Death Star Economics



Greece contracts in a good way, Japan grows in a bad way

GDP digest:

The advanced reading of Greek Q2 GDP shows a 6.2% year-on-year contraction – and that’s the good news. The general consensus had been around -7%, so this is not only beating expectations but also the Q1 reading. Go Greece. Hm.

The other GDP announcement came from Japan, where economic growth slowed down to 1.4%. That is 4.1% less than the revised GDP growth of Q1 and around 1% below various forecast. Collectively, Asian indices went tumblingread article

Meanwhile, Spanish 10-year yields hit 6.91% and Mariano Rajoy is presumably busy preparing for that bailout request phone call. Also, the Philadelphia Fed has lowered its prediction of Q3 US GDP from 2.5% to 1.6%.

Otherwise, Francois Hollande is celebrating 100 days in office, though the celebration is somewhat tainted by all the sentiment polls showing that he’s doing pretty mauvaisread article

Google-owned Motorola Mobility is looking to cut 20% of its workforce, which amounts to about 4,000 employees, including 40% of its vice presidents.

Earlier the New York Times reported Google’s plan and said it was looking to shrink operations in Asia and India, by not just exiting unprofitable markets but also stopping asking low-end devices and focusing on a few cellphones instead of dozens. read article

Mitt Romney announced Ayn Rand-fanatic Paul Ryan as his choice of vice president on Sunday morning; Jerry Seib, bureau chief of the Wall Street Journal in DC, looks into his economic beliefsread article

So long.


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When Asia slows down and Europe explodes

The week of anticipation has come to an end with China announcing Q2 GDP figures early this morning. The country’s economy grew by 7.6%, which is less than the 7.7% expected outcome, but still above the country’s economic target of 7.5%. Yet, this is the slowest growth China has seen since 2009 and it is probably paving the way to some QE.

Staying in Asia, Japan said it was expecting healthy GDP growth and to put the idea of quantitative easing on ice for a while. Meanwhile, things are seriously going up and down in Singapore. The country’s economy expanded by a ridiculous 9.4% in Q1, just to contract by 1.1% in the second quarter of the year. Overall, that puts the annual GDP forecast of 2012 to 1.9%. The contraction is mostly being ascribed to the low import demand from Europe. The bottom line: Asia continues its decline, or rather, it’s sluggish existence. Shut up, Japan.

Moody’s has downgraded Italy to two notches above junk, something the EU has called “inappropriate” in terms of timing and the country’s yields jumped back above 6%. Bank of America’s research has taken some game theory to the problem that is the eurozone and concluded that in terms of exits, Italy would leave BEFORE Greece does anything… read article

JP Morgan announced its earnings today; the expected $2.2bn loss due to the London-whale-trading-loss-situation was officially bumped up to $4bn against $5bn in income in Q2. Ouch. read article

Speaking of banks, Morgan Stanley estimates that the banks connected to the Libor rate-fixing scandal could pay as much as a combined $22bn in fines, while the Washington Post is throwing gems like this at us: an email from Timothy Geithner to Sir Mervyn King with a pdf attachment to reform Libor with reporting requirements. read article

Finally, Transparency International has ranked the 105 largest corporations by, well, transparency… view graphic

Have a good weekend!

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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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Spain is down on its knees, but not officially.

Today seems slow as everyone is still rolling around in the news that came out of China and the US yesterday. Essentially, it’s the same issues as always in the headlines: the push for eurobonds, Merkel’s stubbornness, downgrades and negative forecasts.What else is new?

Well, maybe this: Reuters brings us an exclusive saying that Spain will officially ask for an aid package as “early” as tomorrow. The ‘tomorrow’ bit being the actual news. Both in Madrid and Brussels officials deny ever having spoken of a bailout. A guessing-game that’s left to play is just how much money the EU will pump into Spain’s financial system. The IMF estimated €40bn to be necessary to recapitalize all the banks, Fitch, which just downgraded Spain to BBB with negative outlook, says it would rather be €60-100bn. So there’s that. It also remains to be seen which fund the money would be coming from. The ESM, which will only be fully implemented by July, seems like the better option, because its rule framework is more flexible. But because of the implementation delay, the funding could come out of the EFSF, which requires unanimous consent before throwing money at someone. Hmm. Difficult.

