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

Thursday, January 31, 2013

Euro Currency Crisis Fades, Growth Worsens

As Europe’s Currency Crisis Fades, Growth Worsens - Businessweek: "But the indicators on Europe’s real economy are, if anything, worse than ever. Factory and services output contracted in December for a 17th consecutive month, and unemployment is at 11.8 percent and rising in many countries. The ECB lowered its growth forecast last month and now predicts the euro-zone economy will shrink 0.3 percent this year. "

Punishing austerity or votes? Why the euro zone bond rally cannot last - The Globe and Mail: "Bond yields are still falling, as if the euro crisis has been magically cured. The euro is soaring against the dollar, and an upbeat Mr. Draghi this week talked about the coming “normalization” of financial markets, even if he predicted only a weak economic recovery in the second half of this year. But guess what? The recession isn’t over and the euro is on a tear, reaching almost $1.33 (U.S.) on Friday. A high euro will make European exports more expensive, damaging the touted economic recovery. Euro zone unemployment is at a record high and climbing. Youth unemployment ranges from 30 per cent to more than 50 per cent on the euro zone’s Mediterranean frontier. Budget deficits will remain intact as a strong recovery proves elusive; a triple dip recession is not out of the question. All of this means that austerity will not go away, in spite of the lower sovereign borrowing costs. Remember that the ECB’s bond-buying guarantee is conditional on austerity. The problem is that the spending cutbacks and tax hikes are making already weak economies even weaker."

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Tuesday, January 29, 2013

Mary Jo White and the revolving door

The Revolving Door in Washington--now at the SEC:

Cop or suspect? - The Economist on Mary Jo White as head of the SEC
" . . . The appointment is not without controversy. Ms White has benefited from the revolving door between public service and private practice. In the aftermath of the crisis, financial firms sought the assistance of former regulators with strong ties to the government. In a scathing article on Bloomberg's website, Jonathan Weil notes that Ms White participated in the defence of many people and institutions at the heart of the financial collapse. In October 2008 she was cited in a critical report by the SEC’s inspector general for receiving “relevant information” that was not publicly available. Some will ask whether she is truly a poacher turned gamekeeper or simply setting herself up for another lucrative turn through the revolving door. Mr Obama, for one, is convinced he is getting the "tough-as-nails prosecutor". By putting Ms White at the SEC, he has suggested that the agency’s priority is enforcement. But a bigger challenge may come from the sprawling Dodd-Frank legislation, and its many gaps and contradictions. Much of the next chairman’s time should be devoted to rethinking how America’s capital markets are structured, and deciding how that vision will be translated into the numerous rules the SEC is required to write under Dodd-Frank’s sloppy mandates. . . ." 

Bottom Line--if you've got "connections," you've got nothing to worry about. The revolving door keeps revolving.

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Saturday, January 26, 2013

Kyle Bass: Japan Debt Time Bomb Ticking

Japan’s Debt Time Bomb Is Ticking: Kyle Bass: "He predicts the bomb will detonate within two years. "All of the components of the equation are in place for this to all of a sudden go off," he said. "When it turns, it will turn at once. The yen will be its strongest right before it breaks, their interest rates will be the lowest right before they break." Bass advised anyone with yen to buy Western assets to protect themselves. He pointed to the $20 billion Softbank acquisition of Sprint and advertising agency Dentsu's purchase of Aegis in the UK as examples of Japanese companies buying Western assets."

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Thursday, January 24, 2013

Why Euro Zone Crisis May Get Worse

Why Euro Zone Crisis May Get Worse This Year: "Jean-Dominique Giuliani, who heads the Robert Schuman Foundation, a pro-European think tank in Paris, says difficult reforms must continue because the crisis shows no sign of going away. "Changes will now be constant and will demand a great deal of populations, overturn societies, surprise political leaders and unsettle experts," he said in a commentary on his group's web site. Charles Robertson, chief economist at Renaissance Capital in London, is among those wondering how much more voters are prepared to sacrifice. He expects Greece to quit the euro this year and says Spain might follow by the end of 2014. Spain has already endured one year of unemployment above 25 percent but will probably have to manage three more in order to meet the financial targets set by its international creditors. "No economy (as far as we are aware) has ever sustained this unemployment rate and maintained a peg to a fixed exchange rate,"Robertson said in a report. Most damaging of all, he said, was the absence of hope: "For households, wages are still likely to fall to boost competitiveness.Households are deleveraging and defaulting, not borrowing more to fuel consumption.""

