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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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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Banker bonus debate: Why it’s always better to be Switzerland

After the EU’s policy proposal to cap banker bonuses last week, Switzerland voted in a referendum on a similar topic, regarding both [executive] salaries and bonuses. Surprisingly, the result leaned towards Brussels, with 68% voting in favor of new rules. On the one hand, that’s surprising because Switzerland is already losing business to places like Singapore that offer favorable tax rates to big multinationals like Trafigura, which could lead to a relocation of their headquarters. But on the other hand, the Swiss proposal gives more rights to shareholders and seems to encourage internal management of compensation as opposed to a blanket EU-one-will-fit-all-because-it-has-to policy (on the far side of the spectrum, Breakingviews suggests the introduction of tipping for services). read article 

On the same topic, George Osborne will launch a last lobbying effort on behalf of the City tomorrow, trying to mitigate the reach of the proposed rule to protect London’s financial district. Before that, the Eurogroup will begin meetings in Brussels today to discuss Cyprus’ bailout program.

Over in the USinvestors worry about the effect of new cuts and taxes on consumer spending, particularly in the light of a 3.6% slump in personal incomes in the beginning of the year weighing on household budgets. The government’s worries still lie with last week’s sequestationObama wants to get the issue resolved to move on to other policies, but Congress is currently just laughing in his faceread article

Elsewhere, China has pushed past the US and has become the world’s largest net oil importer, driven by America’s move into fracking and shale gas, as well as China’s rising demand for fuel. The analysis was derived from December data, when US net imports dropped to their lowest levels since 1992. read article

As for the week aheadJapan is poised to announce a current account deficit of JPY 768.5bn on Friday, according to ZeroHedge, which is the worst number ever recorded. Otherwise, all central banks of the rainbow are meeting this week, leaving plenty of room for statements on the currency wars.

Have a good week.

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Politics is about expectations: a referendum, taxes and inflation

Brace yourselves, it’s a Europe-heavy news day.

The big news of today is David Cameron’s EU speech, announcing a UK membership referendum sometime between now and 2017. Britons are applauding, while the rest of the EU is in a state of frustration. With the words of Laurent Fabius, Foreign Minister of tax hell France: “If you join a football club, you can’t say you want to play rugby.” Well, no. But was that what he was doing? Not really. Good analogy nonetheless. It set the tone for European politics this yearread article 

Eleven European countries (Germany, France, Italy, Spain, Austria, Portugal, Belgium, Estonia, Greece, Slovakia and Slovenia) have proceeded to drafting legislation for a financial transaction tax on the trading of stocks, bonds and derivatives. That sounds specific, but really isn’t, as Brussels hasn’t decided on specifics at all. So one of the best reasons not to go on a rant of the ineffectiveness of the policy that is meant to generate €57bn for various rescue vehicles, is that it might be stuck in parliaments across the continent for a while, despite its scheduled implementation of January 2014read article

In Israel, Benjamin Netanyahu has been re-elected, though not exactly by a landslide. In the sobering words of the BBC:

It was relief more than real jubilation. The simple truth was that the combined list of candidates headed by Prime Minister Benjamin Netanyahu had performed disappointingly. But politics is about expectations.

More analysis from Israel, here: read article

In Davos, where the World Economic Forum [attended by both Merkel and Cameron – awkward] has begun, Russian Deputy Prime Minister Arkady Dvorkovich has admitted that Russia’s perception abroad is bad for foreign investments and is holding the country back. watch video

Overseas news bring us the policy decision of the Bank of Japan, which is braced to do what new PM Abe talked about all January: pump money in the economy to meet the 2% inflation target. In fact, Japan has never had a firm inflation target like that, so you’d expect it to be big news. Yet, nobody, from analysts to the IMF’s Christine Lagarde, seems overly impressedread article

In the background, Deutsche Bank has to simulate a breakup of its consumer and investment banking units. read article

So long.

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More bank scandals, more economic trauma

Wherever you look, today’s favorite scandal is still Barclays, mostly because CEO Bob Diamond said he would reveal “potentially embarrassing details about Barclays’ dealings with regulators if he comes under fire at a parliamentary hearing on Wednesday.” I’m thinking party pictures and strippers. Next thing you know, Diamond quits, effective immediately. Bloomberg’s Nick Dunbar already dubbed him the Republican candidate for 2016.

