News That Matters
Ft.com
The European Union approved a ban on oil imports from Iran, overcoming misgivings about the economic hardship of its members to take its strongest measures yet to press Tehran into concessions on its nuclear programme, http://ftalphaville.ft.com/thecut/2012/01/24/847101/eus-iran-embargo-sends-oil-up-rial-down/
Japan will probably miss its goal of balancing the budget by fiscal 2020 even if it doubles the nation’s sales tax, according to government estimates, reports Bloomberg. The country will have a primary deficit of 3.1 per cent of GDP in the year, http://ftalphaville.ft.com/thecut/2012/01/24/847031/japan-to-miss-budget-goal-and-record-trade-deficit/
Orange juice prices hit an all-time high as worries over a possible US ban on Brazilian imports after the discovery of fungicide traces at the end of last year fuelled more speculative buying, the FT reports. http://ftalphaville.ft.com/thecut/2012/01/24/847021/orange-juice-hits-all-time-high/
Eurozone finance ministers on Monday night rebuffed a deal presented by private owners of Greek debt as a “maximum” offer for the losses they are willing to sustain, opening a fresh round of brinkmanship in tortuous negotiations to ease the country’s debt load, http://ftalphaville.ft.com/thecut/2012/01/24/846801/santer-to-head-efsf-spiv/
PIMCO discusses their Economic Outlook
With equities grinding higher yet another day, and volume trend continues, markets seem sadly enough “disturbingly” broken. Good time to review what PIMCO thinks about the Economic outlook. From Pimco.
- We expect emerging Asia growth below the market consensus due to its less aggressive policy responses compared to 2008-2009.
- The Asia-Pacific region is less affected than others by eurozone turmoil but contagion is still a risk through direct trade and the regional production chains that characterize Asia’s export-oriented economies.
- In this environment, we favor Australian government bonds for their high credit quality, low-beta currencies such as the Chinese yuan, corporate issuers that have delevered, covered bonds and mortgage-backed securities.
News That Matters
Ft.com
Developing countries should take steps to plan for a global economic meltdown on a par with 2008-09 if the European sovereign debt crisis escalates, the World Bank warned on Wednesday. The FT reports the World Bank is forecasting significantly slower global growth in 2012 than it expected last summer even if the eurozone muddles through its crisis,http://ftalphaville.ft.com/thecut/2012/01/18/838161/world-bank-warns-emerging-nations/
An administrator of MF Global’s UK arm has warned some customers of the failed futures broker might not see all their money returned. Richard Heis, joint special administrator at KPMG, told the FT that his firm had recovered some £594m or 82 per cent of customer funds held in so-called segregated accounts, http://ftalphaville.ft.com/thecut/2012/01/18/838301/warning-on-returns-from-mf-global-uk/
Central banks increased the amount of gold they lent for the first time in a decade in 2011, as they used their bullion reserves to help commercial banks raise US dollars, says the FT. Thomson Reuters GFMS, http://ftalphaville.ft.com/thecut/2012/01/18/838491/central-banks-increase-gold-lending/
Spain’s new government is pressing for Bankia, a group of savings banks listed last year, to seek a merger with another Spanish bank in a deal that would create the country’s largest domestic lender by assets if it materialised, http://ftalphaville.ft.com/thecut/2012/01/18/838561/spain-pushes-for-domestic-bankia-merger/
Europe (still) hung over- What to do?
So, S&P “shocking” people by the (un)expected European credit downgrade on Friday Evening. The downgrade, is nothing more than a sober and objective look at the European situation. France should not have the same credit rating as Germany, Italy is in great problems, and yes, Spain’s unemployment (hitting 23.5%!) and the property bubble are just some of the problems facing (old) Europe.
With the huge administration where people can’t agree on the size of the cucumber, the political Euro project is going into an intensified mode with the Friday evening downgrade. It is time for Europe to sober up and deal with the situation practically, not just politically. From Spiegel;
Following the decision by rating agency Standard & Poor’s to downgrade the ratings for nine euro-zone countries, pressure is likely to increase on Germany, the country long viewed as a model during the crisis, but also the one that holds much of the money that is needed to solve it.
News That Matters
Ft.com
Bank of America has told the US Federal Reserve that it is willing to retreat from some parts of the country if its financial problems deepen, the WSJ says, citing people familiar with the situation. Executives put the potential move on a list of emergency scenarios submitted to the Fed in 2011 http://ftalphaville.ft.com/thecut/2012/01/13/831771/bofa-raised-possibility-of-retreat-from-some-regions/
Would-be Apple customers in Beijing, who had endured an overnight weight in below-freezing temperatures, reacted with fury after the company’s main store in Beijing’s Sanlitun district failed to open,http://ftalphaville.ft.com/thecut/2012/01/13/831721/beijing-apple-store-pelted-with-eggs/
Spain and Italy successfully sold about €22bn of government debt at sharply lower costs than at previous auctions, easing tensions in financial markets and underlining the tentative improvement in investor sentiment towards the eurozone, http://ftalphaville.ft.com/thecut/2012/01/13/831531/draghi-hails-tentative-stabilisation-after-bond-sales/
In his second meeting as chairman of the Federal Reserve in May 2006, Ben Bernanke heard a Fed governor warn about the nation’s mortgage market. But Mr Bernanke described the cooling of the housing boom as a “healthy thing”, http://ftalphaville.ft.com/thecut/2012/01/13/831541/feds-2006-minutes-rich-with-irony/
2012 Geopolitical and Economic Forecast-Stratfor
The World is changing fast. Latest on the big geopolitical and economic trends. From Stratfor.
