Death Star Economics



Cypriot capital controls, EU templates and Japanese QE

Cyprus‘ President Nicos Anastasiades announced that the country’s banks are going to stay closed until Thursday (again: which Thursday…) and that capital controls will be put in place until it all blows over. read article

The new head of the Eurogroup, Dutch Finance Minister Jeroen Dijsselbloem, threw everyone for a loop by saying the private sector contribution in Cyprus (i.e. the haircuts) would lead future EU bailouts by example. He retracted the comment later on. Thanks for that.

The MSCI Emerging Markets Index has had the worst first quarter since 2008, lagging behind industrial economies most since 1998. Ongoing QE programs (see below for Japan) are cited as a reason in favor of developed markets. read article

Presumably not for the same reason, the BRICS nations are planning their own version of the World Bank. read article

Meanwhile, China is finding itself in a public health crisis, with rotten ducks floating down rivers in the southwestern Sichuan province and 11,000 dead pigs being fished out of Shanghai’s water supply system. read article

Otherwise, a 17 year-old British kid has sold its bedroom-developed app Summly to Yahoo for $30m. read article

This morning…
there’s not a whole lot going on except digesting overnight news, because most people, including myself, got nothing but chocolate eggs on their minds.

New Bank of Japan Governor Haruhiko Kuroda is already warming up the printers, saying the BoJ will consider buying five-year+ bonds. The next policy meeting is next week, April 3-4.

So long.


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Eurozone stuck in recession until 2014 (except for Germany, because they think positive)

It’s a Europe-centric Friday, with breaking news of poor performance all around Europe’s economies – we know, thanks for pointing it out again.

The Commission revised its growth expectation for the year, saying the eurozone’s economy will contract by 0.3% in 2013. Bye bye, 0.1% growth. Bye bye, post-recession world. It will be accompanied by an unemployment rate of 12.2% and inflation of 1.8%. At least there will be room for rate cuts. read article

In Spain, the budget deficit increased to 10.2% due to aid costs for the banking sector. The bailout package for Bankia alone added 3.2 percentage points to that. Incidentally, Bankia, which is reporting 2012 earnings next week, will report annual net losses worth €19bn+, the largest loss in Spanish corporate history. read article

The German Ifo business climate index came in higher than expected, because Germany is vehemently following its optimism strategy that includes ignoring any data or reality.

In good news, the ECB recorded a €1.1bn profit from interest payments on a €208bn debt portfolio of PIIGS bonds. Over the last year, income from sovereign bonds even amounted to €14bn. read article

Meanwhile, US consumer confidence is being rocked by rising prices on gas, which climbed 15% up to $3.75 per gallon last week. Car owners in Europe are weeping and cycle to the US embassy to apply for visas. read article

Over the weekend, we’ll see Italy’s general elections (24-25 Feb), aka the Silvio Berlusconi show. In case of a hung parliament, the election limbo would continue for months, and Italy would be stuck with a caretaker government that doesn’t want to implement policies. read article

Weekend reading:

– horsemeat economics, read article

– and then ‘cyberwarfare‘ became a thing, read article

– rethinking drug policiesread article

– in case you’ve read the Bloomberg editorial on $83bn annual bank subsidies, here’s a discussion of it read article

Have a good one.

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773 Germans want Greece to leave the euro

The fun fact of the day is that only a quarter of Germans think Greece should stay in the eurozone. Outrage everywhere. Most papers have made this out to be yet another factor in Angela Merkel’s dilemma of domestic vs foreign affairs. But when you consider that the Financial Times/Harris Interactive poll of 5,134 people between the age of 16 and 64 only features 1,030 Germans, the results look much less drastic. read article

But yes, sure, there might be some truth to it. Why else would Bank of America consider to send trucks filled with drachmas Deutsche Mark euros into Greece to support their clients’ salary payments… read article

In France, lender Centrale du Credit Immobilier du France was bailed out by the government. The bailout of the real estate loan provider is rumored to be worth €20bn. France was involved in the two-times bailout of French-Belgian bank Dexia in 2008 and 2011; however, CCIF is the first ‘fully’ French bank to need state aid. Prime minister Jean-Marc Ayrault said in a statement that the bailout would not inhibit France’ plans to cut the budget deficit until the end of the year. Well, bon courage, because if all these crises have taught us anything, then it is that there’s a herd instinct among institutions which need bailing out. read article

In line with that: over the weekend, the Spanish government threw more money at Bankia, after the nationalized lender posted a €4.4bn loss for the first half of 2012.