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Tuesday, January 22, 2013

US has been let down by its leadership

US has been let down by its leadership - FT.com: " . . . Neither Democrats nor Republicans recognise that maintaining a basic welfare state, which is right and necessary in our age of globalisation, rapid technological change and demographic pressure, implies higher taxes for the middle class as well as for the rich. A deal that extends unsustainable tax cuts for 98 per cent of Americans is therefore a pyrrhic victory for Mr Obama. For now, he is being helped by the quiescent financial markets. It will probably take years for the US to confront the reality of its fiscal position and raise revenues to a level sufficient to fund a reformed – but not gutted – welfare state. Large fiscal deficits will remain the norm for the next few years, at least so long as the bond market remains quiet, as I believe it will. Bond market “vigilantes” have no appetite for destruction. Why should they? Growth is low and inflation lower; the US still has the global reserve currency; US Treasuries remain haven assets; interest rates are at zero; the US Federal Reserve is committed to QE; and China and other emerging economies will keep accruing US dollars to resist appreciations in their own currencies. All this guarantees the cheap financing of the US deficit for years to come. But eventually, the vigilantes will wake up. In short, the “mini deal” on the fiscal cliff dodged all the important questions. By not including spending cuts in the deal, the Democrats have emboldened Republicans who are determined to slash taxes but lack a plan to pay for it. It is again up to Washington’s policy makers to fix the problem before the market does it for them. . .  ."

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Saturday, January 19, 2013

Car sales crater in austerity-battered euro zone

Car sales crater in austerity-battered euro zone - The Globe and Mail
Auto makers are facing a sustained slump in the European car market as the euro zone debt crisisand government austerity measures sap consumer demand .

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Thursday, January 17, 2013

Economy is not the real beneficiary of fiscal cliff deal

Economy isn't the real beneficiary of fiscal cliff deal - The Term Sheet: Fortune's deals blogTerm Sheet: "For many years now, the rich have done very well in America while the middle class has stagnated and a growing number of poor Americans have fallen through the country's stretched safety nets. Even in the aftermath of a global financial crisis triggered by irresponsible risk taking and excessive concessions to powerful lobbies, the bulk of state support has gone to the better off segments of society. The fiscal cliff compromise is the first meaningful attempt to redress this multi-year phenomenon. By increasing tax rates on better off segments and by maintaining redistribution mechanisms, an effort is being made to stop years of steady deterioration in income and wealth inequalities. Yet the benefits will only prove durable and meaningful if the nation's overall economic context is addressed in a more comprehensive manner that improves economic growth and creates jobs. For that, we need a much more visionary, responsible and functional Congress. --Mohamed El-Erian is the CEO and co-chief investment officer of PIMCO. President Obama recently appointed El-Erian to head the U.S. global development council."

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Wednesday, January 16, 2013

Fiscal Cliff, Debt Limit, Fiscal Crisis, Debt Crisis . . .

Retirees face their own 'fiscal cliff' | Zanesville Times Recorder | zanesvilletimesrecorder.com: "Three out of four Americans near 65 have less than $30,000 in retirement savings. Inadequate savings is just part of a troublesome litany. Teresa Ghilarducci, an economist at the New School for Social Research, calculates that half of retirees are destined to live near poverty and will have to live on a food budget of about $5 per day. The values of houses — often the big asset that anchors a retirement strategy — dropped, on average, by 17 percent from 2007 to 2010. Wages have stagnated, too. Only about half of American adults have any retirement savings at all."

White House delays 2014 budget after "fiscal cliff" standoff
WASHINGTON (Reuters) - The White House will delay submission of its budget proposal to Congress for fiscal year 2014 because of the protracted fight over the "fiscal cliff," according to an official in President Barack Obama's budget office. Jeffrey ...

SF Fed chief says 'fiscal cliff' still at top of list of concerns
San Jose Mercury News
HALF MOON BAY -- Worries about whether and how U.S. lawmakers will take the hard steps needed to put the nation on a sustainable fiscal path are top of mind as U.S. central bankers weigh monetary policy, a top Federal Reserve official said on Monday.

Bernanke: 'Not Out of the Woods' Despite Cliff Deal
Although the "fiscal cliff" deal made "some progress" in resolving the nation's debt problem, "we're not out of the woods yet," Federal Reserve Chairman Ben Bernanke said Monday. "We are approaching a number of other fiscal critical watersheds ...


Fiscal Cliff Deal Extends Wasteful Farm Subsidies
Congress recently passed the so-called American Taxpayer Relief Act to avert the fiscal cliff.[1] In classic Washington style, lawmakers managed to squeeze in several unrelated provisions, including a nine-month, partial extension of the 2008 farm bill.

