Death Star Economics



War of the roses: IMF vs EU

There won’t be a news brief tomorrow, Wednesday, 14 November 2012.

Everything seems a bit unsettled today: the EU and the IMF had there biggest falling out yet, Swiss banks face more fraud investigations now that Switzerland is opening up more and more to bi-lateral data sharing agreements, the investigation of ex-CIA head David Patraeus‘ private affairs are getting increasingly confusing, adding more people to what started as a simple affair (as simple as an affair with the head of the CIA can be…), and the FSA is investigating the potential manipulation of prices in the British gas market. It’s messy, that’s what it is.

“Just this time, we’ll let you get away with it, you hear me?”

That is what EU finance ministers decided to tell Greece yesterday. What’s one concession when everything else is working according to plan? So Greece got a two-year extension to balance its budget. Except, that’s not what the IMF wanted to hear them say. Lagarde insists to stick with the 2020 target for Greece to decrease the deficit to 120%. The decision about further rescue funding is postponed to November 20, when all parties step back into the ring. While Eurogroup chairman Jean-Claude Juncker, who has admitted to lie to the press at times, indeed wants an extension of the deadline for Greece, Lagarde is in favor of another haircut, to help the country meet its targets. In Germany, Angela Merkel is worried about these developments; she has an election coming up in September 2013 and big losses for the German taxpayers would be ill-timed. read article

Also in Germany, 50 clients of struggling Swiss bank UBS are being investigated for tax fraud. The personal details of clients were obtained on CDs with information of Swiss bank accounts held by German citizens, which were purchased by German tax authorities in 2010. Last week, the same authorities started an investigation of UBS employees for aiding said tax fraud. Switzerland is just not what it used to be anymore.

Meanwhile, the New York stock exchange has to suspend trading of 216 companies due to a technical fuckup, and the UK inflation exceeded expectations by 0.2% for October, hitting 2.7% due to an increase in tuition fees and food prices.

In post-election AmericaGlenn Hubbardeconomist and dean of the Columbia University Graduate School of Business, said the US could make significant steps away from the January fiscal cliff by increasing taxes on high income earners. The crux: Hubbard was one of Mitt Romney‘s led economic advisors throughout his presidential campaign. Awkward.

So long.


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Democracy (Obama), anarchy (Greece) and communism (China)

Well, at least we don’t have to worry about what crazy things Paul Ryan is capable of. Obama won the election and now has the luxury of another four years to finish what he started without having to start campaigning again two years down the line. With 303 versus 206 electoral votes, the result is much more saturated than anybody expected after the polls had put the candidates up for a close finish. The Republicans keep the House, the Democrats the Senate. Obama, as positive as ever, said “For the United States of America, the best is yet to come.

An extension of the Obama-Bernanke days, means that the US economy will continue to have access to funds to stimulate growth. In response, the dollar fell against every but one counterpart currencies.

But as the new old president is just waking up, the media has pasted his name into all those now-that-we-got-this-settled-lets-talk-about-the-fiscal-cliff-some-more articles. FT WSJ

Bloomberg Businessweek is making another point: see picture

Back in Europe, Greek drama is looming – again. On November 27, the nation is due another bailout payment, this time worth €31.3bn. But Brussels can delay the tranche again, as the policy disagreements that have delayed it to begin with are still not resolved. In Athens, politicians are voting on austerity measures tonight. They could include abolishing Christmas bonuses for public service workers and more cuts in welfare and pensions. read article

In the background David Cameron and Angela Merkel are clashing over the EU budget. Cameron wants to see cuts worth €1tn over the next seven years, while Merkel is pressing for a €100bn budget increase. Cameron is threatening to block the budget. Merkel is threatening to block the budget meetings in case of the UK exercising its threat. Good times. read article

Tomorrow, China’s Communist party is holding its 18th party congress. President Hu Jintao has only one week left in office, before Xi Jinping taken over. Time to revisit how China’s democratic ambitions are doing. read article

So long.

