Links: 2013-03-07
News links for 7 March 2013
Berlusconi sentenced in wiretap trial | Reuters
“An Italian court sentenced ex-prime minister Silvio Berlusconi on Thursday to one year in jail over the publication by his family’s newspaper of a transcript of a leaked wiretap connected to a banking scandal in 2006.
Italian justice system rules mean that the 76-year-old media billionaire would not have to serve any jail time until the appeals process has been exhausted, and a higher court may still overturn the ruling.”
This Looks Like The 1980s Bull Market – Business Insider
I don’t buy this but you have to listen to Rich Bernstein because he has been a very good market analysts.
“Similar to what is keeping investors on the sidelines during the current bull market, investors stayed out of the 1980s bull market for so long because there were many issues that investors thought were insurmountable. Table 1 highlights some of the issues that caused investors to forego for many years investing in the 1980s bull market. The irony is that they are largely the same as today’s concerns.”
Bank of England votes against QE boost | Business | guardian.co.uk
“The Bank of England has resisted pressure to inject billions of pounds into the economy, dashing hopes of a fresh round of stimulus to drive a recovery.
The monetary policy committee voted against expanding its £375bn quantitative easing (QE) programme and kept interest rates at their historic low of 0.5%.
That suggests outgoing bank governor, Sir Mervyn King, was outvoted for the second month running. At the February MPC meeting, King and two others voted to increase QE by £25bn to £400bn.”
Too-Big-to-Fail Banks Limit Prosecutor Options, Holder Says – Bloomberg
“The size of the largest financial institutions has made it difficult for the U.S. Justice Department to bring criminal charges when there’s wrongdoing, Attorney General Eric Holder said.
Criminal charges against a bank — something that could threaten its existence — may also endanger the national or global economies in the case of the largest ones, because of their size and interconnectedness. That has “made it difficult for us to prosecute” some of those institutions, Holder said today at a Senate Judiciary Committee hearing.”
House Approves Bill Preventing Shutdown March 27 | TIME.com
“The Republican-controlled House approved legislation Wednesday to prevent a government shutdown on March 27 and blunt the impact of newly imposed spending cuts on the Defense Department.
The 267-151 vote sent the measure to the Senate, where Democrats hope to give additional Cabinet agencies similar flexibility in implementing their shares of the $85 billion in spending cuts required to take effect by the end of the budget year.”
Macro and Other Market Musings: Why Inflation with a Large Output Gap?
I don’t agree that the main constraint to growth is the Fed’s reluctance to push inflation over 2% but here is the analysis.
“[T]he Fed’s observed success in averting deflation should lead one to ask whether its control over inflation expectations suddenly evaporates once those expectations hit 2%. My view is that it does not—why should it, after all?—and that the main constraint on a faster economic recovery is the Fed’s reluctance to push inflation over 2%.
This makes a lot of sense for the 1930s too since it is well documented the Fed was concerned about inflation getting too high during this time. There were a few years of higher-than-normal inflation, but the average inflation rate was kept in line by the Fed. Even at the expense of creating a recession in 1937-1938.”
Argentina annual primary budget deficit first since 1996 | Reuters
“Argentina posted a primary budget deficit of 4.37 billion pesos ($888 million) in 2012 , marking the first such deficit since 1996, government data showed on Tuesday.
The center-left government of President Cristina Fernandez said the deficit reflected counter-cyclical spending to fend off the impact of global economic sluggishness.”
S&P hunde a la Comunidad Valenciana en el bono basura por su elevado déficit – ABC.es
S&P lowers the rating for Valencia to junk due to its elevated deficit.
Unemployment in France hits 14-year high – Telegraph
“French unemployment climbed to a 14-year high in the fourth quarter of 2012 as companies cut tens of thousands of jobs to cope with a stalled economic recovery.”
Why low interest rates are not the answer | Money | guardian.co.uk
“Low interest rates act like a tax increase on savers and pensioners, by reducing their income. This quasi-tightening of fiscal policy has transferred national income from older savers, to younger borrowers and banks. For example, since 2008, borrowers with a £100,000 mortgage are over £2,400 better off every year. However, savers with £100,000 in Cash Isas or fixed-rate bonds are over £2,750 a year worse off.”
