Death Star Economics



Portugal could need second bailout (to pay for the first)

This morning…

the Eurogroup is meeting in Dublin; on the menu: stop messing around with bank stress tests (i.e. tighten measures) and the bailout schemes of Portugal and Ireland. Some say even if Portugal was granted an extension of its bailout repayment, it could potentially face a second collapse and thus a second bailout. Ireland is looking in the same gloomy direction. According to the FT:

Lisbon’s bailout is due to come to an end in July 2014 and the extension of maturities of its bailout loans is intended to smooth its full return to markets. But it has to raise €14,1bn next year and €15bn in 2015, whereas before the crisis it was typically raising €10-€12bn a year. Ireland is also facing a big financing challenge. It needs to refinance €20bn per year from 2016-20, which is about 12 per cent of the country’s projected economic output for this year.

Thus, the world is quiet in anticipation of next week’s news country of choice. It might be early days for Slovenia, so maybe it’ll drift back to Cyprus or Italy.

Meanwhile, Japan will officially enter the Asia-Pacific trade talks this summer, which are currently held between Canada, Mexico, Australia, Chile, Peru, Singapore, Malaysia, Vietnam, Brunei and the US. read article

Weekend reading…
– The Economist on Margaret Thatcher‘s legacy, read article

– William Cohan on the revolving door between Wall Street and the White House, read article

Climate change may double turbulence on transatlantic flights, read article

– The Winklevoss twins are all over bitcoin, read article

JPMorgan explains why you should avoid investment banks, read article

Have a good one.


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Eurozone crisis: Just grow out of it, stupid!

After yesterday’s news of the shrinking German economy, Spanish PM Mariano Rajoy called on all those country’s who aren’t Spain, Portugal, Ireland, Greece, Cyrpus, really also Italy and maybe not even France, to implement growth stimulating policies as long as they can, because Spain sure can’t. This is the same Spain that still hasn’t called the ECB for help. Should someone break the news that Europe might not just grow out of this crisis? Maybe. But it’s siesta now. Let’s wait. read article

In the meantime, the German central bank is working on the logistics of getting 700 pounds of gold back into German vaults. At this point most of it is stored at the New York Fed, with the rest of it locked up in Paris, a precaution that is still in place from the cold warread article

The Netherlands‘ fourth largest bank SNS Reaal announced that it would need a restructuring due to its toxic property loans in autumn 2012. Now, the bailout will have to be carried out by the government. According to a decision by the European Commission, Dutch banks ING and ABN Amro will not be allowed to be part of the restructuring, because they received bailouts during the financial crisis. One scenario would be the creation of a bad bank for said loans, with all other big Dutch banks as shareholders. Hello over there at the Basel committee! Does this sound systemically risk-free to you? Altogether, it is estimated that SNS Reaal will need about €1.2-1.8bn to keep its doors open. In 2008, the bank received €750m from the government. read article

Otherwise, there are a number for “Facebook searching for revenue” headlines out there, because the website just launched its own search function, which despite it’s lose limits on Facebook itself, is stepping onto Google’s turf. Has that ever been a good idea? read article

And speaking of corporate catfights. It seems obvious that EADS has won the “massive plane”-round against Boeing. The Dreamliner (787), competitor aircraft to the A380, doesn’t seem to fly so well. This morning All Nippon Airlines and Japan Air grounded their 787 fleets for review, after yet another Dreamliner had to perform an emergency landing due to technical difficulties. read article

A whole truckload of banks announce fourth quarter earnings today, including JP Morgan, which has just announced to cut CEO Jamie Dimon’s salary in response to his responsibility in the London Whale case.

So long.

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Venezuela on constitutional cliff – at least we have a name for it

The news bear little excitement today. Between both Europe* and US growing quiet and the first earnings season of the year kicking off, there’s not a whole lot going on.

*except for the worry about the economy at large, Merkel’s rule in Germany, the fear of a what would happen to Europe without Merkel’s rule of Germany, and the general worry about what the hell the ECB is doing now.

Sources close to the Bank of Japan told Reuters that more quantitative easing could be announced at the policy meeting in two weeks. The central bank is also likely to support Shinzo Abe’s 2% inflation plan.