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Waiting for what there is to come

This pretty much sums it up:

…with investors reluctant to make any big bets on the last trading day before the closely contested US election and with an eye on China’s leadership transition later in the week.

Apple is considering to strip Intel of a massive deal: in 2005, Apple decided to switch from Motorola and IBM chips to Intel processors for its Macbooks. Now word got out that Apple believes its own chips that run its iPhones and iPads will soon be developed enough to replace Intel technology in laptops. Only judging by the Macbook ratio in London’s Starbucks alone (one Starbucks, two Starbucks?), it becomes clear that this is about a lot of money. When it came to official comments, fingers were pointed silently, with Intel referring all requests to Apple, which in turn decided to keep quiet. As with basically all news regarding the Apple, “people close to the matter” are to blame, like the time the new top-secret iPhone was forgotten in some bar… read article

The IMF released its annual report on the French economy yesterday, saying if Hollande fails to drive its country towards necessary reforms, it would follow Italy and Spain down the rabbit hole of financial and political crisis. The IMF points out that France lacks competitiveness among its peers and predicts its economy to grow only 0.4% in the first half of 2013 – halving the rate expected in Paris. Of course, Christine Lagarde used to be French Minister of Finance, so naturally, she knows better. Former CEO of EADS, Louis Gallois, also issued a report, addressed to Monsieur Hollande himself. Gallois is saying the same, that France has to man up sooner than later. His recommendations include cuts in welfare spending, more support to businesses of all sizes and exploiting France’ shale gas reserves. read article

London’s financial district will lose another 13,000 jobs next year says the Centre of Economics and Business Research (CEBR). That would increase the number of jobs lost since the onset of the crisis in 2007 to 100,000. Happy days. The City’s workforce will be at its lowest in 20 years come 2014, CEBR continues. Even happier days. A disgruntled Allister Heath (CITY AM) writes that this has gone too far.

In other news, BMW is set to post another record-sales year, with sales up 8.6% between January and September 2012. For Germany that means that its car industry, of all options available, is driving its export economy the most. The fact that Japanese car makers have essentially lost China as a market in the past three months, certainly doesn’t harm either.

So long.

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How the US became the world’s biggest economic threat

The G20 has done it and banned Greece from being the single biggest annoyance threat to the world economy. In its place, just in time for tomorrow’s elections, is the US fiscal cliff. Or in last year’s press jargon, the end of the Bush-era tax cuts paired with a truckload of spending cuts. The US debt ceiling, which has been of concern in virtually every administration, was last lifted in August 2011, and the same might be required come January. read article

Otherwise, people are pulling their hair out about who will win the election and what move to make in either situation. The Wall Street Journal says post-election America will have answers for questions of fiscal policy, taxes and regulation, giving investors a better base for their decisions disregarding who wins. Bloomberg goes even furtherthis glass is more than half full:

No matter who wins the election tomorrow, the economy is on course to enjoy faster growth in the next four years as the headwinds that have held it back turn into tailwinds. Consumers are spending more and saving less after reducing household debt to the lowest since 2003. Home prices are rebounding after falling more than 30 percent from their 2006 highs. And banks are increasing lending after boosting equity capital by more than $300 billion since 2009.

So we’re all set then. Meanwhile, WSJ MarketBeat says that either presidential candidate could fail to address the fiscal policy issues or lead the Fed to stop throwing money at the country. And Bruce Bartlett (no, not President Barlet from the West Wing), former White House economist, says no president can save the US economy.

On the other side of the Atlantic, it has dawned on the ECB that it is giving Spain too much credit, both literally and figuratively. Spanish government debt used as collateral for corporate loans may be overvalued and is thus dangerous for the central bank’s massive balance sheet. Spain’s banks got almost €17bn from the ECB by putting up their government’s treasury bonds as collateral. For corporate loans, this number grows to €80bn. The crux is  the ECB rated Spanish debt as highest-quality collateral. Hmm. The story was first broken by the German newspaper Welt am Sonntagread article

In AustraliaStandard&Poor’s has been found guilty of misleading investors by misrating CPDOs (constant proportion debt obligations: a leveraged bet on the creditworthiness of a small group of companies), which created by Dutch bank ABN Amro’s in 2006. Twelve councils in New South Wales have lost AUD15.3m, which equals 90% of their initial investments.