Sequester of US defense next fiscal crisis to avert
Daytona Beach News-Journal
Sequester of U.S. defense next fiscal crisis to avert. OUR VIEW. Published: Monday, January 14, 2013 at 5:30 a.m.. Last Modified: Friday, January 11, 2013 at 6:30 p.m.. The fiscal-cliff mess that Congress and the White House faced on New Year's Day was ...

Common Ground: Fiscal crisis deals stifle reform efforts on entitlements, debt
Baxter Bulletin
Common Ground: Fiscal crisis deals stifle reform efforts on entitlements, debt. Cal Thomas is a conservative columnist. Bob Beckel is a liberal Democratic strategist.- 10:19 pm. Charles Krauthammer: Meaning of Chuck Hagel. 'This is my last election ...

Obama: No haggling on debt ceiling, can use executive action to tighten gun laws
Fox News
President Obama on Monday warned congressional Republicans again that he will not negotiate over the debt ceiling, saying Washington must increase the limit to pay its bills and that such brinksmanship would be “absurd” and “irresponsible.” “The issue ...

Bernanke urges Congress to raise the debt limit
Los Angeles Times
WASHINGTON -- Federal Reserve Chairman Ben S. Bernanke on Monday warned Congress that it needed to raise the debt limit so the U.S. could pay its bills and not face default, which he said would be “very, very costly to our economy.” Speaking just a few ...

Obama: No negotiations with GOP over debt ceiling
Washington Post
President Obama vowed Monday that he would not negotiate with Republicans over the federal debt ceiling, warning that Social Security checks would be delayed and the nation could enter a new recession if Republicans do not agree to raise the limit on ...

Washington Post

Geithner Says Debt Limit Steps May Run Out by Mid-February
U.S. Treasury Secretary Timothy F. Geithner said so-called extraordinary measures he's taking to avoid breaching the debt ceiling would work only until mid- February to early March and warned that failure by Congress to raise the limit could “impose ...

Dems hold a trump card in debt limit showdown
Washington Post (blog)
Some Republicans seem to believe they have a clever endgame in the debt ceilingfight: The House GOP passes a bill that includes a debt limit hike and deep cuts to entitlements, and then goes home, challenging Senate Dems and the White House not to ...

Obama Warns Republicans on Debt Limit
Wall Street Journal
WASHINGTON—The next phase in the bitter, two-year-long battle between the White House and congressional Republicans began in earnest Monday, with President Barack Obama and GOP leaders digging in over spending and the debt limit. Mr. Obama ...

Wall Street Journal

History lesson: Why did Congress create a national debt limit?
Washington Post (blog)
(Jay Mallin/Bloomberg). Now that the Treasury Department has nixed the odd idea of issuing a platinum coin to get around the federal debt limit, Congress once again will be forced to decide whether to raise the debt limit. When this issue last loomed ...

Obama Warns Of Dangerous Consequences If Debt Limit Isn't Raised
Obama Warns Of Dangerous Consequences If Debt Limit Isn't Raised. by Ari Shapiro. January 14, 2013 3:00 PM. Audio for this story from All Things Considered will be available at approximately 7:00 p.m. ET. January 14, 2013. President Obama gave the last ...

Secondary Sources: Debt Ceiling Game Theory, China and Inflation, 2013 ...
Wall Street Journal (blog)
–Debt Ceiling Game Theory: Mike Konczal examines the game theory behind the post-platinum coin debt ceiling issue. “The administration decided against negotiating with the GOP over potential terms for raising the debt ceiling, even though they could ...

Obama: US debt crisis looms
Bangkok Post
WASHINGTON - President Barack Obama warned of a new economiccrisis Monday and said global stock markets would go "haywire" unless Republicans in Congress agree to raise the US sovereign debt ceiling. "To even entertain the idea of this happening ...

Bangkok Post

MassMutual takes on student loan debt crisis
SPRINGFIELD, MA: MassMutual Insurance has launched a Facebook campaign to help Millennials manage student loan debt. The “Down with Debt” initiative, which will run through February 14, is encouraging college graduates and young professionals to ...

Who'll get paid during a debt crisis?
Wilkes Barre Times-Leader
WASHINGTON — In the summer of 2011, when a debt crisis like the current one loomed, President Barack Obama warned Republicans that older Americans might not get their Social Security checks unless there was a deal to raise the nation's borrowing...

Many ideas but little agreement on solving debt crisis
WASHINGTON — Republican Sen. Marco Rubio wants the federal government to save money by freezing discretionary spending and reforming entitlement programs such as Social Security. Democratic Sen. Bill Nelson proposes ending subsidies to oil ...