A couple of days ago, it was still assumed that Hugo Chavez, president re-elect of Venezuela, would be sworn in on 10 January. Last night, Vice President Nicolas Maduro announced that the ceremony would be delayed, as Chavez needs more time to recover. The problem is as follows: if Chavez doesn’t get sworn in, then his VP can’t steer the boat until he as recovered fully. Barclay’s calls this a “constitutional cliff”, others call it anarchy waiting to happen. read article

Otherwise, the US will record the lowest level of oil imports in 25 years in 2014, says the US Energy Information Administration. Imports haven’t been this low since 1987. In November 2012, the International Energy Agency had predicted that the US could become the world’s largest oil producer as early as 2017. read article

Yesterday, Bloomberg reported on a secret division within Goldman Sachs that continued to engage in proprietary trading even though that will be (Future tense! Important detail.) forbidden under the Volcker rule, which is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Today, FT Alphaville is investigating this investigative journalism and explains why no wrong has been done (probably) and why we should look at pictures of cats insteadread article

So long.

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US to be world’s #1 oil producer; Japan back in recession

The International Energy Agency, IEA, has announced that the US will overtake Saudi Arabia in terms of annual oil production as early as 2017. Older reports had seen Saudi Arabia up on top until at least 2035. According to the report, US daily output will amount to 11.1 million barrels, while Saudi Arabia will only achieve 10.6 million barrels. On the same terms, the US will surpass Russia by 2015. By 2035, when the report estimates the US production to fall and the Saudi production to rise again, 90% of Middle Eastern energy exports will go to Asiaread article read report

It is one thing if a natural disaster destroys a country’s growth prospects, it is another if it just happens. Japan’s Q3 GDP fell more than expectedslumping 3.5% instead of the expected 3.4% on an annualized basis. Back in recession, this is the worst performance of Japanese GDP since the 2011 earthquake and mostly attributed to poor export performance and declining consumer spending. The former, of course, is related to the crisis between Japan and ChinaChina’s exports, on the other hand, rose in October, adding to the positive trade balance. This could be Japan’s fifth recession over the past 15 years. read article

In post-election America, where corporate profits have hit lowest levels since 2009, and the politicized fiscal cliff issue is looming [and wasn’t there going to be a food crisis coming as well?], banks have been victorious. After a lot of back and forth, Wall Street’s lobbyists in Washington succeeded in postponing the implementation date of Basel III – indefinitely. The regulation that prescribes higher capital requirements was meant to come into action on January 1, 2013, but now the timeframe was deemed inappropriateJamie Dimon is dancing. To him, Basel III was “un-American” to begin with. In Germany, Basel III will indeed come into effect on New Year’s Day. The German Finance Ministry expects the US to phase Basel III into law over the course of 2013.

Greece beat budget targets for the first ten months of 2012! Now, that’s quite some news. The State Budget deficit totalled €12.3bn, instead of €13.6bn as targeted. Except.. well… this doesn’t include money spent (or lost) by government-owned enterprises. The full report the troika demands prior to the payment of the next bailout tranche, is also still in the making, while the €5bn debt repayment due date comes closer. Officials in Brussels have already announced that we shouldn’t hold our breath for a solution in today’s Eurogroup meetingIn sum:

…the endless Greek “will it be bailed out, won’t it” saga, which today enters yet another irrelevant phase with the latest Eurogroup summit where nothing is expected to be resolved (everyone is still waiting for the Troika report). The final outcome will likely be the much delayed funding of the €31.5bn tranche, but only after Germany pretends to kick and scream loudly and obstinantely, only to comply behind the scenes. After all remember: the Greek “bailout” is really just a bailout of Deutsche Bank.

I guess it is fair to say that some have finally and ultimately become disenchanted with the Greek crisis and will only use it to channel frustration over the rest of the ailing world economy. Fair enough, I’ve been doing that for months.

So long.