Venezuelans’ Quality of Life Improved in UN Index Under Chavez – Bloomberg
“Venezuelans’ quality of life improved at the third-fastest pace worldwide and income inequality narrowed during the presidency of Hugo Chavez, who tapped the world’s biggest oil reserves to aid the poor.
Venezuela moved up seven spots to 73 out of 187 countries in the United Nation’s index of human development from 2006 to 2011, a period that covers the latter half of Chavez’s rule, which ended with his death March 5. That progress trails only Cuba and Hong Kong in the index, which is based on life expectancy, health and education levels.
Carlos Nieto, a 41-year-old builder from Caracas blamed Chavez for a 50 percent increase in prices in shops after the government announced a 32 percent devaluation of the bolivar in February. While he sometimes visits subsidized food markets, he said the diversity of products is poor.
“I think we went backward” under Chavez, Nieto said, blaming inflation, corruption and currency controls for a lower standard of living.”
Portugal Rating Outlook Raised to Stable by S&P on Budget Plan – Bloomberg
“Portugal’s credit rating outlook was raised to stable from negative by Standard & Poor’s, which said European lenders will probably extend support to the government and make the nation’s fiscal tightening “more sustainable.”
S&P affirmed the nation’s BB long-term sovereign credit rating in a statement released today. That’s the same level as Hungary and Macedonia and two steps below investment grade, according to data compiled by Bloomberg.”
China’s Property Curbs Are Unsuccessful, Billionaire Lo Says – Bloomberg
“China’s property curbs in the past decade have been unsuccessful and the new round of measures will slow property sales, said billionaire Vincent Lo, also a member of the government’s advisory board.
“Certainly they haven’t been,” said Lo, chairman of Shui On Land Ltd. (272), a Shanghai-based developer, in an interview in Beijing yesterday. “Had they been successful, home prices wouldn’t have risen higher the more the government curbed.”
The new administration should build more social housing to boost supply because that is the best way to curb the market, Lo said. It should leave luxury homes to market mechanisms, he said.”
Monte Paschi’s spokesman was under pressure over bank probe: reports | Reuters
“Rossi, who was the head of the bank’s communications unit, joined the Banca Monte dei Paschi di Siena’s foundation, the bank’s biggest shareholder, in 2001 as an assistant to then chairman Giuseppe Mussari.
When Mussari became chairman of the bank in 2006, Rossi remained his spokesman.
Rossi, who was not under investigation himself, was among several people whose homes and offices were searched last month as part of a probe into the lender’s purchase of Antonveneta in 2007 and subsequent losses linked to complex derivatives deals.
“He surely lived through a situation of personal and professional stress,” Greco said.
Mussari is under investigation in the probe on allegations of misleading regulators, market manipulation and false information in the prospectus of the Antonveneta deal.”
“The moves will leave the company’s magazine division – including 21 titles – to fend for itself under a new CEO in challenging times for print publications. Many major Time titles have seen declining ad pages and drops in circulation, reflecting wider industry trends. Rival Newsweek shuttered its print edition in December.
While Time Warner had signaled last month that it wanted to separate Time Inc, the spinoff into a separate, publicly held company was a surprise. Previously, Time was thought to be in merger talks with another magazine company, Meredith, about merging at least some of their magazines into a new publicly traded company. Time Inc’s magazines include Time, Sports Illustrated, People, InStyle, Fortune and Money. Meredith, which publishes Ladies Home Journal and Better Homes & Gardens, has 18 magazines under its umbrella.”
“A contractor who worked at a Wells Fargo facility in Minnesota reports that the bank engaged in systematic, large scale alteration of mortgage notes and fabrication of related documents in preparation for foreclosure. The procedures the bank used are questionable for a large portion of the mortgages.”
In U.S., 71% Back Raising Minimum Wage
“Seven in 10 Americans say they would vote “for” raising the minimum wage to $9 per hour if given the opportunity, while 27% would vote against such a bill. The proposal, made by President Barack Obama in his 2013 State of the Union speech, is backed by over 90% of Democrats and self-described liberals, and by over two-thirds of independents and moderates. Republicans are evenly split on the proposal, while conservatives tilt slightly in favor.”
The Big Easy DoubleLine Jeff Gundlach – Business Insider
“Jeff Gundlach’s latest webcast, which he’s titled “The Big Easy,” has just wrapped up.