Also on a regulatory note, HSBC could be fined up to $1.5bn for money laundering. In July, the US Senate initiated an investigation of the bank’s finances as a response to allegation of money laundering for Mexican drug cartels. HSBC announced to have a buffer of $2bn for regulatory expenses in 2012.

So long.

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Election prep and Darwinian finance

With the US presidential election on the agenda for next week Tuesday, this weekend is used by all news outlets of the world and really anybody with a n opinion (thanks, internet…) to publish op-eds on said matter. So here we go.

– The Economist endorsed Obama as indirectly as possible (of course they did), read article

– The Washington Post’s Wonkbook looks at campaign expenditure, concluding that this election is the most expensive on record, read article

– Pimco’s Bill Gross is disgruntled about America and rewrites the Pledge of Allegianceread article

– The FT’s data blog looks at the importance of economic issues in the election read article

– Mayor Bloomberg, who is not member of any party, also endorsed Obama, saying that “Hurricane Sandy had reshaped his thinking, read article

Today’s US employment figures show that 3.57 million people are currently out of work in America as opposed to 4.11 million last year. Yet, the unemployment rate increased from September, amounting to 7.9%, exceeding the rate of January 2009. Estimates had seen 125,000 jobs added; the number was beaten by 46,000 new employees. read article

Commerzbank, Dexia and Lloyds TSB were removed from the list of G-SIFIs (global systemically important financial institutions) or G-SIBs (global systemically important banks) or “the world’s most dangerous banks” like the German FT calls it, due to diminishing “global systemic importance”. Ouch. That’s a weird insult, but an insult nontheless. After all, having the “evil” stipped off of them by a couple fo Swiss regulators, pushes them towards irrelevance, if you will. CitigroupDeutsche BankHSBC and JP Morgan are the four giants at the top of the list, required to hold an additional 2.5% in common equity to meet requirements set out by risk-management regulation Basel III. The general requirement amounts to 7% equity holdings as a percentage of risk-weighed assets. read article

The other big topic this week is the supposed end of investment banking as an industry/career/ethos. Triggered by UBS’ mass firing and essential termination of its fixed income unit on Tuesday, this a welcomed turn of events for those who either supported Occupy [insert location], or critically observed the developments in more stable housing. The WSJ bemoaned the death of fixed income, while the Economist compared core competencies. Gillian Tett wrote about a paper that examines the fluctuations in financial services as a career destination, and Harvard Business School announced that more of its graduates were now heading into consulting rather than investment banking. Because that’s what a world in shambles really need… more fucking consultants.

Election-unrelated weekend reading:

– Greece finds Medea: what happens when you talk about tax evasionread article

 Sandy and climate change on the cover of Businessweek, read article

– Felix Salmon‘s take on the above, read article

– Leaving China and going … where? read article

Have a good one.

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Spain runs out of money for the 87th time, China under pressure

Most of today’s bad news come from Spain, where Moody’s downgraded five regions, including Catalonia, the Scotland of Spain, that accounts for a fifth of GDP, questioning the effectiveness of Spain’s regional liquidity fund. So far €17.2bn have been drawn from the fund which is capped at €18bn, leaving little leeway to change much with the remaining €800m. Moreover, Spain is under way to accrue a budget deficit of 7.3% for this year. That exceeds the target set by the EU by one percent. The Spanish newspaper El Confidencial attributes the missed target to €10.5bn deficit in the country’s social security system. Wild guess: the money went towards unemployment benefits? read article