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“The ECB is by and large done [trying to help you]”

The moment when it’s not the Greeks who don’t live up to their promises: the troika wants to delay the next debt tranche despite the deal on austerity measures, to wait for a full report on compliance with the bailout terms. At the core of the issue is the €5bn repayment due next week, but the next bailout tranche is also connected to a two-year extension to 2016 for Greek aid. So far, so bad. While the EU seems to be mainly concerned with the restructuring of debt that will never be repaid, the IMF worries whether Greece will ever return to growthread article

Mario Draghi, fed up, announced the ECB was done supporting Greece. And you can’t blame the man who has been waiting for Spain to make one, just one, phone call for the past two months, and who is being chased by German lawmakers scared of inflation. As a last act of kindness, he said the  €12-15bn profits the ECB made on the €55bn of Greek debt it owns should go back to the country itself.

Meanwhile, France is expected to slip into recession by the time the year comes to an end. In SpainIberia, which is owned by IAG, just as British Airways, will cut the airline’s 21,000-people workforce by a quarter in an effort to turn the loss-making business around. That’s just what Spain ordered. read article

The Telegraph broke a story saying that UK tax authorities got a hold of the details of every British HSBC client in Jersey. Mind you, Jersey is a tax-haven, population 98,000 (and most of them are accountants). The list of names was obtained from a whistle-blower, who didn’t get the memo that the EU whistle-blower-incentive is not actually in place yet. It features drug lords, weapon smugglers and fraudstersHSBC, of course, will have to pay between $1.5-2bn for breaching anti-money laundering rules in the US and Mexico. For those that remain sceptical of a whistle-blower from Jersey or the journalistic standards of the Telegraph:

Early viewers of what promises to be a trashy little mini-series with a stale mix of guns, drugs, sun-soaked beaches and tax cops, were left with one stand-out question on Friday: Does HSBC have just 4,388 Brits holding offshore accounts on this Channel island?

Weekend reading

– Interactive infographic for real GDP, unemployment and inflation developments in Europe, read article

– El-Erian’s 4-point plan to save the US economyread article

– The Asian way: economic stability in the 21st century, read article

– Democrats and Wall Street, version 2.0 read article

– From law to oil to Paris to … the new archbishop of Canterburyread article

Have a good one.

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Joining the dark side of the force: Disney buys Lucasfilm

After two days of storm, an exploding power plant, the shut down of three nuclear plants, almost 19,000 canceled flights, closure of public transport systems, 10,000 911-calls every 30 minutes in New York City and 14ft of water, America’s east coast is getting back on its feetWall Street will re-open, as well as airports and the rest of normal life.

But it won’t surprise you that the story on my mind today is Disney’s acquisition of Lucasfilm. For $4.05bn the Walt Disney empire bought 100% of George Lucas’ production company, which owns the Star Wars franchise. The deal marks the second biggest acquisition in Disney’s history, only exceeded by the $7.6bn takeover of Pixar. And really, this is like a family reunion. Pixar used to be a division of Lucasfilm, which was launched in 1979, but spun out of the parent company in 1986. George Lucas, the godfather of Star Wars, will get about $2bn in cash from the proceeds of the sale, adding to his net worth of $3.2bn. Disney announced that three new Star Wars movies will follow, starting in 2015read article

Google is joining Starbucks in facing a parliamentary tax inquiry in the UK. Google is channelling most of its corporate sales through its headquarters in Dublin, thereby avoiding UK taxes on it. According to Margaret Hodge, chairman of the committee the corporation will face:

Apple, Google, Facebook, eBay and Starbucks [i.e. all the poster children of globalization] have avoided nearly £900m.

It is estimated that the UK loses approximately £5bn annually due to tax avoidance.

In an attempt to buy more time, Greek policy makers have agreed to push spending cuts worth €13.5bn and reforms through parliament. Greece is once again in danger of running out of money within the coming month. Today, the Greek parliament will vote on a bill scrapping the obligation for the government to own a minimum stak in formerly state-owned companies, which is expected to set the tone for developments in the near future. On November 12, there will be an EU summit officially dedicated to the management of Greek debt. It’s getting boring and all seems like a replay of last year. Count the days until someone suggests to devalue parts of the Euro again… read article

In the background, eurozone unemployment rose yet once more in September, gaining 0.1% from August and amounting to 11.6% overall. That means that 18.5 million people are currently out of work in the European Monetary Union (hello, Spain). Austria is maintaining the lowest unemployment rate of 4.4%read article

So long.