But speaking of manipulative banks… JP Morgan has been subpoenaed twice in the past couple of weeks because they may or may not have inflated electricity prices in the USread article

Since yesterday’s atrociously bad ISM data, showing the rapid decline of the American industrial manufacturing sector, today continues in the same fashion. British construction activity fell to its lowest levels since December 2009, aka that really bad year, last month. Overall, the Global Manufacturing PMI has sunk to a three-year low, with manufacturing output falling in the US, UK, eurozone, China and Japan in June, says Markit. More QE in the US and UK can be expected shortly. Not even Brazil is doing well anymore, after a better than expected first quarter of the year, forecasts aren’t looking great.

Europe is not doing much otherwise, which I guess is a good sign, but here and there the possibilities of referenda on the EU membership are getting more real. In the Netherlands the situation is very political and contingent on voter support of extremist parties, such as Geert Wilders’s PVV, which presented its campaign program including a separation from the EU today, leading two of its parliamentarians to quit. read Dutch article read English article

In the case of the UK, the idea of a referendum is less surprising, because they like to pretend that they knew the European Union was a bad idea from the start. The prime minister’s opinion is a little muddled in his awful attempt of being diplomatic, but I still have a bit of a Cameron-appreciation-moment anyway, as he said

I don’t believe leaving the EU would be best for Britain. Nor do I believe that voting to preserve the exact status quo would be right either.”

Naturally, this only adds on to the constant back-and-forth in his agenda.

Also, Microsoft has admitted defeat in the online advertising battle with Google. At least sort of. In 2007, Microsoft bought AQuantive for $6.3bn, allegedly its most expensive acquisition. Now, the unit is being written down by $6.2bn. Since the acquisition, Microsoft’s internet business is meant to have recorded operating losses of $9bn. Ouch.

So long, and for the AmUricans, happy 4th of July.

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A European banking union?

In Ireland, it looks like the referendum on the fiscal pact will go through with a ‘yes’ vote. And the Irish government has done its fair share to encourage the approval, mostly by scaring its people with unpaid salaries, empty ATMs and a reputation similar to that of Greece. That’s politics, that’s how you convince voter, with well formulated arguments and… uhm. read article

Meanwhile, the EU Commission has come up with new options to make the EU a more [financially-]systemically-dependent construct. Yesterday, it brought up the idea of a banking union, in which the [national] banking bailout burden would be shared by all EU countries, i.e. Germany. And even better, the already pooled money in the ESM could be used for the bailout (it is not right now!). What a good plan. Except, Germany is REALLY against it, and so are Finland and the Netherlands. Another idea is a pan-European deposit insurance fund, which didn’t really get explained in much detail, but would put more distance between governments and banking bailouts. I can see how this could make sense in a healthy system with one outlier that needs bailing out. But at this point? Is this really a good plan? read article

WSJ says this is all well and good, but it’s not the best way out of the crisis for Europe, so why on earth are we considering this as a viable option?

After all the confusion about Bankia‘s bailout and the ECB’s involvement in it yesterday, Mario Draghi is using the complications in a press statement today to push for the idea of the banking union. Very convenient. Can somebody clean up Bankia now, please?

Otherwise, Robert Zoellick, president of the World Bank, is joining the pro-eurobonds team and those four Greek banks that were excluded from ECB operations are allowed to come and play again.

After Christine Lagarde’s comment on tax evasion in Greece, she got a lot of bad press. Well, it wasn’t really the smartest move. Many a journalist called her a hypocrite, but wait, does that mean Christine Lagarde evades taxes? Good god, someone get her out of the IMF! Oh no wait… She just doesn’t PAY taxes, because she’s a diplomat. That’s a pretty sweet deal, admittedly, but it’s not like she came up with it. So no, sorry, her own tax affairs, unless involving any sort of evasion, do not impact the legitimacy of her criticizing Greeceread article

The Pew Research Center has released what is probably my favorite chart of the month showing Germans to be the most hard working and least corrupt Europeans (for the German readers: Entschuldigung, kann uns mal eben jemand das Wasser reichen? Danke.). That is, unless you ask the Greeks, which obviously perceive themselves as most hard working… read article

So long.