Chinese companies are facing pricing pressures due to what Bloomberg calls “the worst wholesale-cost deflation since 2009, signaling corporate earnings may deteriorate further and putting a damper on global inflation pressures.” If you are the rest of the world and believe in quantitative easing, this is a good thing, because it gives more room to stimulate growth by pumping money into the economy. If you’re China, it’s pretty shit. The country’s industrial output fell 6.2% YOY in August and wholesale prices dropped 3.6% in September, the biggest decrease since October 2009, the benchmark year for the post-Lehman inferno. read article

Yahoo reported earnings, for the first time under management of Marissa poster-child-for-mother-with-high-profile-career Mayer, performing better than expected overall, mostly on the back of the sell-off of its Alibaba stake, while actual revenue fell. Mayer wants to turn the business around by developing Yahoo’s mobile applications, catering to all of us smartphone users who need to check everything all the time and now there’s 4G as well woohoo! Yahoo shares rose on the promises. read article

In the final presidential debate in the US election, Romney and Obama played an expected blame game of “would you really want that man to be your Commander in Chief?!” According to European papers, Obama had the clear lead, while the American commentators are either less impressed or more confused than before. NYTimes CNN WaPo

So much for now.

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“Unlike cigarettes, banks don’t actually kill people”

Unlike cigarettes, banks don’t actually kill people.” That’s how Anthony Browne, new head of the BBA, the British Bankers Association, opened the organizations annual conference. The BBA is currently working on a proposal to have City bankers register with an independent organization, which can ban them from their profession in case of ethical or professional misconduct. A regulation like that would exceed the power of the FSA (Financial Services Authority), which only extends to senior-level management and traders. read article

In other banking news, Credit Agricole is getting closer to selling its Greek operations Emporiki to Alpha Bank, after looking to strike a deal for months. Alpha Bank is Greece’ second largest bank and if you’re thinking “where in god’s name did they get the money from?”, just bear with me. The total price will amount to €1, a joke, an insult, a token fee. Overall, Credit Agricole will lose around €2bn on the entire operation (including transaction fees of more than €300m), as the Wall Street Journal reports.

As part of the deal, Credit Agricole will need to inject an additional €550 million into Emporiki before the sale, which it hopes to complete by year-end. It will also need to maintain a €1.4 billion credit line to Emporiki that the Greek bank would repay in three installments over the next two yearts.

Yesterday’s big news came in right after lunch, with Citigroup’s CEO Vikram Pandit resigning after five years of service. Pandit had been with Morgan Stanley for ages, then left Wall Street to start his own hedge fund, Old Lane, which was then bought by Citigroup, who promoted Pandit in practically no-time. Rumor has it that Pandit may have resigned over disagreements with the chairmen of the board, but other sources say the parting had been on perfectly friendly terms. According to the FT:

Michael Corbat, the new chief executive, said he did not want “to alter the strategic direction” of Citi, with a continued concentration on increasing the size of its emerging markets business and the shedding of the remainder of Citi Holdings, the “bad bank” of non-core assets.

Corbat was formerly Citi’s head of international operations for EMEA. But despite the above statement, changes of direction due to new management are likely. Plus, all this is following Sandy Weill’s (ex-chairman) comment regarding the necessary separation of investment and retail banking, which had led to the initial formation of Citigroup in 1998.

Also in the US (and also yesterday, sorry about that), a more acceptable presidential debate took place between Barack Obama and Mitt Romney. Obama was more on his A-game than last time, but it appears that the jury is still out on who won. The Washington Post has put another 2-minute summary video together. So is anyone going to turn this into a rap battle a la Keynes vs Hayek or what?!

Otherwise, happy news for the UK, with employment number rising and jobless benefit claims falling between August and September. The unemployment rate beat expectations by 0.3% and the overall number of working people rose to the highest level ever recorded (i.e. since Q1 1971, when ‘records began’). read article

Yesterday (jesus…) was a historic day for Cuba: the country abolished its travel restrictions and announced that its citizens will be able to leave the country for up to 24 months starting on January 14, 2013. A Cuban blogger responded saying the island would be empty come January. read article

So long.

