"If you're going to panic, do it fast and beat the crowd." ~ Jesse Livermore

Saturday, December 29, 2012

Euro Zone Crisis Enters Its Political Phase

Euro Zone Crisis Enters Its Political Phase - WSJ.com: "The outlook for the euro zone has improved, he said. "Why? Because we have shown we mean business when we say we are ready to do whatever is necessary to secure financial stability in the euro zone." This year has seen, he said, an announcement by the European Central Bank of a new policy to shore up government-bond markets, actions to control public finances, some ambitious economic reforms, a strengthened bailout fund, proposals to tighten economic integration and the first steps toward a single banking union in the euro zone. The crisis isn't yet over, he said, and European leaders should avoid complacency. But he isn't alone in concluding that something important happened that reduced the financial risks to the euro in 2012. One big reason for the shift in sentiment has been, as Mr. Barroso said, the ECB's announcement of government-bond purchases following the pledge in July by Mario Draghi, the ECB president, "to do whatever it takes to preserve the euro." . . . Mr. Draghi's plan remains untested, and the possibility that it won't work as hoped remains a risk for 2013. . ."

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Thursday, December 27, 2012

Top 10 things to worry about in 2013

Top 10 things to worry about in 2013 - Irwin Kellner - MarketWatch: "After growing at a 2.7% annual rate in the third quarter, the gross domestic product probably expanded only one-third as fast in the fourth. As for the first quarter of 2013, it may not grow at all. What is more, the rest of the year does not look a whole lot better. Here are the top 10 reasons why: 10. Business will be reluctant to hire. Firms are still shell-shocked by the brouhaha over the fiscal cliff, and markets are too weak to justify expanding payrolls. . . ."

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Tuesday, December 25, 2012

Doubts remain over Spanish austerity

Doubts remain over Spain's austerity miracle - Telegraph: " . . . Prof Wyplosz said the contractionary policies across the eurozone are making the task much harder. “There may be a miracle but it is more likely that Europe’s recession will continue through 2013 and 2014 and who knows how long after that,” he said. Spain’s austerity began in earnest with a 5pc cut in public sector salaries in 2010. It deepened last July with the suspension of a “14th month” bonus, equal to a further 7.1pc cut. Even King Juan Carlos took a haircut. The contrast with Italy is striking. The OECD data show that Italy’s labour costs have continued to ratchet up despite perma-slump and drastic fiscal tightening, falling even further behind Germany over the past two years. “The picture for Italy is horrible. They are going in the opposite direction from everybody else,” said Raoul Ruparel from Open Europe. “Mario Monti never really made any progress on labour reform.” Mr Monti’s technocrat government failed to tackle the issue that has bedevilled Italy for 60 years, the rigid structure that mandates equal pay for workers in the cutting-edge Lombardy with the sleepy Mezzogiorno. The reforms were watered down by the Left in parliament and ended in a compromise that gives judges the last say on who can be fired, and pleases no one. . . . "

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Saturday, December 22, 2012

Banking Group Cuts Forecast on Euro-Zone Worries

Global growth 2013?--revise your expectations--

Banking Group Cuts Forecast on Euro-Zone Worries
Wall Street Journal (blog)
The Institute of International Finance, a group that represents nearly 500 of the world's largestfinancial firms, Tuesday slashed its global growth forecast for next year, primarily on dismaleuro-zone expectations. IIF chief economist Philip Suttle ...

Euro zone crisis Tusk: decision on euro adoption coming soon
Warsaw Business Journal
EU leaders hope this will be a major step towards a “banking union” and more importantly towards solving the ongoing debt crisis in the euro zone. Importantly for Poland, the ECB will implement a process that gives non-euro zone members a path to ...

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Thursday, December 20, 2012

Banking Union to Solve Euro Zone Crisis?