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US closed for business, Dutch form government

The US is closed until further notice until ‘Sandy’ has blown over. The last time Wall Street closed due to weather conditions, was in 1985 for hurricane Gloria. The decision was based on low expected trading volumes that could show disproportionate responses.

But while everybody is staying at home, US consumer spending rose 0.8% in September, beating expectations. read article

With everything on hold on the east side of the Atlantic, attention and pressure has been diverted the other way (employing the Eurocentric world map) to Japan. The Bank of Japan is meeting tomorrow, giving its biannual outlook report. Finance Minister Koriki Jojima is pressing the Bank to do something about the country’s deflation. The general expectation seems to be a JPY10tn ($125.7bn) extension of the country’s QE program. read article

In the Netherlands, the incumbent VVD (People’s Party for Freedom and Democracy) that secured most votes in September’s election, has struck an agreement with the PvdA (Labor Party) to form a coalition agreement. Budget negotiations that would bring the Dutch budget down to the EU-set benchmark of 3% are already taken care of. read article

After rumors last week, publishing houses Pearson and Bertelsmann announced today that they would join forces and create the largest trade publisher in the world: Penguin Random House. 53% of the new joint-venture will be held by Random House’s parent company Bertelsmann, while Penguin’s parent Pearson will hold the remaining 47%. read article

The FT’s headline of the weekend was that US money market funds have overcome their fear of the eurozone explosion and went back to making investments in Europe, increasing their exposure by 16% in September. So maybe Francois Hollande spoke to them before announcing that the worst of the crisis was over.

Meanwhile, a Greek newspaper published a list of individuals with Swiss bank accounts, causing the editor of the investigative magazine Hot Doc to be arrested on Sunday for suspected tax fraud. Greece’ sloppy way of handling its tax receipts (and the follow-up of those unpaid) has been a cause of criticism from its lender all along. read article

So long.

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Central bank center stage: Japan is riding the QE dragon

The Bank of Japan has locked step with the Fed and expanded its quantitative easing program by ¥10tn. It now amounts to ¥80tn, ot $1.01tn. The deadline for the policy program was extended to the end of 2013. The added ¥10tn, will be split 50:50 between short and long-term Japanese government bonds. As a result, the dollar rose against the yen and the Nikkai exploded upwards. read article

But Japan’s worries are not only domestically. After yesterday’s anti-Japan protests in China, forcing many factories to shut down, Japanese car manufacturer are getting ready to face the consequences. According to Bloomberg:

The collective market share of Japanese car brands, No. 1 among foreign nameplates in China since 2005, will probably fall to 22 percent this year, whil eGerman marques could increase their share to 22.5 percent, according to projections by China’s Passenger Car Association.

Nissan has the biggest plans in the country, with its China venture budgeting 50 billion yuan($7.8 billion) in investments to raise sales to more than 2.3 million vehicles in China by 2015 from 1.3 million in 2010. Toyota said this month it aims to increase Chinese deliveries to 1.8 million vehicles by 2015, more than double the tally last year, by adding at least 20 new models. Honda said in April it plans to double deliveries in the country over four years after being “too cautious” in its expansion.

The Bank of England confirmed to keep its rates and QE target steady for the moment. The current asset-purchasing program is capped at £375bn, but after yesterday’s inflation data came out, it is very possible for the target to be reset in November’s policy meetingread article

Meanwhile, the US is waiting for the announcement of an awful lot of housing data this morning.

Saudi Arabia is feeling socially responsible and wants to combat high oil prices, by adding some more to the market. It’s like oil-QE. The Saudi oil production amounts to 10 million barrels per day. read article

Otherwise, Goldman Sachs has found a new CFO to pay $15.8m annual remuneration to (final salary of departing David Viniar). With 12 years in the role, Viniar is the longest serving CFO on Wall Street. Harvey Schwartz, who will move into the new position in early 2013, is yet another one for the next-CEO-question-mark list.