International Airlines Group (IAG), the owner of British Airways and Iberia, is looking to become a cornerstone investor in a new humongous American airline. This could be composed of bankrupt American Airlines, currently owned by AMR, and the US Airways Group. After AA and US Airways shared their books with the other, IAG signed a confidentiality agreement, which allows it access to the balance sheets drenched in red.

In the US, Mitt Romney will have to deal with some more blast from the past very soon. Some of the largest US private equity firms have been subpoenaed to get to the bottom of a tax avoidance procedure, which helped hundreds of millions of dollars to slip through the system’s fingers. Besides Bain Capital, KKR, the ‘inventor’ of the leveraged buyout, and Silverlake Capital Partners, formerly invested in Skype. At issue are the taxes paid on fees collected from fund investors, which have to correspond to whether said fees count as income or capital for re-investment. read article

Otherwise, CICChina Investment Corporation, has sold its 3% stake in asset manager BlackRock, which is thought to be worth $1bn, in an effort to reduce its financial services holdings, and Markit’s manufacturing index shows that the eurozone was subject to yet another contraction in August, making a zone-wide recession more and more probably. Chinese manufacturing continued to slow over the same time period. read article

So long.

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Catalonia requests credit, bank regulation/reputation crisis spreads to advisors

There won’t be a news brief tomorrow, Thursday, 30 August 2012.

Spain’s indebted region of Catalonia, which currently owes €42bn, requested a €5bn emergency credit line from the Spanish government. The money will come from an emergency fund for struggling regions [i.e. Spain] worth €18bn. In conjunction with yesterday’s recession announcement this makes for another great week for not-being Spanish. read article

After ploughing through more or less all banks out there, another regulator, the Securities and Futures Commission of Hong Kong, is taking Ernst&Young to court to force the advisory to disclose information about a former client “in a test case for how far mainland secrecy laws can shield disclosure of sensitive corporate matters in the territory.” read article

Mario Monti meets Angela Merkel in Berlin today. His plan is to push for the ECB’s emergency bond purchasing program by pointing out to Merkel that bond spreads seen by the periphery can be dangerous to ze muzerland as well. read live updates

Right after the meeting Merkel and a selected few will board a plane from Germany to China to strengthen trade relations and secure future export contracts. The fun mid-week trip includes representatives of Siemens, Deutsche Bahn, SAP, Volkswagen and a number of other big German [industrial] names.

new (potentially game-changing) player has entered the stage in the Glencore-Xstrata-takeover-and-then-not situationNorges Bank Investment Management, the fund manager behind Norway’s oil-oozing sovereign wealth fund, has joined forces with Qatar, to keep Glencore from completing the merger. NBIM has bought Xstrata shares worth around $500m over recent weeks, making it the company’s fourth largest shareholder (behind Glencore, Qatar and BlackRock). read article

Otherwise, today has the revised US Q2 GDP and German CPI in stock, all of which will be announced in the [British] afternoon. WSJ estimates the former to be revised up from 1.5% to 1.7%.

So long.

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Indicators point down, ECB discovers liberal tendencies



Back in the office from the long weekend, the week starts mixed (bad news + no news).

Spain confirmed its Q2 recession with 0.4% negative growth, Japan is seeing its economy deteriorate further and the German Ifo business climate index fell for the fourth time in a row, with expectations as low as ever.

And otherwise, well, there’s not that much going on. I assume this to be the final strides of the calm before the storm of people returning to their offices after the summer.