Don't Rely on Banking Union to Solve Euro Zone Crisis - NYTimes.com: " . . . Conventional wisdom has it that the euro zone needs a banking union to solve its crisis. This is wrong. Not only are there alternatives to an integrated regulatory structure for the zone’s 6,000 banks, but centralization will undermine national sovereignty. The rallying cry for a banking union sounded this year when it seemed that the euro zone might break apart. Advocates of such a union said that it would break the “doom loop” connecting troubled banks and troubled governments. This week, E.U. countries will meet to discuss the terms for a single supervisor for banks, the first stage of a banking union. There are two parts to the doom loop: when banks go bust, their governments bail them out, adding to their own debts; and when governments become over-indebted, their lenders get sucked into a vortex, as their balance sheets are full of sovereign debt. In its fullest incarnation, a European banking union would break the first part of this loop. There would be a central mechanism to recapitalize troubled banks or close them down. There would also be a single deposit guarantee scheme. The cost of dealing with banking crises would, therefore, be borne by the whole euro zone rather than by national  . . . " read more here

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Tuesday, December 18, 2012

UK already jumped the fiscal cliff

'Fiscal cliff'? Britain has already jumped.
Washington Post
NEWPORT, Wales — Is this what life on the other side of the “fiscal cliff” looks like? If President Obama and congressional Republicans fail to reach a deal in the coming weeks, Americans face a fierce wave of tax hikes and spending cuts that could ...

Analysis: Boehner opens door to tax hikes, shifts fiscal cliff talks
WASHINGTON (Reuters) - U.S. House of Representatives Speaker John Boehner's offer to accept a tax rate increase for the wealthiest Americans knocks down a key Republican road block to a deal resolving the year-end "fiscal cliff." The question now boils ...

Forecast Is Sunnier, but Washington Casts a Big Shadow
New York Times
That dismal pace is driven partly by drags from Europe's recession and China's slowdown; partly by companies readjusting after potentially overstocking their back-room shelves in the third quarter; and largely by worries about the so-called fiscal ...

New York Times

ESM head Klaus Regling sees euro zone debt crisis overcome in 2-3 years
Economic Times
BERLIN: The head of the euro zone's permanent bailout fund, Klaus Regling, was quoted on Saturday as saying it will take another two to three years to overcome theeuro zone debt crisis. "We're more than half way there," the head of the European ...

Economic Times

German economy not immune to EU financial crisis: ECB
Press TV
No country is immune to the effects of the (EU) debt crisis. Not even the German economy,” said Liikanen on Saturday. “There are a number of indications that the economy is getting weaker … across the euro zone,” he added. The remarks came after ...

Press TV

Economic slowdown throughout euro zone a worry for ECB: Liikanen
On Dec 7. the central banks of Germany and Austria forecast barely any economic growth in 2013, with the Bundesbank flagging risks of a recession in the euro zone's biggest economy as the debt crisis hits the bloc's core. (Reporting By Erik Kirschbaum; ...

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Saturday, December 15, 2012

Bad News Behind the Good Jobs Numbers

The Bad News Behind the Good Jobs Numbers | TIME.com: " . . . the Labor Department claims that the jobs numbers should be analyzed without taking the storm into account at all. And by that standard, not only were the job numbers themselves fairly modest, but there are some worrying details in the report that should give one pause before celebrating these numbers too enthusiastically. Construction Employment The report showed a decrease in construction employment of 20,000 jobs. This is troubling — or at least confusing — if Sandy did in fact have a minimal effect on the report, as recent housing start data has been starkly positive . . . Revisions to Previous Months Each month, the Labor Department issues its estimate for the previous month’s job growth, but it also issues revisions for the two months prior to that as well. And this report showed a net downward revision of 49,000 jobs. So really this report gave us a net job gain of 97,000 — a much less impressive figure than the headline 146,000. Declining Participation Rate After showing a solid 0.3% gain last month, the participation rate — or the percentage of adult workers in the workforce — declined once again by 0.2%. That drop in the participation rate appears to be the primary reason the unemployment rate dropped to 7.7%, as the household survey actually showed a net decline in jobs. While some of the overall decline in the participation rate has been driven by demographic reasons — an older country is going to have fewer people able to work — that only tells part of the story. Some of the decline in participation is undoubtedly a product of a depressed economy, and a true jobs recovery would have this number moving upwards, rather than the other way around. Overall, this report is probably nothing to get excited about either way. It’s roughly in line with the steady-but-unspectacular growth the economy has been producing for the past year. But any proper reading of the report will take into account some of the figures beneath the headline, and the details of this report say that it is less of a cause for celebration than the headline numbers would suggest."  Read more: http://business.time.com/2012/12/07/the-bad-news-behind-the-good-jobs-numbers/#ixzz2EcS7J8Ng

