Links: 2013-02-06
News links for 6 February 2013
The sequestration cuts and the state of the states | FT Alphaville
“Sequestration therefore poses a major budgetary problem for the states and it could be compounded by slower growth in income taxes in 2013 than 2012. This is because many taxpayers sold capital assets before the end of 2012 in anticipation of the imposition of higher rates of federal tax.
Even so, state budgets are not so stretched that the loss of $255 mn in Build America Bonds subsidies in 2013 should cause any state to default on their upcoming coupon payments. We expect that will remain the case even though that number relates just to 2013 and sequestration will be a 10-year process, unless amended, and so naturally there is concern that a cash strapped federal government could look to shrink payments even more in 2014 and after.”
“When the new Z10 phone launched in Canada on Tuesday — a long-awaited milestone that’s seen as a make-or-break moment for BlackBerry — there were no major crowds waiting outside stores. While Apple product releases spawn endlessly long lineups no matter what the new gadget is, the new BlackBerry 10-powered smartphone couldn’t inspire much in the way of palpable excitement on the streets.
The leagues of proud BlackBerry devotees have thinned over the years in Canada, and the IDC report makes plain just how far its fortunes have fallen in its home country.”
Here is a Spanish take on Hollande’s asking Merkel to take stimulative measures in Germany and to relax France’s deficit target.
EXCLUSIVE: Justice Department memo reveals legal case for drone strikes on Americans – Open Channel
“A confidential Justice Department memo concludes that the U.S. government can order the killing of American citizens if they are believed to be “senior operational leaders” of al-Qaida or “an associated force” — even if there is no intelligence indicating they are engaged in an active plot to attack the U.S.
The 16-page memo, a copy of which was obtained by NBC News, provides new details about the legal reasoning behind one of the Obama administration’s most secretive and controversial polices: its dramatically increased use of drone strikes against al-Qaida suspects abroad, including those aimed at American citizens, such as the September 2011 strike in Yemen that killed alleged al-Qaida operatives Anwar al-Awlaki and Samir Khan. Both were U.S. citizens who had never been indicted by the U.S. government nor charged with any crimes. “
Euro zone economy shows signs of recovery | Reuters
“the data showed a continued divergence between the euro zone’s powerhouse economy Germany and that of neighboring France that will worry policymakers.
The German PMI chalked up its biggest one-month rise since August 2009, soaring to its highest since June 2011, while the reading for the bloc’s second-biggest economy France plummeted to its lowest in nearly four years. The French services PMI was even below readings from perennial laggards Spain and Italy.”
Hollande veut une politique de change pour lutter contre l’euro fort – LExpansion.com
As you may have seen in English-language articles, Francois Hollande gave a speech before the European Parliament decrying the strength and volatility of the euro exchange rate. This is another salvo in the currency wars in which there is greater pressure on the ECB to do something to stop the euro from appreciating and strangling European economies. France is in the hot seat here because its PMI numbers are awful and its deficit goal is dependent on its growing 1.7% this year, something that won’t happen.
Comment la désindustrialisation de la France s’accélère – LExpansion.com
This article in L’Expansion is on the de-industrialisation of France. The article says that the closure of factories in France rose 42% in 2012 representing a loss of 24,000 jobs. Since 2009 1000 factories have closed and 700 have opened. Clearly there is a lot of angst in France about the economy, as seen through from articles like this.
“It cannot be long before economists in France, Italy and Spain contemplate a vision of the eurozone without Germany. The heartfelt plea on Tuesday from French president François Hollande for a lower exchange rate illustrates the power of the German economy and its influence on the euro.
Nearly all the major economies of the eurozone are heading in the same direction as Portugal and Greece. Surveys of the services sectors in France, Spain and Italy on Tuesday were shocking, and must lead to higher unemployment and lower GDP growth over the coming year.”
Chile Economy Grew Faster-Than-Forecast 4.7% in December – Bloomberg
“Chile’s economy grew 4.7 percent in December from the year earlier, beating estimates made by analysts on gains in the service and retail industries, the central bank said.