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Spain still doing its thing, US economy improving

We’re riding high on the Spanish bailout-request rumors that nobody seems to have grown tired of yet. Highest of all: Spain itself. The country sold a pile of debt as all average yields went downThe FT reports that the country is very very close, closer than ever before, to picking up the phone and calling Brussels to request a bailout. Again. Or still. You know what I mean.

Somewhat unexpectedly, RBS fell into the center of the Libor mess, as the bank suspended Jezri Mohedeen, head of European and Asia-Pacific rates trading. He is the first member of senior management that RBS is sending home to investigate the bank’s involvement in the rate fixing scandal. RBS suspended four traders last year for the same reason. After Barclays was fined £290m as part of the investigation, RBS’ fine is likely to go into the millions as well. This is following the collapse of a deal with Santander regarding the sale of 316 RBS branches.

In other legal news, the American Civil Liberties Union is set to sue Morgan Stanley over selling risky mortgaged to African-American homeowners. According to the NYTimes:

In the lawsuit, filed on Monday, the A.C.L.U. claims that Morgan Stanley is culpable for predatory loans made through the New Century Financial Corporation because the investment bank lent billions of dollars to New Century, a now-defunct subprime lender, and pressured it to make troublesome loans to African-American borrowers who could not afford them.

Ouch, ouch, ouch, so much bad PR…

Meanwhile in California, Marissa Mayer is doing what she was hired for. Over all the discussion as to whether or not she is going to be a horrible mother or CEO or both, Mayer lured Google’s Vice President of Partner Business Solutions into signing a $60m contract with Yahoo. He will start his job as Yahoo’s COO before January 22, 2013. read article

But that’s not the only slap in the face for Google. The FTC, the US Federal Trade Commission, is orchestrating a case against the internet giant, which is edging towards completion as it seems. Allegations regard antitrust violations and complaints about unfair practice towards competitors are piling up in the FTC’s mail room. Google’s latest run-in with the law was a $22.5m settlement payment for bypassing the privacy setting of Safari-using customers. EU regulators aren’t too far off either, pressuring Google over its data protection and privacy policies. read article

Yesterday’s release of US retail figures suggested an upswing in consumer confidence, as the index grew faster than expected. In addition, Citigroup reported better earnings than expected ($1.06 per share, as opposed to $0.99), despite a 88% fall in income, as well as Goldman Sachs, topping estimated earnings per share by $0.57 on an $8.35bn (estimated $7.18bn) overall revenue. All this is supporting the recovery of US stocks, after last weeks abysmal performance. read article

In terms of European dataeurozone inflation was steady at 2.6% between August and September, undercutting the findings of a Reuters economist poll.

Tonight, Mitt Romney and Barack Obama meet again, this time, hopefully, for a better [read actual] debate.

So long.

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The EU as a p(e)acemaker

One night after Christine Lagarde and Schaeuble fought about the necessity of austerity measures, the EU has been awarded the Nobel Peace Prize for “contributing to peace” in general. On first sight, that’s primarily one thing: incredibly confusing. It trumps Obama’s Prize in 2009. Why now, for crying out loud? But it does add another €8m to the EU’s budget/bailout funds/collateral. So thanks, Norway, for supporting the union that you continuously refuse to join to protect all the oil you’re sitting on. Barroso’s reaction: “When I woke up this morning, I did not expect it to be a good day.” Ha. Fair enough, we all know why.