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Thursday, December 13, 2012

The way to save Italy

Italy--there is a way out--

Mario Monti's exit is only way to save Italy - Telegraph: "The nation is richer than Germany in per capita terms, with some €9 trillion of private wealth. It has the biggest primary budget surplus in the G7 bloc. Its combined public and private debt is 265pc of GDP, lower than in France, Holland, the UK, the US or Japan. It scores top of the International Monetary Fund’s index for “long-term debt sustainability” among key industrial nations, precisely because it reformed the pension structure long ago under Silvio Berlusconi. “They have a vibrant export sector, and a primary surplus. If there is any country in EMU that would benefit from leaving the euro and restoring competitiveness, it is obviously Italy,” said Andrew Roberts from RBS. “The numbers are staring them in the face. We think the story of 2013 is not about countries being forced to leave EMU but whether they choose to leave.” A “game theory” study by Bank of America concluded that Italy would gain more than other EMU members from breaking free and restoring sovereign control over its policy levers." 

Lira anyone?

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Tuesday, December 11, 2012

Real recovery task is scaling back the state

The real work has yet to begin--in Europe, the U.S., and U.K.--

Real recovery task is to scale back the state - Telegraph: ". . . Our 41-year-old, relatively inexperienced Chancellor was batting, to say the least, on a sticky wicket. Yet while he played a reasonably good game politically, as he delivered his Commons set-piece on Wednesday, I still believe that the economics of Osborne’s statement fell woefully short of what is needed to rescue the UK from its parlous state. Osborne came into office in 2010, after years of Gordon Brown’s fiscal vandalism. As such, the current Chancellor faced the unenviable task of taking very tough and radical action to restore the UK as one of the world’s leading advanced economies. Yet while his “austerity” rhetoric has been strong, Osborne’s policy implementation has been extremely patchy. In the fiscal year 2009-10, current government spending amounted to 42.9pc of GDP. In 2012-13, for all his “tough choices” bluster, spending will be 42.3pc of national income – by no means a significant reduction. The Chancellor talks a good game on mending this country’s finances but the task has barely begun. And amid all the theatrics, and hair-shirted mood music, this Autumn Statement pointed only to lower growth, higher borrowing and crucial targets to get our deficit and debt under control being pushed ever further into the future. . . . "

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Saturday, December 8, 2012

PIMCO Investment Outlook - Strawberry Fields Forever?

PIMCO | Investment Outlook - Strawberry Fields – Forever?: "knock a few percentage points off the deficit/GDP ratio, they claim, and the private sector will miraculously reappear to fill the gap. No such luck after 2–3 years of austerity in Euroland, however. Most of those countries are mired in recession and/or depression. Political leaders there should have studied the historical evidence presented by Carmen Reinhart and Ken Rogoff in a critically important paper titled, “Growth in a Time of Debt.” They conclude that for the past 200 years, once a country exceeded a 90% debt/GDP ratio, economic growth slowed by nearly 2% for both developed and developing nations for an average duration of nearly a decade. Their work displayed below in Chart 1 shows the result in the United States from 1790–2009. The average annual U.S. GDP rate growth, while clearly influenced by the Great Depression, was -1.8% once the 90% barrier was exceeded. The U.S., by the way, is now at a 100% debt/GDP ratio on the basis of the authors’ standard measuring yardstick. (Note as well the 5½% average inflation rate during the same periods.)"

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Thursday, December 6, 2012

The Hollowing Out of America

The Hollowing Out of America | The Nation: " . . . And yet the pit exists. It goes by the name of “austerity.” However, it didn’t just appear in time for the last election season or the lame-duck session of Congress to follow. It was dug more than a generation ago, and has been getting wider and deeper ever since. Millions of people have long made it their home. “Debtpocalypse” is merely the latest installment in a tragic, forty-year story of the dispossession of American working people. Think of it as the archeology of decline, or a tale of two worlds. As a long generation of austerity politics hollowed out the heartland, the quants and traders and financial wizards of Wall Street gobbled up ever more of the nation's resources. It was another Great Migration—instead of people, though, trillions of dollars were being sucked out of industrial America and turned into “financial instruments” and new, exotic forms of wealth. If blue-collar Americans were the particular victims here, then high finance is what consumed them. Now, it promises to consume the rest of us. . . ."