Apple has won a major battle against Samsung, forcing a ban on eight Samsung mobile devices that are already on the market in addition to a £1.05bn payment in damages for patent violations. Yes that’s right, Samsung-user, you may hate Apple, but it’s still the same technology you got. Not similar, THE SAME. The case is not over though, an injunction hearing will follow on 20 September. read article

In the background, RyanAir is seeking regulatory approval for its take-over bid for Aer Lingus in their mission to make the air travel to Ireland the most painful experience possible. The approval has to come from the European Commission, which will start an investigation into RyanAir’s intentions tomorrow. The June bid would value the deal at almost €700m, which Aer Lingus shareholders find ridiculous or at least not enough. read article

Meanwhile, the European Central Bank is counteracting is innate need as a European authority to support [over-] regulation and has spoken out AGAINST the strict Basel III regulation. These rules set out by the Basel committee on banking supervision concern, among other things, the liquidity coverage ratio of banks. That is, in less fancy words, how much money is to be put aside for all investments made, because you never know, the world economy might blow up. Right. That happened. So even people sceptical of regulation like myself can kind of see the point that the Basel III accords are trying to make. But the ECB, in its desperate effort to keep Europe together, is now speaking out against them, due to their impact on lending. Bizarrely enough, the Bank of France agrees (?).  read article

Also, it’s one of those weeks where we’re awaiting US GDP data again (preliminary annualized GDP growth), leaving us just about 24 hours to speculate about the markets’ reaction, Bernanke’s reaction and the impact on the presidential election.

So long.



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Bad at budgeting, countries and airlines edition

The US Congressional Budget Office estimates that the US will enter a recession come 2013, with the budget deficit reaching $1.1tn (t-r-i-l-l-i-o-n), government debt totalling 73% of GDPunemployment moving towards 9% and economic output declining 0.5%. That would push the debt to GDP ratio beyond the levels of the 50s and about double as high as five years ago. According to Bloomberg:

Congressional leaders have said they probably won’t consider until after the election the Bush-era tax cuts set to expire Dec. 31 or $1 trillion in automatic spending cuts that would begin taking effect in January. There is no sign of an agreement to avoid a so-called fiscal cliff, and the CBO report prompted partisan finger-pointing.

Enter the minutes taken at the FOMC (Federal Open Market Committee) meeting on 31 July/1 August. In a nutshell, the note show agreement that as things are still shit (see above) despite stronger retail sales and lower jobless claims, some QE is still in order. Everybody go back to being excited. read article

Meanwhile, Qantas as canceled an $8.5bn order for 35 Dreamliners, making it the largest cancellation of aircraft ever. Kind of a blow for Boeing, which has been behind schedule since the idea of the B787-9 Dreamliner has been put on paper for the first time. Its first order by All Nippon Airways was delayed by more than three years. China Eastern Airlines had canceled the order of 24 Dreamliners in fall of last year. After paying a cancellation fee, Qantas will be get $433m in refunds. The company will need it; in the year leading up to June 30, it lost AUD245m, marking a fall in profits of almost AUD500m from the year prior. read article

Otherwise, the Chinese flash PMI came in at its lowest since November 2011, supporting the more-QE-from-the-PBC thesis, while the French PMI outperformed expectations in terms of manufacturing and services. The German and overall eurozone PMI were meh, i.e. mixed, but as usual pointing towards the worse.

Finally, NYT Dealbook explains the dynamics of sovereign debt restructurings (literally any, but mostly Belize) by the example of the Maltese Falconread article

So long.

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UK remains in recession, indicators point towards bad time

The UK’s preliminary GDP reading shows a 0.7% contraction in Q2, adding-on to fears that Britain will remain stuck in a recession for the rest of the year. It’s comforting to know that more than £9bn of tax revenues have been put towards the Olympics, the reasoning for which looks to be an example of overvaluing the possibility of positive results (hello, Daniel Kahneman). The British GDP has now been shrinking for 9 consecutive months. read article

And the wave of bad news continues… Moody’s cut the outlook of the EFSF to negative and Spain’s 2-year bond yields hit a peak of 7.14%. In Germany, the business climate index missed estimates, as did Apple‘s Q2 earnings. The biggest company in the world missed earnings forecasts by more than $2bn due to the crisis in Europe and the general economic slowdown.