But yes, fine, there’s another side to the story. Of course, this continent has seen a lot of wars in recent history and the EU has created a safety net for peace preservation and transnational cooperation. Say what you want, for example that the EU is a slow and overly bureaucratic construct, specialized in ineffective policy, but it has kept Europe at peace and let’s just admit that we haven’t exactly been good at that historically. read article

Meanwhile, Coca-Cola Hellenic Bottling, the company’s Greek division and second largest bottler in the world, is leaving Greece. Due to capital risks in its current location, the company will move its headquarters to Switzerland and re-list on the London Stock Exchangewiping out 1/5 of the Athens stock exchange. Despite being minority-owned by The Coca-Cola Company, the Greek company had its credit rating downgraded, which triggered the move. Most of its 2,000 production employees will stay [employed] in Greece. In July, Greece’ unemployment rate rose to 25.1%, marking the 35th consecutive month of increasing jobless rates.

Otherwise, the Chinese renminbi has hit the highest levels against the dollar in 19 years, reasons for which are thought to be a move against imported inflation brought about by US quantitative easing and an artificial calming of the market. Credit Agricole mentioned that this could also be China’s way of endorsing president Obama, who has continuously pushed for appreciation of the renminbi. read article

Speaking of which, yesterday’s vice-presidential debate didn’t yield a winner as clear as last week’s deeply upsetting Romney-Obama debate. Naturally, they disagreed on taxes and economic issues, Reuters has the key quotes, the Washington Post got a video with highlights.

Weekend reading

– a short history of debt crisesread article

– why the IMF gets to run the worldread article
– the world’s quest for socialist capitalismread article
– the first world victim: Michael Lewis gets a message from a Wall Street banker’s disgruntled sonread article
Have a good one.

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The changing face of finance

All eyes are on Mario Draghi once again, who is holding an ECB meeting in Brussels today. That once thing both Draghi and the rest of the world are waiting for is Spain‘s formal request for a bailout that would trigger the newly agreed bond-purchasing program of the Union’s central bank. Until that happens, however, nothing else will. Most likely statement to come out of today’s press conference is therefore probably a request for a request for a bailoutread article

Meanwhile, the European Banking Authority (EBA) has come back from it’s survey of 71 European banks, finding that only four of them fulfilled the new extra-super-crisis-resistant capital requirements of 9%. The survey did not include Spain’s Bankia or any Greek bank. The EBA said further that banks that don’t reach the prescribed ratios won’t be paying dividends or bonusesread article (read WSJ Deutschland)

Morgan Stanley, which had been rumored to be looking into selling its commodities division, has reportedly entered talks with the Qatari Investment Authority, the 12th largest sovereign wealth fund in the world that owns every other bit of London. The sale is motivated by new regulation through the Dodd-Frank Act and more specifically the Volcker rule, which prevents proprietary trading. read article

Similar news from J.P. MorganLDH Energy, currently owned by Louis Dreyfus and  J.P. Morgan’s hedge fund Highbridge Capital, will be sold to the CEO of Highbridge, Glenn Dubin, and founder of Tudor Investment Corp, Paul Tudor Jones. read article

Both these sales, though the former more so than the latter, are indicators of how post-crisis regulation is shaping the financial services sector into something new. The first result of this seems to be a cutting back of those bank divisions that that were added in the scope of expansions, during more pleasant economic times. Of course, this is not exclusive to commodities. Credit Suisse is looking to get rid of its $385bn asset management division as a “direct consequence” of not being a major asset manager, while Lloyds TSB has continuously offloaded its private equity assets, worth more than £1bn. Time to cut your losses and move on.

In the US presidential race, Romney won the first TV debateThe Atlantic said Obama lacked energy and enthusiasm, the Handelsblatt called him “pale” [which, of course, is a hilarious figure of speech here].

Greece, in its ineptitude of being a serious country, is on track to pool €100m to build a new formula one Grand Prix track. Bernie Ecclestone, CEO of Formula One Group, who is vainly trying to float the company on the Singapore stock exchange, has allegedly backed the project. Not necessarily related, GermanyFinland and the Netherlands have demanded to delay the next bailout tranche for Greece, worth €31bn, until November. read article

In other news, Facebook has hit the 1bn users benchmark. Fair enough, that IS cool. read article

So long.

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