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Tuesday, January 15, 2013

US Companies Are Not Likely to Invest or Hire

Why Companies Still Aren't Likely to Invest—or Hire: "Stocks are sharply higher for the very young 2013, but uncertainty abounds as Congress faces critical deadlines in the months ahead that could yet lead to a government shutdown, not to mention steep cuts in defense and domestic spending and an inability for the U.S. to keep funding its massive deficit spending. With all that in mind, it's hardly a good climate to bring corporate money in off the sidelines. "Given how cantankerous the fiscal cliff negotiations were, we do not have much faith that the next round of talks, which will begin within a couple weeks and which arguably have much bigger long-run stakes, will go any better," Deutsche Bank chief U.S. economist Joseph LaVorgna warned clients. "We do not see how this is going to be good for business spending and hiring.""

The Fiscal Cliff Deal and the Damage Done - Businessweek: "If Congress were stacked with 535 centrist macroeconomists, it would have voted to supply more stimulus to the economy immediately while also setting up a mechanism for reducing deficits over the long term. “If stimulus is part of a credible long-term deal, that’s the best of all possible worlds,” says Chris Varvares, co-founder of St. Louis-based Macroeconomic Advisers."

Investor enthusiasm over fiscal cliff deal will be short-lived - The Term Sheet: Fortune's deals blog Term Sheet: " . . . The fiscal cliff, which was essentially created by Congress and the President with the Budget Control Act of 2011, was averted by the exact same Congress and President . . . with the passage of the American Taxpayer Relief Act of 2012. With the stroke of a pen, the nation was pulled back from this politically manufactured precipice with a flawed plan that does little to address the nation's long, or even its short term, fiscal problems. In brief, the compromise ensures that most Americans will pay more in taxes this year than they did in the last two years, with the nation's highest earners, those taxpayers with incomes of more than $400,000 for individuals or $450,000 for married couples filing jointly, taking the brunt of the hit. This relatively ultra-rich group will see their federal tax rates increase from 35% to 39.6% - the rate before the implementation of the Bush-era tax cuts. This group will also pay higher tax rates on investment income, with rates on capital gains and dividends rising from 15% to 20%. This is in addition to the 3.8% "Obamacare" surcharge on investment income scheduled to go into effect today, bringing the top rate on investment income to a sobering 23.8%. . . "

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Saturday, January 12, 2013

Get used to more fiscal cliffs

Get used to more fiscal cliffs: " . . . After all the hype around the fiscal cliff, the resolution has contained nothing even close to a “grand bargain”. In hindsight, it was naïve to expect that the talks would generate a new framework for overarching tax reform and changes to entitlement programs that would create a more efficient U.S. economy in the longer-run, perhaps paired with steps to offset some of the pain of adjustment in the short run. It was unrealistic because that’s how the American political system does policy. Iteratively, gradually, haltingly. A grand bargain would be the equivalent of the 1983 Social Security reforms, 1986 tax reform, and the 1990 deficit-reduction deal, all in one. But notice something important: Those things happened over a seven year period, not a six week period. In other words, we should get used to this. There are fundamental changes that will happen to U.S. fiscal policy in the years ahead, both in tax policy, entitlements, and overall deficit reduction. But they will come about through a series of jaw-clenching negotiations that drive reporters and polticians alike batty. In a political system with so many distinct nodes of power, and with such complicated issues at stake, there is no other way. All this doesn’t necessarily consign the economy to years more of stagnation. There was plenty of brinksmanship, and even a couple of government shutdowns, in the 1990s, which was quite a good decade for the U.S. economy. If the fundamentals are strong, the hijinks of Washington policymakers don’t matter much. So brace yourself for a series of artificial deadlines and last-ditch negotiations and brinksmanship. And hope that the policies that come out of all that, several years down the road, involve both more sustainable public finances and a more competitive U.S. economy. . . . "

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Thursday, January 10, 2013

Think the Eurozone Crisis Is Over?

Better think again--jobless rate in the 17-nation bloc rose to 11.8 percent in November, a month in which German exports, imports and industrial orders all declined.