Morgan Stanley’s Doom Scenario: Major Recession in 2013 - US Business News - CNBC: "Morgan Stanley isn’t alone in warning about a recession next year. Noted bear, Nouriel Roubini warned on Monday that certain key developments would exacerbate the downside risks to global growth in 2013. “Until now, the recessionary fiscal drag has been concentrated in the euro zone periphery and the U.K.. But now it is permeating the euro zone’s core,” Roubini wrote. “And in the U.S., even if President Barack Obama and the Republicans in Congress agree on a budget plan that avoids the looming “fiscal cliff,” spending cuts and tax increases will invariably lead to some drag on growth in 2013 – at least 1 percent of GDP.” (Read More: Faber Prepare for Massive Market Meltdown) Roubini said the rally in global markets that begun in July was now running out of steam as global growth slows and valuations look stretched."

Bernanke's Easy Money Death Spiral | The Economy | Minyanville's Wall Street: "Last week, I argued from a lender’s perspective that contrary to Bernanke’s assertion, QE was impeding the extension of credit by raising interest rate risk. This week, I argued from the CEO perspective that QE is impeding capital investment by raising cost of capital volatility risk. Despite compelling evidence that monetary policy is inhibiting the capital allocation process, Bernanke continues to argue as he did last week for further accommodation. The irony is that, if I am correct, the more easy money we get, and the longer it will take to build a sustainable recovery, which will forever prevent Bernanke from ever normalizing interest rates. We are just stuck in this never-ending easy money death spiral that only the market can end. And that probably doesn’t end well."

Gaming US Fiscal Reform by Mohamed A. El-Erian - Project Syndicate: "Hobbled by the self-inflicted wounds of the debt-ceiling debacle in the summer of 2011 – which undermined economic growth and job creation, and further damaged Americans’ confidence in their political system – the US Congress and President Barack Obama’s administration recognized the need for a measured and rational approach to fiscal reform. To increase the likelihood of this, they agreed on immediate spending cuts and tax increases that would automatically kick in (the “fiscal cliff”) if agreement on a comprehensive set of fiscal reforms eluded them."

Why the fiscal cliff will be averted - FT.com: " . . . A successful agreement would embody three principles; it will be large enough to stabilise the debt to gross domestic product ratio, meaning about $4.5tn in savings over 10 years; it will include a balance of spending cuts and revenue raising measures; and it will be divided into two phases because, with just four weeks left, there isn’t time to legislate the entire package. The negotiators already know the main elements of an agreement. Spending cuts should exceed the amount of new revenues. That should not be hard because $2tn of cuts are already agreed; $1.2tn in reduced discretionary spending was enacted last year and an additional $800bn will be realised by ending the Iraq and Afghanistan deployments. But it is also time to restrain entitlement spending, which has been soaring. Steps such as means testing Medicare, modernising cost of living adjustment formulas and others could save another $600bn. When the resultant interest savings are added in, total spending is reduced by $3.2tn over 10 years. . . . "

Analysis: Beige book an economic tale of 2 storms: "Federal Reserve's new beige book is to be transported into the world of Charles Dickens: The economy, it seems, is a tale of two storms. One is Superstorm Sandy. It huffed and puffed and blew the growth back downward in parts of the country during the October through mid-November period covered by the central bank's report. The other, more serious storm. is coming from Washington. And it could hit if Congress and the Obama administration fail to make a deal to spread out the tax increases and spending cuts set to take effect Jan. 1."

Which country has the best quality of life? - Telegraph: "The Economist Intelligence Unit looked at GDP, life expectancy, political freedom, job security, climate and gender equality to compile a list of 80 countries ranked by their general quality of life. It also considered economic forecasts for 2030, the year that a baby born now would reach adulthood. Switzerland, one of the world's richest countries, topped the list and was named the best place to be born. Half of the top 10 were European countries, but only one, the Netherlands, was in the eurozone. Falling at the very bottom of the list were the Ukraine, Kenya and Nigeria. The UK came in 27th place, just behind France and one place ahead of the Czech Republic and Spain in joint 28th position. The US was in joint 16th place with Germany. In compiling the list the group said it: “earnestly attempts to measure which country will provide the best opportunities for a healthy, safe and prosperous life in the years ahead.”"

