Death Star Economics



OMG, Japan is actually growing

US jobless claims came in higher than expected and housing data disappointed as well, raining on the American recovery 2013 parade and adding to the uncertainty over the future of the Fed‘s asset purchasing program. read New York Times
At the same time, those with disposable income seem to be working on a new housing bubble of sorts. read Bloomberg

Japan reported its economy grew in the first quarter of the year, leading to a 3.5% annualized growth leap and supporting Shinzo Abe’s approach since his inauguration in September. Most of the growth is attributed to private consumption. read Bloomberg

Meanwhile, Japanese companies prefer to look for opportunities elsewhere, for example the US, where a handful of corporates bought into the US shale gas market for several billion dollar. read Financial Times

Following the Bloomberg user data debacle, Citigroup has banned its fixed income traders from participating in Bloomberg chat groups to shield the banks from any security breaches. read Financial Times

This morning…
Lloyds Banking Group might just be short of fully returning into private sector hands, as the bank’s shares rose higher than the government’s cut-off point for a sale of 61.2 pence per share. Over the past weeks, David Cameron had reiterated that bailed out and partly nationalized institution shouldn’t stay government owned for longer than needed. read Reuters

Word got out that Qatar spent up to $3bn on supporting the Syrian opposition since 2011, the same year in which Libya’s rebels also received support, fueling rivalry over political influence between Arab countries. read Financial Times

Other than that, there is not much going on, time to get on the below.

Weekend reading…

Bangladesh, globalization and the price of your t-shirts, read New York Times
– from pork bellies to ruling the world – a brief history of the Chicago Mercantile Exchange, read Economist
gold bulls vs bears, read Alphaville
– Super Abe and the fight for a prosperous Japan, read Economist leader
– on the uselessness of asset management, read Harvard Business Review

Have a good one.


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US payrolls estimate up; Twitter IPO rumors back

the ECB shook up Europe for a moment, with government debt yields falling to new lows under the soothing sound of disgruntled murmuring Germans. The ECB is ready for more [again], it says, but Germans on the policy committee are going to do everything to keep rates from tumbling. In ze mozerland, Economists are scared of a real estate bubble and argue that banks could use the freshly pressed money to bolster their equity capital, dragging the effect away from the real economy. read FT read Die Zeit

This morning…
The EU deficit report came out, showing that France, Spain and the Netherlands will breach deficit agreements, limiting countries to 3%. Italy got in just below at 2.9% (based on 2013 forecast). Because France and the Netherlands aren’t the real bad guys, and you can’t leave one standing alone in the rain (unless it’s Greece), all of them are expected to receive extensions for reaching their deficit goals. France got its waiver this morning. read FT read Reuters

Its jobs Friday in the US: nonfarm payrolls are seen up at 148,000 (almost double), with the unemployment rate unchanged at 7.6%. But stakes are high as the estimates vary within a range of 90,000 jobs added. March payrolls came in below estimates, for example, but jobless claims have been declining over the past weeks. After the jobs report, there will be April non-manufacturing PMI, which is expected to fall slightly to 54. Data releases begin at 8.30am EST. read WSJ

In the background, rumors of Twitter’s IPO are going wild after the company hired Morgan Stanley’s Cynthia Gaylor for corporate development, despite co-founder Jack Dorsey saying he was “not even thinking” about going public. read Bloomberg read Bloomberg (Dorsey)

On Monday, the UK will be out for the early May bank holiday.

Weekend reading…IvyConnect: is a ‘fascinating individual’ necessarily a douchebag? read Bloomberg
– the real culprits behind the Libor scandal are London broker nights, read WSJ
– ze Germans are gestuck with the Euro, read Bloomberg
– stripped off the alter ego: ex-Barclays CEO Bob Diamond takes the subway now, read NYTimes
– terrorism, conspiracy and the media, read New York Magazine

Have a good one.

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US housing improving, Europe worsening as a whole

Over the long weekend…Starting positive, the US saw the release of some positive housing data, the “highest level of home building in more than four years”, while factory activity declined. read article

In Europe on the other hand, manufacturing went down down down across the board, yes, even Germany. According to Reuters, Cyprus is not the culprit. Maybe March was an outlier and the global recovery is still going strong *cough*. Other European data showed a steady 12% seasonally adjusted unemployment rate for the eurozone in Feburary. For the entire union, this number increased by 0.1% to 10.9%.

