Death Star Economics



Italian elections: the morning after the morning after

As expected, center-left Pier Luigi Bersani is looking to form a minority government to lead Italy out of its post-election stalemate misery. A minority government with whom, you wonder? Well, Bersani asked for everyone’s support to curb austerity and promote job creation. Meanwhile, Mario Monti, who definitely lost the election, is considering leaving a €3.9bn bailout of Banca Monte dei Paschi di Siena be until the new administration is in place. Someone’s had enough. read article

Unfortunately for Italy, the country will try to sell €6.5bn worth of debt today.

Over in Brusselsnervous voices get louder with regard to the ECB, formerly known to do whatever it takes to save the euro for the Europeans through its OMT program. With Italy so obviously against austerity measures, future budget cuts that could be conditional for help from the ECB seem out of the questionread article

When addressing the Senate Banking Committee yesterday, Ben Bernanke advocated the Fed’s current course on monetary policy, saying the risks were clearly outweighed and investors should be encouraged by fair values and high corporate earnings. read article

J.P. Morgan is planning to fire up to 17,000 people, 6.5% of its staff, over the next two years in an effort to reduce costs by $1bn.annually. Most cuts will take place in 2014 in the bank’s mortgage groupread article

In other news, Visa and Samsung have struck a deal to advance mobile payments through Visa’s payWave software, and Chuck Hagel‘s nomination to US Secretary of Defense has been passed by the Senate. read article

So long.


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Italian elections – Berlusconi with a vengeance

Italy is left in limbo without a conclusive election result, probably another round of elections looming, preceded by an embarrassing attempt by [presumably] Pier Luigi Bersani to form a coalition, and a full re-appearance of Silvio Berlusconi on the political stage (in the Senate). But despite the obvious screw-up that this election seems to be, there are clear winners and losers: Mario Monti, in the rational corner, plays the role of the latter. Beppe Grillo, anti-euro comedian in the ridiculous corner, came out heading the largest single party in the country’s lower house. Winner. Inconclusive is only one way of putting it, although I guess we can gather that the Italian people generally have an issue with austerity measures. Let the name-calling begin. read article

Just in: Bersani will hold a press conference at 5pm CET in Rome.

Summarizing some reactions:

Notably, the European markets display alarming symptoms of contagion: Italian elections drove up yields in Spain, Portugal, Greece and Ireland, and pulled down yields in Germany, France, the Netherlands, Austria and Finland.

Meanwhile, everything Italian that can be bought or rather sold is about to be subject to a short-selling ban. Elsewhere, US stocks fell the most since November of last year, with the volatility index at its 2013 record high.

But there are a couple of other things quietly happening in the background. The Japanese government will sell a third of its 50+% stake in Japan Tobacco, the third largest tobacco company and formerly a Japanese monopoly. The sale comes as part of policies to reduce stakes in state-backed companies to raise funds for this economic recovery that’s taking so long. read article

Over in the Netherlands, Rabobank, commonly clean slate poster-child bank, one of the safest institutions and bailout-free, is looking at a $440m+ in fines for involvement in the Libor rate rigging scandal. The fine could come as early as May. read article

Back in New York at Moody’s, it seems like lessons have been learned since 2008. The rating agency announced that any mortgage-backed securities can’t receive top ratings any longer. Aa is the new Aaa. Other agencies are expected to follow suit. read article

So long.

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The sequester is back, as is Europe’s political madness

In the US, the chaos that is the national budget and the cuts thereof is picking up in newsworthiness again. Yesterday, President Obama tried to guilt Republicans into agreeing with his proposal, which didn’t achieve all that much. New estimates say the sequester could chop 0.5% off this year’s GDP and destroy 700,000 jobs. Others say that besides the overall effect, the demand side won’t feel the $85bn spending cuts. read article

Something that won’t suffer cuts is medical research, generally a positive thing, with the billion dollar research project Brain Activity Map (BAM), the first neurological project of its kind, starting in a couple of weeks. read article

As of today, Bulgaria is without government, after the country protested against austerity measures, utility prices and corruption. In next steps, a caretaker government will be formed, before official elections sometime in Springread article

In other European news, Italy’s center-left Democrats are trying to build a coalition government with Mario Monti to fight the good fight against Berlusconi, while Mariano Rajoy of Spain said the Spanish economy was seeing “no green shots or recovery in any shape or form.

Also from Spain, the government is imposing a yield limit on regional government bonds to combat the country’s overall debt burden. The new limit will be set at 100 basis point above government debt, a benchmark that Catalonia has long passed. read article

In other news, Microsoft has abandoned Hotmail, phasing out the emailing service by this summer. All 350 million users (seriously, who still uses Hotmail??) will be moved to, which already has 60 million users of its own. 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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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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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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What goes around, comes around: a tale of repayments

The much discussed fine that was looming for HSBC after the bank engaged in business from sanctioned Iran and Mexican drug cartels hit the record amount of $1.92bn. As part of the verdict, HSBC has to increase its internal operational controls and keep a clean slate for the next five years. On the record, it says the bank violated the Bank Secrecy Act, the Trading with the Enemy Act and other US money laundering laws. read article

Northern Rock Asset Management, which is the very bank that collapsed and got nationalized in 2008 and got renamed as the aforementioned following the restructuring, said it would repay £270m of outstanding interest payments to its former customers. Well, thanks, Northern Rock, but there’s still that outstanding bill of £19.6bn in government fundingread article