Germany’s response was something along the lines of “Sure we’ll help, we’d never let a man down. But, y’know, we need you to beg first.” That’s kind of weird, because this ‘begging’ also includes agreeing to EU-imposed austerity measures. But because a Spanish bailout would only regard the banking system and not the whole country (sort of), the requirements attached to the agreement would be less harsh as well, yielding the term ‘bailout lite‘.

The most obscure thing in today’s news, however, is probably this: Jean-Claude Juncker, prime minister of Luxembourg and currently still head of the Eurogroup, said the following in an interview with the Times (or for anyone with a Times subscription, read here):

I have always believed that, in spite of occasional bitterness, the European Union without Britain is no longer the European Union. For strictly national reasons and not out of any continental romanticism, the United Kingdom will become a member of the eurozone.

Excuse me? Continental romanticism? Occasional bitterness? The Brits don’t even believe that they’re geographically part of Europe!

And then there was the catfight on Greek TV yesterday, ending up with the spokesperson of the extremist Golden Dawn party being arrested for attacking two members of parliament (one with water, one with fists). read article/watch video

As for some weekend reading:

– the Economist on the human cost of India’s slowing growth read article

– Adam Smith‘s thoughts on income inequality in the Boston Review read article

– Gillian Tett tackling existentialism in her most bizarrely titled article yet in today’s FT read article

– a pro-inflation infomercial from 1933 America watch video

– how well Iceland is doing post-2008-implosion that the UK and the Netherlands paid for (mostly) read article

– and finally, what we can learn from the breakup of the ruble-zone twenty years ago read article

Have a good weekend!

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How austerity became the root of all evil

Francois Hollande won the presidential election in France with 51.6% of the votes and is currently bracing himself to meet Angela Merkel – a meeting that promises to be quite awkward. It will take the austerity vs growth debate that Europe’s newspapers are repeating since the beginning of the year to another level (see Jeffrey Sachs article below). But even though Hollande wants to fight the Greek fight against austerity,he too will have to manage a budget. According to Reuters28% of France’ national income flows towards welfare, which is more than in any other Western nation. Maybe it’s time to introduce a buzzword like ‘sustainability‘ to the debate.

In Greece (I legitimately just wrote ‘Freece’), the confusion starts on a much more fundamental level, with the actual outcome of the vote. Antonis Samaras’ New Democracy party did get the biggest share of votes, but couldn’t find a playmate to form a coalition with. So that failed. Next in line was Synaspismos, radical left wing party led by 37-year old (!) Alexis Tsipras, which came in second. But Tsipras doesn’t believe in bailouts, which alienated the communist party and ruined his chance to build a left wing coalition. After Synaspismos, which is expected to fail at forming a government within the next few days, PASOK, the socialist party, is up to try its luckread article

The bottom line is, Greece will have to hold new elections, possibly on June 17. On the one hand, that’s good, because at least nobody can renegotiate the fiscal agreements with the EU until then. On the other hand, it’s bad, because nobody can negotiate new agreements with the EU until then. Your pickread article

Jeffrey Sachs, smart man and economist, seems to be annoyed with the whole austerity debate mentioned above, and gives a very basic lesson in economics to explain the on-going discussion among European politicians. read article

Meanwhile, Spain has decided to back Bankia SA, conglomerate of regional banks, established just about 1.5 years ago, with €7-10bn. As so much of Spain’s banking problem, Bankia’s issues are related to the country’s real estate bubbleWSJ reports that the government is also working on a program that lets banks write off their bas real estate assets.

Again, it looks like things will get worse before they get better.

Before all this happened, last week Thursday, Jacques Delors, Javier SolanaUlrich Beck and Daniel Cohn-Bendit, a bunch of politicians/academics formerly, currently or conceptually involved with the EU, wrote an open letter to the Guardian. The letter is a call for a more social Europe, a Europe of the people that doesn’t rely on elitism and technocrats; it doesn’t use the words ‘austerity’ or ‘bailout’. One sentence reads

No progressive thinker – from Jean-Jacques Rousseau to Juergen Habermas – ever wanted democracy to consist merely of being able to periodically vote.