It’s only been a week and Cyprus, clearly coached by Greece, has already managed to have its bailout terms eased. The Wall Street Journal got hold of a document showing that the country will have until 2017 ( as opposed to 2016) to reach a 4% budget surplus. As for the capital controls put in place to prevent a bank run after tellers were open for business again on Thursday, may last for more than a week, according to Cyprus central bank governor Panicos Demetriades (see below).

Another country shifting around on the brink of collapse, Argentina, is trying to impress (read distract) its loyal (read angry) bondholders with a new deal: instead of discussing the repayment of old bonds per se, new bonds (different for retail and institutional investors) could be issued and paid off in about 25 years. Where do I sign, that sounds like a great idea. read article

This morning…
The week ahead looks quiet yet depressing, at least if you’re in Europe, but I will spend as much time as possible laughing about Demetriades first name PANICos.

On Thursday will be central banking day, with the Bank of Japan, Bank of England and European Central Bank holding their policy meetings.

Finally, today marks the death of the FSA as we know it and the advent of the Financial Conduct Authority and the Prudential Regulation Authority. The former is an independent shop supervising more or less everybody in financial services (brokers, traders, secretaries, markets…), while the latter is part of the bank of England and will focus on 1,700 banks, insurers and investment firms. read article

Have a good week.

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Laiki depositors to lose up to 80%, Poland turns against euro

Yesterday…The Spanish central bank forecasts its economy to contract by 1.5% in 2013, while unemployment is seen to rise to close to 30%:

The economy will be marked by weak domestic demand, a fragile labor market and tight financial conditions, the bank said.” read article

Meanwhile in Poland, Prime Minister Donald Tusk is floating the idea of a euro referendum. The country has been pushing to join the foreign currency pretty much as long as it has existed – proximity to Germany would bring an additional trade advantage (despite the disadvantage for cheap manual labor). Anyway, now Poland is not so sure anymore. The political opposition claims the eurozone has changed too much since 2004, when the country joined, for a decisions to possibly still be valid. read article

The US economy must be improving, because it’s not getting worse. That was the idea of the morale following the data announcement of January home prices rising at the fastest rate since summer 2006 and an increasing demand for durable goods. read article

In other news, the Financial Times has found that the group of AAA-rated countries has decreased by 60% since 2007, and Warren Buffet will become one of Goldman Sachs’ ten biggest investors after exercising some warrants issued in 2008. read article

This morning…
Cyprus‘ central bank announced some details on the impending haircuts, saying uninsured deposits at Cyprus Popular Bank (Laiki) could be cut by 4/5th. The estimated 40% haircut seems to remain the benchmark for larger insured deposits. According to WSJ:

Based on estiamtes from government officials, the losses would affect some 19,000 deposit-holders at the Bank of Cyprus who, combined, hold some €8.01 billion in uninsured deposits. Uninsured savers at Cyprus Popular Bank, who hold a combined €3.2 billion, will lose most of that.

The Bank of England said British banks were facing a £25bn capital shortfall with regards to compliance with new banking standards. read article

So long.

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China curbs growth targets in light of social issues

There won’t be an update tomorrow, Wednesday March 6th.

News from China, where outgoing Prime Minister Wen Jiabao presented the country’s economic targets for 2013, including an unchanged GDP target of 7.5%, a lowered inflation target of 3.5% (down from 4%) and a budget deficit of RMB1.2tn, or 2% of GDPDefense spending will be boosted by 10.7%, a smaller increase than in any year since 1990. But the departing Premier also said that China’s growth model was unsustainable and on top of that paired with a whole array of social issues, like the income gap, increasing pollution and a real estate bubbleread article

Also in China, the SEC has been allowed to subpoena Deloitte’s China unit over accounting fraud at Chinese companies operating in the US. After initial co-operation between the American and Chinese securities regulators failed, this is a big step in terms of cross-border fraud investigations. read article

In other regulatory news, an undisclosed group of banks in the City of London have received a hat tip from law firm Shearman & Sterling that it was possible to fight the EU’s banker bonus cap [proposal] in courtread article 

Until then, enter George Osborne.

Otherwise, Apple’s stock fell to a new 52-week low yesterday, dragging the company’s market cap down below $400bn for the first time in over a year. 