The median estimate of 16 analysts surveyed by Bloomberg was for the economy to expand 3.7 percent in December. The economy as measured by the central bank’s Imacec index, a proxy for gross domestic product, rose 1.2 percent in December from the previous month on a seasonally-adjusted basis, the bank said in a report posted on its website today.”
Now It’s Time for Sequester Anxiety | Bipartisan Policy Center
“We believe that at least a partial sequester, and very possibly the full sequester, is likely to go into effect.
Our calculations indicate slight changes in the percentage cuts for both defense and non-defense* (as a result of recent developments) as follows:
Defense discretionary: across-the-board cuts to funds remaining on March 1 by program, project and activity of roughly 16 percent ($55 billion over the next seven months)**
Non-defense discretionary: across-the-board cuts to funds remaining on March 1 by program, project and activity of roughly 9 percent ($27 billion over the next seven months)**”
A Million Jobs at Stake With Sequester – NYTimes.com
“The Bipartisan Policy Center, a respected independent group, said at least a million jobs will be lost this year and next because of the slowdown caused by withdrawing so much money from the economy. The Congressional Budget Office says up to 1.4 million jobs are at stake.
This isn’t fortune telling; the effect of the coming sequester was already evident in last week’s announcement that the economy actually contracted during the final quarter of 2012. Much of the decline was directly due to the 22 percent reduction in spending by the Pentagon and military contractors in anticipation of the sequester’s effects.”
CBO: Budget Deficit Estimated at $845B | TIME.com
“A new government report is predicting the budget deficit will drop below $1 trillion for the first time in President Barack Obama’s tenure in office.
The Congressional Budget Office analysis released Tuesday says the government will run a $845 billion deficit this year, a modest improvement compared to last year’s $1.1 trillion shortfall but still enough red ink to require the government to borrow 24 cents of every dollar it spends.
The agency also projects that the economy will grow just 1.4 percent this year if $85 billion in across-the-board spending cuts take effect as scheduled March 1. Unemployment would average 8 percent. Obama wants to ease the cuts by replacing them with new tax revenue and alternative cuts, but a clash is looming with Republicans who insist that last month’s tax increase on wealthier earners will be the last tax hike they permit.”
Sequester to halve U.S. 2013 growth: CBO – MarketWatch
“Fiscal tightening including the automatic budget cuts known as the sequester would cut U.S. growth in half in 2013 if allowed to go into effect, the Congressional Budget Office said Tuesday in a new budget and economic outlook.”
Goldman Sachs | Press Releases and Comments – Jim O’Neill to Retire from Goldman Sachs
“After nearly 20 years of outstanding service, Jim O’Neill, chairman of Goldman Sachs Asset Management, has decided to retire from the firm later this year.
Jim is an influential economist and thought leader, and is regarded as an expert in the world’s foreign exchange and bond markets. Importantly, he has identified revolutionary economic trends, defining the concept of the BRICs which has become synonymous with the emergence of Brazil, Russia, India and China as growth opportunities of the future. Jim’s BRIC thesis has challenged conventional thinking about emerging markets and, as a result, has had a significant economic and social impact. More recently, his book, The Growth Map, captured his perspectives on the growth markets of today and the future.
Jim joined Goldman Sachs in 1995 as a partner in the roles of co-head of Global Economics Research and chief currency economist.”
Fitch senkt Ausblick für Bonität der Niederlande – Finanzmarktkrise – derStandard.at › Wirtschaft
Fitch Ratings has lowered its outlook for the credit ratng of the Netherlands to “negative” from “neutral”. Fitch justified its move by citing problems with the Dutch housing market and banking sector, which have weighed on the Dutch economy. The Netherlands still has a AAA rating for now.
Amazon weist erstmals Umsatz in Deutschland aus – SPIEGEL ONLINE
Amazon revealed a country breakdown for Germany in its official results for the first time. The results show revenue of $8.7 Billion in Germany in 2012. According to the German Federation of Shipping, Amaxon already controls 20% of the German market, which is believed to be a 27.5 billion euro market. So you can see the math works.
Citi Sees Cracks In European Rally – Business Insider
“there is one market in particular that has Citi particularly wary: Spanish sovereign debt.