And the fun fact of the day, according to the Telegraph, journalists rank higher than bankers in the least trusted professions (probably because bankers don’t trust journalists…).

So long.

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Scandal-week just doesn’t end…

The US is closed for a collective barbecue party today, so there will be no news from across the Atlantic.

In the Barclays‘ case, the bank is now actually threatening the Bank of England and other government officials, accusing them of having been involved in the rate manipulation scandal, known by the unfortunate name of LIEborgate. Barclays’ ace up the sleeve is a note written in 2008 by BoE markets director Paul Tucker alluding to the possibility of a rate cut. But according to Alphaville …

You just don’t threaten then Bank. The City of London is not some sort of financial democracy. It is a hierarchy. It is not Capitol Hill; political brawling is prohibited.

Diamond will be facing parliament today.The whole affair is also warming up the question of ring-fencing investment banks, because of the size of the fine Barclays had to pay for the manipulation last week (£290m). read article

More on the note of scandals, GlaxoSmithKline was fined $3bn for healthcare fraud this morning, after pleading guilty in the case of mis-marketing drugs. These included antidepressants Paxil, approved for adults that were marketed to teenagers, and Wellbutrin, mis-marketed to treat weight loss and sexual dysfunction, says the US Department of Justice. read article

In Mexico, where Enrique Pena Nieto won the presidential election on Sunday, Andres Manuel Lopez Obrador demands a recount of votes. Pena Nieto’s victory has a peculiar after-taste for Mexicans, because his party, the Institutional Revolutionary Party, which had led the country for 71 years, including the times of the revolution, the ‘Mexican Miracle’ and an economic crisis. But hopes for Pena Nieto’s administration are high, as the country needs labor and tax reforms and increased international participation in the monopolistic national market. It is also expected that the new government will open up the country’s oil market, including allowing foreign investments in the state-owned oil company Pemex.

Meanwhile, the Romanian opposition is moving to suspend the country’s president, Traian Basescu, for unknown reasons. read article

In other news, Apple is apparently planning to bring a smaller and cheaper iPad to the market later this year. Oh, you mean like the iPhone? But however ridiculous it may sound right now, it will make Apple’s Christmas business. Also, Manchester United completed certain filings with the SEC in New York last night as part of the club’s ambitions of an IPO within the year. Initially, the owning Glazer family, had been planning a $1bn IPO on the Singapore stock exchange, but abandoned the plan due to volatile Asian markets. The New York IPO could be worth as little as one tenth of last year’s valuation.

So long.

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Something old, something new, something borrowed and a big fat haircut

Germany has a new candidate for the presidency: Joachim Gauck, who is probably more obscure than Belgium’s di Rupo: Not only is actually a social democrat (mind you it’s a Christian democratic/liberal government), he’s also a Protestant pastorand political activist, who used to fight for democracy in former East Germany. Apparently, Merkel called him out of the blue while he was in a cab, leaving the poor 72-year old man “overcome and confused“, says Businessweek. His will [presumably] be elected by the federal assembly on March 18read article

Which brings me to Greece, which may or may not default on March 20. We still don’t have much more thanspeculation and a lot of people that lost their patience. The Eurogroup is meant to meet at 3pm GMT today to talk the talk. Just as a reminder, the deal would include a €100bn debt write-off, and a 70% value loss for private bond holders (through bond swap) and €3.3bn of spending cuts on the Greek side. Then, Greece will receive €130bn to do what needs to be done and repay its maturing debt of €14.5bn in March. But not so fast… €30bn of the new bailout tranche will go to private sector investors to ensure that they’re on board with the whole charade to begin with; €23bn will be used to restructure Greek national banks; Greece will buy back its own debt for €35bn (no, not all of it, stupid); finally, €5.7bn will be used to pay off interest. And all of a sudden this huge pile of money doesn’t even seem that big any more… (numbers from Reuters) read article

The FT has an article about what happened to all those bankers who lost their jobs due to the crisis, answering the question if there will be 40,000 banker-turned-entrepreneur start-ups in the near future. The research turned out to be somewhat difficult, because many never got out of the “don’t talk to the press” mode. read article

Finally, the Economist’s Daily Chart does organ donationsview chart

So long.

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