So long.

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Happy new year, happy old problems

Welcome back to the party, folks.

It’s a new year and despite the problems largely being the same, this is a time of anticipation. 2013 still has potential to be the best year ever.

After all, both British and Chinese factories recorded better output in December and shipping company Maersk says trade between Europe and Asia is set to expandNorth Korea‘s leader Kim Jong-un has announced his intent to make peace with South Korea. Also, Oil cartel Opec recorded $1tn in net revenues in 2012, providing more money for Middle-Eastern sovereign wealth funds to invest in London real estate.

Against the odds (…), there was progress on the fiscal cliff on the New Year’s Eve day. Senate approved Obama’s solution package and the House of Representatives followed suit last night. The summary:

Boehner voted to enact “Obama’s tax cuts”, the new de facto Bush tax cuts (which expired yesterday), and which will raise the budget deficit over the next decade by $4 trillion, yet which at the same time paradoxically also hiked taxes on nearly three quarters of Americans with an emphasis on the wealthiest 1%.

Strictly speaking, we did fall off the cliff, but as Jan-1 doesn’t count as a real day, things just about worked out. Of course, the deal is a half-baked mess of even less baked compromises and is already calling for reform. But there’s no time for that, because the debt ceiling is next in line. It would like to get lifted.

In two months, the U.S. will face the need to increase its borrowing limit. Additionally, the delayed $110 billion in spending cuts will again kick in. read article

In Europe, French president Francois Hollande is holding on to the most recent tax hikes of 75% income tax on income above €1m. Besides ruining is popularity ratings, Hollande pledged to solve France’ massive unemployment issue, he said in his New Year’s address. read article

Which brings us to the negative side of thingsEurope is still burning, despite the current absence of drama, and output from the eurozone’s factories continues to slump, led by Germany. Maybe we could bailout all of European manufacturing. Or the ECB could buy all the output, drive production up and create a whole new wholesale market of manufactured goods. Brussels could use the agriculture policy as a blueprint.

In the background, Denmark is trying to contain a four-year old financial crisis of its own.Triggered by a real estate bubble that got Danish banks in trouble after 2008, Denmark now has to cut costs and increase welfare. Yes, INcrease. With the rest of Scandinavia just a Smørrebrød’s throw away, Denmark welfare needs to stay competitive. The Danish economy is expected to have contracted by 0.4% in 2012. read article

So long.

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Randomly assembled bad news: EU data, US QE and Japan as a whole

In Germanyunemployment rose for the eighth month in a row, now amounting to 6.9%. Nevertheless, the rate is still around the lowest it has been in two decades. Economic confidence is rising in the eurozone, while consumer confidence has stuck to the same negative mark over the past two months. read article

Later today, we’ll get the weekly jobless claims from the US, still impacted by Sandy, expected to fall under 400,000.

There, the Fed is likely to continue its bond-purchasing program to jump-start the economy in 2013, while fiscal cliff negotiations continue in the background. The latest gossip: Erskine Bowles, former chief of staff to Bill Clinton and co-chairman of the 2010 fiscal commission, said a deal was unlikely to by struck before the end of the year.

In Japanconsumer spending shrunk the most (5.8%) in almost a year in October, with drops in TV and car sales. Some of Japan’s largest tech companies, Sony and Panasonic, have announced reductions of employee numbers and both recorded losses in Q3. read article

HSBC, which decided to abandon its Japanese retail banking business this year, is looking to do the same in South Korea. Since the 1990s, HSBC has tried to set foot in Korea, first with the attempted purchase of SeoulBank in 1999, then with a takeover bid for Korea First bank in 2005 (now owned by Standard Chartered) and finally with a $6bn bid for Korea Exchange Bank in 2008 that was renounced. read article

Argentina won its appeal case against having to pay $1.33bn to its bondholders by December 15. A new repayment strategy has to be agreed on in early 2013read article

The IMF called Kabul Bank a Ponzi scheme yesterday, after a group of individuals smuggled almost $1bn out of the country, sometimes in food trays of airplanes, to buy property in Dubai. Kabul Bank collapsed in 2010 and its bailout amounted to what was worth 5-6% of Afghanistan’s GDP. read article

So we have all these bad news, and just then, Bloomberg publishes survey results saying the world economy is in its best shape in 18 months, because China is likely to return to growth and the fiscal cliff is likely to be avoided… read article

So long.