And this is coming from a politician whose very title reads ‘representative’ (Javier Solana is EU High Representative of Common Foreign and Security Policy). So what’s it going to be then, eh? Is this a call for direct democracy? In a 27-nation union?? In the end, this letter is worth reading, if only to disagree with it. read article

So long.

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The Spanish explosion (cont’d): ARRIBAAAAAAAA…

In Spainyouth unemployment has risen to 52%, says Markit, which represents around 1 million people, or something like half of 16-24 year olds. General unemployment measures 5.4 million, which accounts for 1 in 4 being out of work. That’s pretty depressing; here are some charts.

And that’s not all, S&P played the downgrade game again, cutting Spain to BBB+. But remember, Spain doesn’t need help… Here’s the FT’s Peter Spiegel discussing whether [market] fears concern the break with EU-imposed budget targets or the eventual agreement to comply with themread article

Loads of confusing things are happening in the Netherlands: after the Dutch government collapsed in all its glory over the last weekend, when Geert Wilders refused to back proposed budget cuts, everything seems to have calmed down last night. The EU had set a deadline for the country to work out a budget deal for Monday; last night, word got out that the GreenLeft party had backed the planCuts will include freezing public servants’ salaries for the coming two years, a 2% increase in VAThigher taxes on alcohol, tobacco, soft drinks and gas, less tax deductions and various cuts in the healthcare sector. read article

Meanwhile, the German newspaper Die Welt says that if Merkel and Hollande would continue their game of chickenthat will mark the [continued beginning of the] end of the eurozone. On the one hand that would take about 80% of topics I write about away, but at least we’d get some peace and quiet around here.

Indeed, I’m getting fed up with Europe once again, so let’s have a look at the US, where GDP data for Q1 2012 will be released any minute now. Expected is proper actual growth in January and February, and a less awesome March. Haven’t we seen that before? Yes, we have.

The Atlantic discusses fairness and taxes, not exactly a new topic, asking whose taxes should actually be raisedfirst when placing so much value on fairness. read article

Complimentary graph from the Economist: if tax cuts are meant to encourage growth, then why is it that strong growth and high taxes seem to go hand in hand?

Have a good weekend.

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Political power balances to infinity and beyond

There won’t be a news brief tomorrow, Wednesday, 18 April 2012.

Jim Yong Kim will become the new president of the World Bank. While commentators are annoyed with the US-European power balance in the bank and the fund (the IMF, that is), the other contenders, Nigerian finance minister Ngozi Okonjo-Iweala and Colombian finance minister Jose Antonio Ocampo seem to be pretty happy with how far they got. It clearly is not about winning… read article

Hungary‘s prime minister Viktor Orban has nominated Janos Ader for the office of the president. Former president Pal Schmitt resigned on 2 April. Fun fact about Schmitt: he is a two-time Olympic fencing champion. Hungary requested financial support from the troika in Decemberread article

UK inflation rose in March on the back of increasing clothing and food prices and the fear of drought that I already ridiculed yesterday (hands up who got rained on this morning). Back to £1 cucumbers it is. read article

Re: yesterday‘s ECB banter:

The [German] empire struck back, saying this:

It is the core belief of the federal government… that the role and office of the ECB be independent of encouragement and assistance from politics. And that’s well known in Paris.


Last night before leaving my office, I did a quick news search on Angela Merkel and stumbled upon this: an online auction for her first West German car. Bizarre. read article

Also, here’s why Amartya Sen is disappointed in all of usread article

And finally, an obscure family tale around corruption, murder and a red Ferrari:  a case study of what to avoid when you study abroad while your parents are Chinese government officials. read article

So long.

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Europe gets stuck in philosophy

It’s a terribly slow news day today, nothing is blowing up, no summits are being held and no presidents leave or enter office. Hmpf.