As the chart below shows, and as Crossley characterizes it, “buying has been disproportionately large in Spain” over the past month as investors have embraced the risk rally full-stop.”
Blackberry 10′s Android runtime to be upgraded to Android 4.1 Jelly Bean
“If you were to tell me that a Blackberry device would be able to run Android 4.0+ apps sooner than some Android phones I would crawl into a hole and die from laughter, but that just might happen if today’s news is accurate. Engadget has confirmed with Blackberry that the Android runtime, a compatibility layer that allows Blackberry 10 devices to run Android apps, will be getting an upgrade to Android 4.1 Jelly Bean.
This means it will be able to run virtually any Android application you can think of as long as the developer is willing to change a few lines of code. As we explained before, Blackberry (who used to be RIM, but will undergo a name change) would prefer developers to create native applications, but it is willing to use apps originally created for Android as a bridge while developers catch on.”
The euro crisis: Even the good news is bad news | The Economist
“The good news, in other words, is that the euro-zone economy continues to shrink, albeit at a slower pace. Digging into the figures, it is clear that there is some legitimately good news. German activity showed an outright expansion in January and contraction in Spain has slowed dramatically from late last year. But Italy is merely treading water, and the recession in France—the euro area’s second-largest economy—is rapidly deepening in a very discouraging sign.
Movements in bond yields add to the troubling French picture. When markets move to more of a “risk on” position, French yields rise. German bunds do the same, but Germany’s debt picture is less troubling and its economy is more robust. Too much optimism in Europe could tip France toward peripheral status.”
Pimco’s Gross Bolsters Mexico’s Peso With ‘Great Currency’ Post – Bloomberg
“Mexico’s peso rose the most among major Latin American counterparts as Pacific Investment Management Co.’s Bill Gross called it a “great currency.”
Gross, the founder of the world’s biggest bond-fund manager, cited Mexico’s low levels of debt and the stability of its target lending rate in a Twitter post today extolling the peso. The central bank has kept benchmark borrowing costs at a record low 4.5 percent for 32 consecutive meetings.
The currency appreciated 0.7 percent to 12.6259 per U.S. dollar at 11:34 a.m. in Mexico City, extending its advance this year to 1.8 percent after Gross said the peso “looks good.””
“THE perils of negotiating the length of a washroom with dripping hands could soon be a thing of the past, after the British inventor Sir James Dyson unveiled his latest creation — a tap with a built-in dryer.
Using technology that is the basis of his company’s Airblade dryer — in which water is blown off by cold air instead of using hot air like conventional dryers — the device uses a 430mph blast from wings either side of the tap, drying hands in just 12 seconds.
While the price of £999 may put it out of the reach of most domestic users, Sir James is confident it will be a success in the commercial sector as it can dry 15 people’s hands for the cost of a single paper towel.”
Did Securitization Lead to Riskier Corporate Lending? – Liberty Street Economics
“Our results suggest that banks use laxer standards to underwrite the loans they sell to CLOs. For example, we find that banks put less weight on the “hard” information on borrower risk when they set spreads on the loans sold to CLOs than on the loans they don’t securitize. We also find that banks retain less “skin in the game” when it comes to securitized loans, suggesting that they have less incentive to monitor these loans after origination. While on average banks retain 26 percent of each syndicated loan they originate but don’t securitize, they retain only 9 percent of each loan they do securitize. This difference in underwriting standards may help explain why banks’ securitized loans underperform unsecuritized loans.”
Hollande warns on euro strength – FT.com
“François Hollande has issued a clear warning that the current strength of the euro could damage the fragile economic recovery in Europe, calling for international action to stem currency distortions.
“The euro should not fluctuate according to the mood of the markets,” the French president told the European parliament in Strasbourg. “A monetary zone must have an exchange rate policy. If not it will be subjected to an exchange rate that does not reflect the real state of the economy.””
Serbia Raises Benchmark Rate in Battle to Curb Inflation – Bloomberg
“Serbian rate-setters are running counter to other authorities in eastern Europe, where borrowing costs are falling to halt economic slowdowns amid the debt crisis. The central bank is trying to slow inflation to its target band of 2.5 percent to 5.5 percent this year after prices jumped 12.2 percent in 2012.”
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