Other firms that received bailouts are doing even better: The US Treasury is about to sell its last chunk if AIG shares. Although the price for the offering wasn’t disclosed, it could amount to more than $7.6bn at a share price of $32.50. In September, the US Treasury reported profits amounting to more than $150m from the re-sale of AIG holdings. The bailout of the insurer continues to be criticized from Ben Bernanke as well as President Obama. read article

Bernanke and the rest of the Fed are kicking of their last round of policy meetings before year-end. Meetings will take place today and tomorrow. According to a Bloomberg survey, the Fed is expected to announce additional monthly asset purchases worth $45bn. $40bn alone, would be dedicated to the purchase of mortgage bonds. read article

The most exciting news out of Europe are that Mario Montiwho just announced to step down and lead Italy faster to the next general election that expected, may well run for his current position again. This time, however, he would be elected, not appointed. It seems like a lot of effort to make a point for the sake of principle, but I guess if an Italian politician wants to do things right, one should just let them go for it. read articleSo long.

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Monti set to resign, new stance on global internet regulation

On Saturday, Italy has crawled back to the center of attention of the eurozone blow-up. Mario Monti, the country’s unelected prime minister, announced his intended resignation following the approval of the Italy’s 2013 budgetThe FT summarizes:

The 2013 budget law is expected to receive parliamentary approval before the Christmas recess. Whether parliament is dissolved immediately and Italy heads into snap elections in early February – rather than in March or April as had been expected – depends on Mr Napolitano. The president could decide instead to ask for a vote of confidence in the government and appoint a provisional prime minister who would oversee the passage of key economic reform legislation still before parliament.

Last week Thursday, the Italian parliament faced turmoil, after Berlusconi’s party walked out of a vote on fiscal matters. Since then, rumors got louder that Silvio Berlusconi will try to return to office. He is currently being charged for relations with an underage prostitute and abuse of power (possibly related, but two court cases). In Italy, all legal charges are put on hold if an individual is running for a public office. Berlusconi had been convicted to four years imprisonment for tax fraud in October 2012, which was later reduced to one year and then to the prohibition from ever running for office again. Clearly, that has not worked out so well. But the left ranks before Berlusconi’s People of Freedom party in the polls. The Wall Street Journal spoke to Pier Luigi Bersanti, the current favorite according to said polls. read article

Japan is finding itself back in recession, after Q2 GDP was revised down from 0.1% growth to -0.1% (annualized and seasonally adjusted). Shinzo Abe, who is leading the opposition in the election on Sunday, wants unlimited monetary easing and more stimulus until the economy gets back on track. Expectations, however, point at another quarter of negative growth for the end of the year. read article

Meanwhile in Dubai, the Arab state delegation, supported by Russia and China, have proposed a

new regulatory framework for the internet. The opposition, simply put the Western world, is strongly in favor of the current regulation, which doesn’t regulate so much. read article

American and British financial regulators are working on a blueprint on how to deal with failing banks, or more specifically, failing G-SIFIs (global systemically important financial institutions). Once agreed, the new regime is meant to protect tax payers on either side of the Atlantic, while drawing on creditors and shareholders. read article

According to this Sunday’s New York Times Bloomberg is looking into buying the Financial Times, which also includes a 50% stake in The Economist. The other possible bidder is, of course, Thomson Reuters. The Financial Times Group is estimated to be worth around $1.2bnread article

So long.

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Berlusconi creeps back, Citi cuts 11,000 jobs

This morning, Italy’s government was shaking once again, when the Italian upper house voted on Monti’s economic growth package. But Mario Monti prevailed despite Berlusconi’s People of Freedom party walking out on the vote. Italy’s next election is scheduled for March, and Berlusconi has suggested his return again and again. read article

After yesterday’s Autumn Statement, which can probably be summarized as pushing around money in little proactive fashion, the UK’s credit rating is in more danger than it was before. In March, Fitch had put the country on ‘negative outlook‘. But when George Osborne neither announced substantial tax increases nor spending cuts yesterday, the agency concluded that Britain’s way of dealing with its public finances was reason to worry – more. read article

Speaking of rating issues: after Greece announced to buy €10bn of its debt back (estimated to be 32-34 cent on the euro), S&P has reduced the country’s credit grade to ‘stubborn selective default‘.

When Vikram Pandit left his position as CEO of Citigroup, everybody denied that there had been tensions in the bank’s senior management. The 180-degree-turn of the company’s strategy says something quite opposite. Last week, there was the modest announcement that 150 jobs would be cut. Last night, the number of overall job cuts within the company rose to 11,000, more than double of what Pandit had had in mind. According to Fortune Magazine, Citi employed 266,000 people this year. read article

Other news are almost exclusively legal issues: HSBC’s fine for that Mexican money laundering incident could rise to up to $1.8bn, while Standard Chartered has to pay an additional $330m for breaching Iranian sanctions. The bank has already paid $340m in August.

But the gossip of the day comes from Deutsche Bank, which failed to, or chose not, or accidentally didn’t report losses of up to $12bn between 2007 and 2009. So far, it seems like that might have been a good thing. Thanks to Deutsche’s ‘don’t ask don’t tell’ policy, the bank may have avoided a government bailout. Suspiciously, the whistle-blowers are three former employees of the company, and if 2012 has taught us anything it is to take those things with a bucket of salt. 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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