This quarter was only the second time in the last 39 quarters in which Apple reported results that missed analysts’ profit and revenue expectations,

says MarketBeat. And Apple doesn’t expect things to get better any time soon: with the plans for an iPhone 5 uncertain and a low-cost iPad planned for this year’s Christmas sales, the company is decreasing its margins. Moreover, Apple’s lower figured drag expectations down for their Asian suppliers.

Speaking of Asia, the IMF is pointing its finger at China for its “moderately undervalued” currency and its investment-reliant economy, while China is adopting more of a “who, me?!”-response.

In the USTim Geithner is spending today and tomorrow justifying the New York Fed‘s actions of the last years to different financial committees in Washington DC. After both the Libor rate-rigging and the JPMorgan Whale-trade loss went past the Fed without any intervention, it’s time for some questions. Dealbook sums it up: read article

Just yesterday, Geithner had proclaimed that the looming austerity measures in the US, tax increases and around $100bn cuts in domestic and military spending, will damage the US economy. He also added that he believes the eurozone would survive the crisis in its current form, mostly based on European leaders having said so… Wishful thinking? Well, let’s leave it at that.

So long.

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If it’s not rates, it’s drugs: a new banking scandal

Today’s headlines refreshingly deviate from previous days, with HSBC’s involvement in money laundering and financing drug trafficking, terrorism and everything else that is bad. Surely, the paranoia behind and intensity of the bank’s investigation isn’t helped by the Libor scandal, which in itself isn’t helped by the financial crisis or Occupy Wall Street or all those bad-banker stories (Hello, Greg Smith, hello, Bruno Iksil…) that have been around lately.

Also, the IMF has slashed global growth forecasts in appreciation of the sticky molasses that is the world economy right now. The new forecast for 2012 is growth of 3.5% globally, with the eurozone shrinking by 0.3%. The UK, so it says, will only expand by 0.2% this year. This comes as inflation hits a 32-month low of 2.4%.

That links nicely to the decline in foreign direct investment in China, which is down almost 7% or $12bn from last year. The FT debates whether slower growth is the right way for the country. read article

The US unemployment rate, which hasn’t undercut 8% in 41 consecutive months, which could change monetary policy with regard to additional quantitative easing. The Keynesians, mostly Paul Krugman of course, are jumping up and down crying out to leave the inflation rate alone to stimulate job creation. read article

Marissa Mayer has been appointed CEO of Yahoo. She was previously an executive and spokesperson for Google. She is the company’s fifth CEO within four years. For feminists Mayer may just become a poster child: head of a tech/internet company and pregnant when she got the job. That’s right, Mayer may only stay with Yahoo over the summer, as she’s expecting a child in October. But that’s just marginally interesting, because with its search business continuously losing ground and its online ad share declining to 9% this year, Yahoo’s future is a little bit all over the placeread article

Otherwise, German investor outlook for the coming 6 months (ZEW index) is down and Moody’s downgraded 13 Italian banks, including the country’s largest lenders.

So long.

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‘Fremdschämen’ for Barclays, China’s imports lower and the mess that is oil

Marcus Agius, resigned chairman of Barclays, is sitting where Paul Tucker sat yesterday: in front of the Treasury Select Committee. Tucker yesterday denied having intervened on Libor. Watching the hearing was an exercise in what the Germans call ‘Fremdschämen‘, feeling embarrassed FOR someone else[‘s actions]. The most asked question by the Treasury was “don’t you think that’s rather odd?” Full summary of the awkwardness here.