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The housing market doesn’t care about the fiscal cliff

The pendulum of market-moving news has swung back to the US fiscal cliff. Not much has happened there since Greece was re-rescued, but somehow fear got the world in its grips. And what triggered the panic? Harry Reid, Senate Majority Leader, saying that there was little progress. Hang on, wasn’t there just as little progress last week? It’s like the news are recycling themselves. Either way, the wave of fear of the US falling into recession come 2013 depressed stocks all around the world.

If you want to believe the Wall Street Journal, however, the US economy should refocus on the housing market, which is blossoming in the background:

[…] an improving housing market is buoying consumers’ spirits and giving the economy its biggest lift since the real-estate boom. Macroeconomic Advisers projects the economy will grow at a 1.4% annual rate in the fourth quarter with housing contributing 0.4 percentage point. IHS Global Insight is projecting a 1% growth rate, with housing contributing 0.53 of a percentage point – the largest contribution since 2005.

And the best thing about it: so far the housing market doesn’t care about the fiscal cliff. Not like it won’t if America goes back into recession, but at this point things are still looking up. read article

The counter example are companies paying dividends, which are freaking out about the worst case scenario. Since October, US firms have paid out the largest amount of special dividends since 2010, to avoid the possibility of paying higher taxes come January. The current tax rate sits at 15% but could increase to 40% upon the expiration of Bush era tax cuts and – again – if no deal is struck on the whole fiscal cliff. read article

In European news, the EU approved the restructuring of four Spanish banks, Bankia, NCG Banco, Catalunya Banc and Banco di Valencia, the latter of which will be sold to CaixaBank. The remaining three will shrink their balance sheets by 60% until 2017. Upon the restructuring next month, the Spanish rescue fund FROB is eligible to receive another €100bnread article

The EU is also making it easier to sue rating agencies of sovereign debt for gross negligence in Europe in an attempt to manage the catastrophe that is the eurozone crisis. read article

So long.

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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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‘Sandy’ to cost $10-20bn in damages, Spain gets serious about bad bank

Wall Street‘s equities and fixed income markets remain closed today as well, leaving us with nothing but the news of Paul Krugman’s dead cat. The last time the stock exchange stayed shut for two days due to weather conditions was in 1888 Estimates say that Sandy could cost the US up to $55bn in damage repair. Catastrophe risk modeling company Eqecat forecasts damages to reach $10-20bn, with insured losses of $5-10bn.

Meanwhile, the Economist is looking at Sandy from the election angle, arguing that the storm could influence early voter turnout in favor of the Republicans, as Obama is more likely to rely on sporadic voters than Romney.

Disregarding the storm or state of catastrophe on America’s east coast, AMR, parent company of American Airlines, is planning to request $1.5bn in new bond financing in Bankruptcy Court. Except… the US Bankruptcy Court is in Manhattan and the scheduled hearing is unlikely to take place today. American Airlines filed for bankruptcy protection 11 months agoread article

In SpainGDP contracted yet another time in Q3, showing a decline of 0.3%. Overall, Spanish GDP is down 1.6% from 2011. But the Spanish government is preoccupied with setting up a bad bank, so bad, in fact, that it might be too big and bad to function. Spain’s rescue fund FROB said the new facility, called SAREB (Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria), was still looking for investment support from the private sector. It will hold foreclosed assets bought at a discount of 63% and developer loans at a discount of 43%. Spain’s nationalized banks will contribute €45bn to SAREB. Fernando Restoy, chairman of FROB, said the bad bank will be profitable and have a lifespan of 15 years, yielding at least 14-15% ROE. Good pitch, but do you really want to commit to a long-term business plan in Europe’s periphery right now? Maybe not. read article

Otherwise, German unemployment was at 6.9% in October, the by far lowest rate in Europe, rising by 20,000 claims, and the Bank of Japan did as expected and added another JPY10tn to its asset purchasing program.

China also threw some money at its economyinjecting CNY395bn ($63bn) into its banking system to ease a tax-induced credit squeeze. Corporate income taxes for Q3 are due to be paid tomorrow. In the background, Nissan is dissing China‘s sluggish growth. It’s understandable, the conflict between Japan and China is ruining Nissan’s third quarter earnings; sales fell by 35% in September alone.

So long.

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