The euro zone jobless rate rose to 11.8 percent in November from 11.7 percent in October, according to Eurostat, the statistical agency of the European Union. Eurostat estimated that 18.8 million people in the euro zone were unemployed in November, two million more than a year earlier. Germany has provided momentum to the European economy over the past three years, as strong exports protected the country from the crisis. But on Tuesday, the Federal Statistics Office in Berlin said that German exports declined 3.4 percent while imports slid 3.7 percent in November from a month earlier. The weakness narrowed Germany’s trade surplus to €14.6 billion, or $19 billion. German factory orders also fell in November amid weak demand from outside the euro area, the Economy Ministry said Tuesday. Orders, adjusted for seasonal swings and inflation, slid 1.8 percent from October, when they jumped 3.8 percent. “The November numbers are not a one-off but an extension of the current trend of weakening exports,” Carsten Brzeski, an economist at ING, wrote in a research note Tuesday. He pointed out that German exports had fallen about 4 percent since May. “Today’s data confirmed our view that exports should have turned from driver of growth into drag on growth,” he wrote. A separate report from Eurostat showed that retail sales fell 2.6 percent in November from a year earlier, though they gained 0.1 percent from October.  (source: New York Times January 8, 2013)

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Tuesday, January 8, 2013

Merkel Says Euro Zone Crisis Far From Over

Merkel Says Euro Zone Crisis Far From Over
Germany has been the paymaster in the euro zone crisis, to the chagrin of many German voters and a growing bloc of conservative lawmakers in Merkel's coalition. Germans remain wary of euro zone bailout efforts but give Merkel high marks for what they ...


Weidmann warns against complacency in debt crisis
Capital.gr (press release)
Bundesbank President Jens Weidmann warned against complacency in the struggle to overcome theeuro zone sovereign debt crisis and also denied he had considered quitting due to differing views with ECB President Mario Draghi, a newspaper reported.

Merkel says euro zone crisis far from over - swissinfo
Dec 31, 2012 - 00:02. BERLIN (Reuters) - The euro zone sovereign debt crisis is far from over even though reform measures designed to address the roots of the ...

Analysis: Euro zone bond clause highlights rich nation default risk ...
From its own perspective, the euro zone has sound reasons for inserting the clauses. An absence of ... Three years of euro zone debt crisis has changed all that.

Merkel pleads for euro zone patience | Times 247
Merkel pleads for euro zone patience The euro zone sovereign debt crisis is far from over even though reform measures designed to address the roots of the ...

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Saturday, January 5, 2013

EU summit and the euro crisis

EU summit and the euro crisis Step by step, with a ripped map
The Economist (blog)
IN JUNE this year, when Spain seemed to be close to succumbing to the crisis,European leaders appeared to make an important conceptual leap. The euro's agony could not be ended simply through ever-tougher enforcement of the fiscal rules, deficit ...

Only Crisis Can Show True Colors of French President Hollande
Spiegel Online
... but many voters are asking themselves who it is they elected. He's a staunch opponent of Angela Merkel's austerity measures and has made combatting them a priority. His true political agenda may only become apparent as the euro crisis continues ...

Spiegel Online

Germany and the euro crisis
The Economist
TWO duelling German metaphors capture the strategy of Angela Merkel, Germany's chancellor, in the euro crisis. The pejorative version is that she is using “salami tactics”, cutting off the thinnest possible slice of any rescue sausage being negotiated ...

The Economist

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Thursday, January 3, 2013

Why There Was No Real Fiscal Cliff Deal

No incentives--

Why There Was No Fiscal Cliff Deal This Week: " . . . It's totally different today. The U.S. bond market hasn't intimidated anyone in more than a decade. If anything, it is begging legislatures to keep borrowing. Someday that will change. Interest rates will rise, markets will protest, and then -- and only then -- will there be comprehensive budget reform. No one knows when that day will come. It could be tomorrow or decades off. When it does, it will likely be the equivalent of weight gain or even heart attack, prompting quick action -- a reality that actually makes me optimistic. Until then, expect more symbolic, short-term budget deals, more bickering, and more fiscal cliffs. There is no incentive for anything else. As Charlie Munger put it: "Never, ever, think about something else when you should be thinking about the power of incentives.""

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Tuesday, January 1, 2013

Obama and the Fiscal Cliff

Obama: My Way or the Highway--

President Obama: Fiscal Cliff Failure Will Occur If GOP Can't Say Yes (UPDATE): ". . . Senate leaders met on Saturday to find a way through the impasse. One knowledgeable aide said a deal didn’t look likely as of Saturday afternoon. A Republican aide said it would be impossible to know for sure until Sunday afternoon, when Senate Minority Leader Mitch McConnell (R-Ky.) and Senate Majority Leader Harry Reid (D-Nev.) will brief their respective caucuses. Even as they talked, preparations were being made to manage the public relations fallout over failure to meet the deadline. Part of that involved the president hitting the Sunday talk show circuit, where he urged the press not to resort to false equivalencies when assigning blame. . ."

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