In terms of the Chinese data marathon that is this week, the country’s imports and exports both slowed down in June from May, with import growth almost halving to around 6% in June. Not only does that show the slowing domestic demand, but it is also hitting China’s trade partners and gives a reason for last week’s rate cuts by the People’s Bank. Its main import partners are Japan, South Korea, the US and Germany, most of which could really do with some growth right now, there are bailouts to be paid for…

After yesterday’s 10-hour Eurogroup meeting that led to nothing (statement here) we didn’t already know before, a blueprint for Spain‘s additional €100bn aid package was agreed upon, leading to the first tranche of €30bn being deployed by the end of the month, sourced from the ESM, which is not fully ratified yet. The German Constitutional Court is hearing arguments in favor and against the ratification of the fund today. A decision won’t be made until later in the day, but a positive response would give the bailout mechanism the ‘okay’ from its largest contributor. read article

The effect of Francois Hollande‘s introduction of the 75% maximum tax rate, a higher wealth tax for those with an annual income above €1.3m and taxation of foreign-owned French property is mostly felt by London’s real estate market, it seems. While housing prices in the rest of the country are falling at their fastest pace since Q4 2011, London, which is usually immune to price drops, sees a changing buyer profile: Les French. They’re buying fast and they’re buying big. The FT reports that luxury property sales to French buyers have picked up by 40% in the last three months, with the average price increasing from £1.1m to £3.9m.

Otherwise, Norway has reached an agreement over pensions claims with its oilworkers, preventing the country’s resource industry to shut down. Important fact in this regard, the government can actually force these worker, who count as the country’s top earners back to work. Norway is the world’s eight largest exporter of oil and the 16-day strike over lowering the retirement age from 65 to 62 cost the country more than $500m. Meanwhile in Iran, which ranks number four in terms of oil global reserves, oil production has fallen to a 20-year low in response to international sanctions. It’s all a bit messy.

So much for today, let’s hope tomorrow has more new news…

So long.

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More bad data, more LIE-bor, more EU “solutions”

There’s nothing worse than having the new week continue in the exact same fashion as the last one… more bad economic data, more EU meetings and more Libor questioning, but here we go.

Chinese inflation sank to 2.2% in June – that’s a reduction of 0.8% since May and the lowest inflation has been in 29 months. That is bad news for Friday’s release of Q2 GDP data, which could show that China’s economy grew less than expected. read article

The Eurogroup is meeting in Brussels this afternoon and even a Greek representative will make it this time. The meeting itself is as likely to lead to the same well known EU-press-fluff as it always does. There might also be discussion of a pan-European banking surveillance authority for the 25 largest financial institutions, the urgency of which is clearly related to the Libor scandal (see below). Meanwhile, Spanish yields are steady above 7% and Italy has requested structural aid from the IMF to reform its tax policies.

An invisible financial wall, potentially as dangerous as the Iron Curtain that once divided eastern and western Europe, is slowly going up inside the euro area,

says Reuters. Thanks for the panic and the nice analogy. read article

Friday’s US job data was worse than expected, with 80,000 jobs added in the month of June, as opposed to 100,000 as expected by analysts. This is the fourth month in a row that the actual data comes in lower than forecasts. Also, earnings season is about to kick off, with expectations set comfortably low due to the obvious.

In the Libor scandal, Paul Tucker of the Bank of England will be facing questions by the Treasury select committee, much like Bob Diamond on Friday. In response to the manipulation scandal, Michel Barnier, EU commissioner for internal market and services, wants to criminalize said manipulations in the new market abuse regulation. One very brave (or delusional) FT reader sent a letter arguing in favor of the manipulation for the financial system’s sakeread letter

Airbus and Boeing are pressing their common suppliers to merge to strengthen the supply chain and secure meeting their 2012 production target forecast of 40% combined growth. That takes the concept of duopoly to a whole new level…

South Sudan is marking one year of existence today. Unfortunately, the whole independence thing is not going so well yet… read article

And finally, Nobel prize-winner Daniel Kahneman talks to the Guardian about “his pessimistic mother, the delusion of investment bankers and the need for irony.” read article

So long.

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