There are periods when the international system undergoes radical shifts in a short time. The last such period was 1989-1991. During that time, the Soviet empire collapsed. The Japanese economic miracle ended. The Maastricht Treaty creating contemporary Europe was signed. Tiananmen Square defined China as a market economy dominated by an unchallenged Communist Party, and so on. Fundamental components of the international system shifted radically, changing the rules for the next 20 years.
We are in a similar cycle, one that began in 2008 and is still playing out. In this period, the European Union has stopped functioning as it did five years ago and has yet to see its new form defined. China has moved into a difficult social and economic phase, with the global recession severely affecting its export-oriented economy and its products increasingly uncompetitive due to inflation. The U.S. withdrawal from Iraq has created opportunities for an Iranian assertion of power that could change the balance of power in the region. The simultaneous shifts in Europe, China and the Middle East open the door to a new international framework replacing the one created in 1989-1991.
Remember the European Pension Bomb?
Investors are all talking nervously about the debt problems of Europe, but this is not the biggest problem Europe faces. With ageing population, the pension liabilities bomb risks bringing down many economies. With changing demographics, especially in the Med countries, more burden will be paid by less people working. Despite all these problems, no politicians will try dealing with the issue, as it is simple too big. Europe needs more people working, and needs the growth to come back. This once beautiful lady, has turned very old, amnd despite putting on all the make up, nobody is asking for the last dance. On the pension bomb, from Bloomberg.
State-funded pension obligations in 19 of the European Union nations were about five times higher than their combined gross debt, according to a study commissioned by the European Central Bank. The countries in the report compiled by the Research Center for Generational Contracts at Freiburg University in 2009 had almost 30 trillion euros ($39.3 trillion) of projected obligations to their existing populations.
Germany accounted for 7.6 trillion euros and France 6.7 trillion euros of the liabilities, authors Christoph Mueller, Bernd Raffelhueschen and Olaf Weddige said in the report.
“This is a totally unsustainable situation that quite clearly has to be reversed,” Jacob Funk Kirkegaard, a research fellow at thePeterson Institute for International Economics in Washington, said in a telephone interview.
The Euro accelerates the West’s decline- Was the Credit explosion of 2005-8 the last fling?
Guest post by John Redwood.
The rising strength of China and Brazil, of India and the Civets, is based on hard work and free enterprise. Economies which have been kept poor by too much state control and by bad government in past decades, are being progressively liberated. As this occurs, so more businesses are set up, more jobs created, more people are better educated. A virtuous circle has been created.
The declining relative strength of the west, especially of Europe, is based on the opposite process. There is growing government interference in every aspect of economic life. The top down Euro scheme, little wanted by the German and French people, let alone the British, is doing untold damage to economic prospects. It is proving to be the ultimate ill judged intervention by the political classes, the final expression of governing power that is damaging families, businesses and job prospects.
It is of course true that the emerging nations have two natural advantages which should make it inevitable that they overtake the west in terms of total income and output. They are much more populous. They can catch up with western living standards by applying western technology and ideas to less productive economies.
Europe should boo(u)st bail out fund-Japan
Japan has been trying to boost it’s Economy for decades, but without real success. Now they are telling Europe, what needs to be done. Boost the EFSF, and all will be great. It is funny, how all these failed policies, have not produced any wisdom, but to do the same thing over again. We know who does the same thing over and over, while expecting a different outcome-only idiots. From Financial Post.
Europe should boost the total firepower of its rescue fund and frontload its funding to send a positive signal to investors and international partners that it is determined to solve its debt crisis, Japanese officials said on Monday.
Japan has repeatedly expressed its willingness to help Europe contain its debt crisis, but has also stressed it wanted to see a convincing action plan before making any firm commitments.
“Japan like other non-euro countries is prepared to do something, but unless European contries take decisive action it is hard to make those steps effective,” a senior Japanese government official said.
Lifting the combined size of the current bailout fund (EFSF) and the new permanent European Stability Mechanism (ESM) beyond the current 500 billion euros would be a major step and an encouraging signal.
Don’t stay in School (too long)
Another great must read report by Ice Cap Asset Management.
Dr. Ben Bernanke went to school and never left. He is an academicwho has never worked in the private sector yet controls the fate oftrillions of Dollars, Euros, Yens and Pounds. Today he is smiling.Dr. Marc Faber also went to school, but he didn’t stick around. He hasworked exclusively in the private sector and today is considered oneof the most prescient investors on the planet. Today he is alsosmiling.To better appreciate all the smiling, one must understand exactlywhat happened or better still, what didn’t happen in Brussels lastweek.In the eyes of Dr. Bernanke and Dr. Faber, the historic 17themergencysummit meeting by the Europeans to solve their money problemswent off without a hitch. Not only did the Euro-Elite fail to resolvetheir debt crisis, they failed miserably at even coming close torecognizing the problem. It ’s this distinct lack of recognition that isturning frowns into smiles.Dr. Bernanke is smiling of course because he is a money printer. Thecontinuing inability of the Euro-Elite to solve their problems virtuallyguarantees a 2012 recession in the Old World. In return, this will alsocreate a recession in the US which will provide plenty of excuses forMr. Bernanke to once again print money under the guise of QE3.Dr. Faber ’s uncanny ability to understand the big picture and foreseethe response from financial markets allowed him to predict the 1987crash, the 2008-09 crash, and the resulting 2009 stock market rally.Dr. Faber is smiling today not because he agrees with Dr. Bernanke’sfondness for money printing, but rather because the global financialsystem is developing exactly as he has envisioned. This vision ofcourse is a money maker for both him and his clients.
Latest comments