogan, who has chipped away the founding secularism of the modern republic and presided over its emergence as a power in the Middle East.

In other news, the UN assembly has granted Palestine nonmember observer state” status, same as the Vatican. read article

Dominique Strauss-Kahn and Nafissatou Diallo, formerly housekeeper at the Sofitel hotel in New York, have reached a settlement deal, after she had pressed sexual assault charges against the former head of the IMF in 2011. Ka-ching.

Weekend reading

– The Leveson inquiry and modern journalism, read article

– The FT and your flash player explain the UK’s Autumn Statementread article

– More interaction with PBS explaining the web of betrayal behind David Coleman Headleyread article

– Vladimir Putin‘s battle against corruptionread article

– More on corruption, India prepares for cash handout programread article

– Why plan C for Greece isn’t better than any before, read article

Have a good one.

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T-1 month for Japanese election; $4.5bn settlement for BP

One election down, one to go: Japan is getting ready for December 16, when, rumor has it, the Liberal-Democratic Party will be re-elected over the incumbent Democratic Party of Japan. Over the past six years, Japan has elected a prime minister seven times. In between it was struck by disasters of all kinds. Shinzo Abe, leader of the liberal democrats, is determined to get the economy back on track, revisit US-Japanese relations and try not to go to war with China. Now there we have a reasonable approach to governing. Unfortunately, the world of money won’t have any of this. US hedge funds are increasingly betting against Japan’s corporate futuresays the Wall Street Journal, buying CDS’ for Sony, Panasonic, Nippon Paper Group and Kobe Steel.

In The Hague, Ante Gotovina and Mladen Markac have been released from prison after they had been charged with a 24 and 18 year prison sentence respectively for war crimes against ethnic Serbs during an offensive to retake Croatia’s Krajina region in 2011. read article

In the UK, some MPs have claimed that is is unlikely that £66bn poured into Lloyds and Royal Bank of Scotland will ever be recovered. Two weeks ago, Jim O’Neil, who is responsible for the two bank investments on behalf of the government, admitted that the purchase may not have been absolutely necessary at the time. This is angering all the anti-Keynesians who are chanting “we told you so”. Yet, the US Treasury managed to recover its bailout payments to AIG and actually sell the stake at a profit, maybe not all is lost. American public funds are going to be redirected towards the recovery of the housing marketsaid Bernanke yesterday. Today, the Federal Housing Administration reported that its insurance fund is running $16bn deficit for the year leading up to October. read article

Updating yesterday’s news of BP’s fine, the company has to pay $4.5bn in settlement charges. This includes an actual fine worth $1.256bn, the biggest penality of its kind in history. The Deepwater Horizon disaster let 4.9 million barrels of crude oil flow into the Gulf of Mexico. read article

Weekend reading:

– Lloyd Blankfein got America’s recovery all figured out, read article

– American oil and gas for everyone, read article

– Questions for and a defense of left-libertarianismread questionsread defense

– Making “fiscal history”: India’s tax reformread article

– reality HomelandPatraeus‘ affair, read article

Have a good one.

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The advantage of debt in the family

As mentioned yesterday, Greece is going to avoid bankruptcy AGAIN on Monday, when a little over €3bn fall due in debt repayments. Much to Greece’ advantage, the money belongs to the ECB, so the whole thing is a lot more like borrowing money from your parents. Greece sold €4bn worth of 13-week notes yesterday, raising enough money to meet the deadline. On to the next! read article

UK unemployment, including the number of jobless claims, have fallen. At 8%, unemployment rose almost 1.5% since the onset of the 2007 financial crisis. The current ease is considered to be related to job creation through the Olympics. But even though the date is better than expected, it’s not going to lift European markets. see graph

In the US, the picture looks similar. Retail sales and jobless claims, released yesterday and last week respectively, have been better than forecasted. But in the typical fashion of overweighting positive factors, many say there won’t be any government action any time soon, which may be a mistake.

At least, both American and German 10-year bond yields are rising to 1.73% and 1.47% respectively. That is, if you believe Ken Rogoff’s analysis in last Friday’s News Brief, a good thing.

Banking scandal round-up:

After the US Department of Justice dropped its criminal investigation of Goldman Sachs, which could have been turned into a civil fraud case on the coattails of Goldman’s sales of mortgage-backed securitiesNYTimes Dealbook declared the end of financial crisis law suits, almost five years after it erupted.

The new trend, as we’ve learned in the past weeks, is money laundering and rate fixingStandard Chartered has now been fined $340m for the former by the New York State Department of Financial Services. Oh yeah, and then there were transactions worth around $250m with sanctioned Iran. Oops. read article

Otherwise, Australian courts have granted the display of ‘discouraging packaging’ for cigarettes in the scope of its new anti-tobacco marketing laws and India is celebrating 65 years of independence today.

So long.

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EU unemployment at 10.4%, India in the dark

The News Brief is going on holiday and will be back on Thursday, August 9, 2012.

Record unemployment and Zara Philips and Milton Friedman as trending topics on Twitter. I guess that’s the world we live in now.

June figures show EU unemployment at 10.4%, with youth unemployment at 22.6%. The eurozone has higher overall unemployment, reaching 11.2%, but is lower on youth unemployment, amounting to 22.4%, just as in May, which had been revised upwards. Germans may be pleased to know that inflation across the eurozone has remained steady at 2.4%.

But the extent of absurdity of EU stats only really becomes clear when considering Austria and Spain with 4.5% and 24.8% unemployment respectively. Many new jobless claims are coming out of France, where Peugeot and Alcatel-Lucent cut a lot of jobs in the past month.

There is not much to report on central bank action yet, except that the Fed is expected to do something, while the ECB has smashed all QE hopes when insiders said decisive action could take another five week. We’ll know more tomorrow.

Meanwhile in Italy, the police seems to have taken documents from Barclay’s Milan office in an investigation into the fixing of the Euribor (Euro Interbank Offered Rate) rate. I was wondering when this was going to happen…

And as all this is going on, India is left in the dark. Literally. You can be the largest democracy in the world all you want, but 670 million people without electricity due to a power grid failure, is kind of an issue. The power cut initially happened yesterday and was fixed before it all collapsed again today.

But back to the Olympics: After scaring the whole city for the better part of 2012, more or less all Londoners have disappeared from the streets. TFL said public transport usage was only up 4% from the norm. And suddenly, the golden games that were going to save this country’s poor economy, might slow it down even further, simply because nobody is here. Stell dir vor es ist London und keiner ist da… read article

Finally, to cheer you up, the most fun SEC filing ever: Manchester United filed for its $383m IPO (click link, scroll down).

So long.

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