Ireland is looking at tax increases totalling €400m to meet its 2012 deficit targets. It is unclear if the countries corporate tax rate, which is one of the lowest in Europe and the lowest of the eurozone, will be touched by the new austerity measures, though many advocate that it should be. The Irish economy is expected to grow 0.5% this year. read article

Meanwhile, a philosophic debate about the legitimacy of austerity measures seems to be arising among other European nations. Italy’s industry minister Corrado Passera proclaimed that cuts won’t help Europe grow its way out of the crisis; this is backed by Christine Lagarde of the IMF, who called for more business friendly policies in the EU, where regulators are going wild at the moment. Others, most notably Germany, are holding on to strict budget plans to meet the deficit targets imposed by the new EU fiscal pact. Back, forth, back, forth… read article

More euro-philosophy in Reuters analysisread article

By the way, Greece is still dealing with those bondholders who refuse to take a 800% haircut (no, this is not the actual number…). Yesterday, Dutch bank ABN Amro decided to reject the deal last minute. The bank holds €1.3bn of Greek debt. Another deadline for bondholders to decide whether they will participate in the notorious bond swap is tonight, 8 pm GMT. read article

Do you remember people saying Occupy London [or Cardiff…] won’t have an impact? (Hint: I was one of those people.) Well, they were wrong. While the happy campers living in front of St Paul’s, sales of local shops and cafes slumped, some say by 40-50%. Well done. And for the police to look at the whole thing, more than £900,000 [of innocent tax payers’ money] was spent. The Finsbury Park camp side has already cost £10,000 in surveillanceread article

The Economist on the pursuit of happiness money: a graphic on whether striving for wealth [and saying so] is okay in your countryread article

So long.

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It’s budget day!

The Daily News Brief is going on a short spring holiday and will be back at the end of next week!

So it’s budget day in sunny Britain. The day George Osborne takes his little red lunch box to work and talks business. The plan is, unsurprisingly, to stimulate growth, get rid of that deficit and make everybody better off. Unfortunately, it’s not the thought that counts. An increase in real estate tax (stamp duty) is expected, as well as adecrease of corporate tax to 24% and the cut of top tax rate from 50% to 45%. So far, the UK public borrowing decreased by around £9bn from 2010/2011; however, public debt in February was up by around £6bn from last year. Hmm. read article

Update: The most important thing has already been said:

It’s the determined policy of this government that we keep Wallace and Gromit exactly where they are.”

(regarding film tax credit)

Occupy London is still around, even after the protesters have been evicted from their holy camping grounds around St Paul’s. Here’s their statement (from the FT’s budget live blog):

In the shadow of Canary Wharf, set along the path of workers from the local financial services industry, Occupy Limehouse (corner of Branch Road and Horseferry Road, E14) has been chosen as an ideal location from which to carry on the Occupy movement’s critique of global capital. It is the first of a number of new autonomous tented sites expected to pop up around the capital in the coming months.

always thought Limehouse needed to be gentrified

How do we feel about journalists being paid for giving speeches at events of banks and all other financial institutions of the rainbow? read article

And finally, the case for philosophy in finance and why the UN should be more like a trading floor.

So long.

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Oh look, a new president!

Joachim Gauck, self-proclaimed “left-leaning liberal conservative” (whatever that means…) has now officially been named the new president of Germany. Hopes are high that he will restore the dignity of the office of the president, i.e. not denounce the war in Afghanistan (Koehler) or borrow money from dodgy friends (Wulff). Two is a trends, three is a collection: who wants to make a bet on how long this one will lastread article 

But despite the recent abundance of presidents, we all know that Germany is doing pretty well. But wei are zey so suxessful? Because of Max Weber and the protestant work ethic. And what’s best about it, you don’t really need to be protestant for it… read article

Lucas Papademos is trying to push through the Greece crisis by intense positive scanning: he told the FT in an interview that it would be less than two years until the country’s economy would grow again and praised the EU-rubber-stamped austerity measures as the best idea so far. That’s a bit of a new, unexpected and somewhat delusional vibe, isn’t it? read article

Otherwise, UPS bought Dutch delivery service TNT for €5.2bn and the UK is considering to privatize its roads. Privatize ahead, says I. Scrape it off the budget and let’s hope for better infrastructure! [side note: I am yet to actually drive a car in the UK, so maybe I should hold off on that opinion.]

And finally, included because of the title: “Gas Prices: The Kim Kardashian of Inflation

So long.

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