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It’s not you, it’s Spain

When you hear people say the eurocrisis is like a constant up and down, then what they really mean to say is that bad things are up and good things are down. Today that means that Spanish and Italian bonds yields went through the roof and business confidence is down (chart here) all over the currency union. It’s not a great day. But at least the sun is shining.

Right. So about Spain. Let’s get this straight. On Monday, prime minister Mariano Rajoy said he still doesn’t need any help from the EU in cleaning up his banks/country, but he would much appreciate the EU to keep Spain’s borrowing costs from rising. That, in case you were wondering, is not considered ‘help’. It’s totally different. Bankia, Spain’s fourth largest bank, got its €19bn bailout package signed off last Friday, which is a more or less a nationalization. And Spain does still have some €9bn lying around in its Fund for Orderly Bank Restructuring, or FROB, the grossest sounding acronym the eurocrisis has brought us yet. WSJ explains:

The restructuring fund can issue more debt, but Spain’s borrowing costs have spiraled higher at recent auctions, while demand has fallen, limiting its efforts to stock up on capital. That leaves the government short when coming up with the funds needed to prop up Bankia. A government spokesman said Spain could get around that problem by giving Bankia debt securities either from the treasury or from the FROB instead of cash. The bank would then use these securities as collateral to raise funds from the ECB‘s lending facility.

Now the FT reports that the ECB has rejected this idea as crazy and untenable, because it could breach a clause preventing monetary financing in the ECB’s handbook. But what do you know, they denied it on Twitter.

And as though that wasn’t confusing enough, Zerohedge (or JP Morgan rather) says the FROB is actually down to €5.3bn and Spain will need €350bn in bailout money to make it to the end of 2014 AND recapitalize its banks. Headache, headache, headache…

Have we talked about Ireland yet? No, and we haven’t in a while. Ireland is voting on the EU fiscal pact tomorrow. Alphaville points out that, historically, the first round of referendums have lead to a ‘no’ vote, but this time around there will only be one round…

The Irish Examiner argues that tomorrow’s referendum is an “illusion of democracy”, amusingly ending with this sentence:

Ireland is too small to hold the EU to ransom – or even, as the aborted attempt to get a writedown on bank debt has shown, to bargain – and as long as they’re paying the bills we’ll continue to dance to their tune.

Reminds me a lot of my father saying “as long as you put your feet under my table” when I was growing up.

Finally, also on Zerohedge: Waiting for Godot, existential eurocrisis edition. Worth a read, if only to laugh about the reality of European politics resembling the theater of the absurd. read article

So long.

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Let’s boycott tzatziki

Yesterday, Ireland announced to hold a referendum regarding the EU fiscal pact. In an act of gratitude, I think they could have let this one slide, but that’s just me…

The Dutch voted in favor of the bailout package for Greece, but reserved the right to publicly bash them. Mark Harbers, Dutch liberal politician, said it loud and clear:

“… it can still go wrong in Greece, because there are Greek people living there. No one can blame us for not having any trust in them anymore.”

About a week ago, the Greek consumer protection organization Inka called for a boycott of all German and Dutch products. Why? Because it helps against austerity and default, stupid. read article

In the night from Monday to Tuesday, the Occupy London camp in front of St Paul’s was cleared by the police (really like the headline in the Sydney Morning Herald: London peels off occupiers). Today, the Guardian reads this:

 “I was sorry that the City of London tore down an oasis of political speech.”

Mark Greif, the author, writes this while is is not actually in London. He hasn’t been to the happy camp side ever since it popped up and generally seems to prefer writing about the US ‘occupations’. Kind of funny. read article

Planet Money asked three LSE economists why middle class jobs are disappearing and what that means (never mind their solution, it’s not exactly a breakthrough). read article

Otherwise, Microsoft has released Windows 8 for public testing and Apple has announced a new iPad for March.

So long.

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