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Tuesday, December 4, 2012

Avoiding a New American Recession

Avoiding a New American Recession by Martin Feldstein - Project Syndicate: "President Barack Obama’s proposed alternative to the fiscal cliff would substantially increase tax rates and limit tax deductions for the top 2% of earners, who now pay more than 45% of total federal personal-income taxes. His budget would also increase taxes on corporations, and would end the current payroll-tax “holiday,” imposing an additional 2% tax on all wage earners. Together, these changes could lower total demand by nearly 2% of GDP. And the higher marginal tax rates would reduce incentives to work and to invest, further impeding economic activity. All of that could be fateful for an economy that is still struggling to sustain a growth rate of less than 2%. The Congressional Budget Office and the Federal Reserve predict that going over the fiscal cliff would cause a recession in 2013, with Fed Chairman Ben Bernanke recently saying that the Fed would be unable to offset the adverse effect on the economy. He could have said the same thing about the fiscal drag that would be created by Obama’s budget proposal. . . . "

Euro zone debt crisis to run and run, says QNB Group
CPI Financial
Despite a recent agreement by the Euro group and the IMF on releasing further assistance for Greece under its bailout programme, the outlook for Euro zone economies remains weak and the region's sovereign debt crisis is likely to stay with us for a ...

Analysis: Greek deal puts euro zone in slow recovery room
Monday's EU-IMF agreement to keep Greece afloat inside the euro zone, by reducing its debt now and hinting at official debt relief to come later, has removed the biggest risk of a financial shock that could re-ignite market panic and send the euro back ...

ECB and BOE rate decisions to grab attention
Both Spain and Italy had announced that they completed all the funds needed for 2012, where the upcoming auctions are all for 2013 financial requirements, lowering the chance of tapping the ECBs OMT program this year. ... Moving to the U.K., the ...

Austria's Fekter sees no need to top up ESM bailout fund
Business Recorder (blog)
Moody's cut its rating for the European Stability Mechanism and sister fund EFSF following its downgrade of France in November, noting a high correlation in credit risk among the rescue funds and their largest financial backers. Fekter, one of the ...

Business Recorder (blog)

OECD cuts global economic forecasts over euro zone risks
Trade Arabia
The Organisation for Economic Cooperation and Development slashed its global growth forecasts on Tuesday, warning that the debt crisis in the recession-hit euro zone is the greatest threat to the world economy. In light of the dire economic outlook ...

Trade Arabia

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Saturday, December 1, 2012

We have already fallen off the fiscal cliff

In Washington D.C., the fiscal problem is really just simple arithmetic--

Avoiding The Fiscal Cliff By Fixing The Fiscal Hole - Forbes: " . . . the amount of revenue raised by the government as a share of Gross Domestic Product (GDP) hasn’t changed that much, an average of 17.5 percent (due to the weak economic recovery revenues were 15.5 percent of GDP in 2012, well below the long-term average). Part of our fiscal problem is simple arithmetic: the federal government has spent an average of 20.2 percent of GDP over the same time period; the reason we now have $16-trillion dollar deficit vertigo. And, the over-spending problem has worsened recently due to the government’s four year string of trillion dollar annual deficits that grew the size of the federal government to levels that have never been greater, except during World War II. The other part of the fiscal problem arises due to the composition of government spending, and how that has changed. In 1962, for instance, 70 percent of the federal budget went on public goods such as defense, agriculture, education and energy, 13 percent went on social security, 10 percent went on unemployment compensation and other income security programs, and 6 percent went on interest payments on the national debt. In 2011, . . . 33 percent went on public goods, and 6 percent went on interest payments on the debt. But social security and Medicare (which started in 1965) now accounted for 34 percent of the budget, while unemployment and other income security programs accounted for 27 percent. . . . We cannot simply tax our way out of this math. Even if the tax increases under consideration were implemented, and annually raised the $82 billion expected by the Joint Tax Committee, 94 percent of the over $1 trillion annual deficit would remain. And, due to the negative impact tax increases have on economic growth, the tax increase may raise even less revenues. This is the fundamental reality of the so-called fiscal cliff. We’ve already fallen off. Climbing out is going to be painful – and it’s going to require us to rethink what we ask of government and not just what we give."

But when it comes to politics, the simple isn't so simple!

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Euro Crisis - Google News

Fiscal Cliff - Google News

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