The title refers to the worldwide central bank easing that has kept interest rates low.
Gundlach worries about the long-term implications of these actions.
But for now, he believes that interest rates will remain low. And he believes that talk of a bond bubble is a myth as investor exposure to bonds is actually quite low.”
The age of infinite equity? | FT Alphaville
“Why is it that those who once got things so right are now failing to predict things accurately?
I would argue it’s because, just like me, they have been slow to recognise the awesome power of government intervention.
Once we appreciate this, and the fact that markets have de facto been nationalised, it’s easy to understand why we’re currently sitting on such a major inflection point.
Government support for debt markets has gone about as far as it can. From here on the scramble for a finite number of “safe” debt assets becomes self defeating on account of negative rates and the zero bound. What you pick in safety you have to pay for in negative yield. There are no safe debt assets anymore.
Equity on the other hand has no cap. It has infinite potential.”
Europe offers alternative to frothy US high-yield market | Capital City | IFRe
““The nascent recovery in the US will continue to support a great rotation into equities, whereas low growth and low inflation mean credit is still the sweet spot in Europe,” said Alberto Gallo, head of European Macro Credit research at RBS in a recent report.
Low valuations, the use of leverage for M&A and LBO activity, and the re-emergence of risky instruments like PIKs and covenant-lite bonds are all clear signs that US credit is overvalued and approaching bubble-like conditions, said Gallo.
“In Europe, credit remains attractive, as valuations offer more.”
European high-yield bonds trade wider than their US counterparts despite fewer defaults, better average ratings, a lower risk of rising rates and still-strong technicals.
“We remain long credit and long high-yield, although hedging instability in Italy and Spain,” he said.”
Dutch support for EU referendum – FT.com
I mentioned earlier this month that Dutch Labour Party leader Samsom supports this initiative.
https://www.nrc.nl/nieuws/2013/03/02/samsom-in-nrc-referendum-bij-nieuw-europees-verdrag/
I see it as a wake-up call for the EU, showing the Dutch increasingly unnerved at the lack of democracy in EU institutions.
“Dutch lawmakers have been forced to debate a referendum on any further transfers of power to the EU after a citizens’ petition demanding a plebiscite garnered 40,000 signatures in two weeks.
Although parliament is not obliged to follow through with legislation, the move underlines the surge euroscepticism in one of the EU’s founding members, which could pose an obstacle to any further integration needed to bolster the eurozone.”
“The credit risks of covered bonds in Spain (Baa3 negative) have not fundamentally improved, says Moody’s Investors Service in a new Special Comment published today, despite a tightening of Spanish covered bond spreads since the start of the year.
The new report, entitled “Spanish Mortgage Covered Bonds: High Credit Risks, Despite Tightening Spreads in Early 2013″, is now available on www.moodys.com. Moody’s subscribers can access this report via the link provided at the end of this press release.”
A Real Live Filibuster! | TIME.com
“Proponents of the so-called “talking filibuster” provision would cheer Paul for upholding the spirit of the filibuster. Paul’s office signals the senator will speak for at least a few hours.”I’m here today to speak for as long as I can hold up,” Paul said. If you’re following on Twitter, the (lamentable) hashtag is #filiblizzard. We’ll see how long he can last. A vote on Brennan’s nomination, which could have taken place Wednesday, is now held up until Paul sits down.”
Output gaps: When the Fed fights, it wins | The Economist
“What the record shows is that disinflation below 2% inflation prompts aggressive Fed reactions, which are generally successful at reversing inflation expectations. The critical difference between the Depression and the Great Recession was that Great-Recession-era central banks were determined to avert deflation and where willing to prop up the financial system, drop rates to zero, and engage in unconventional policy in order to keep inflation positive.
Two further thoughts flow from this analysis. One is that the Fed bulwark against deflation means that many of the up-and-down aspects of liquidity traps, like the “paradox of toil”, don’t apply; increases in economic potential due to supply-side measures don’t lead to more deflation and therefore don’t worsen the downturn. And the other is that the Fed’s observed success in averting deflation should lead one to ask whether its control over inflation expectations suddenly evaporates once those expectations hit 2%.”
Europe moves towards Swiss-style executive pay curbs | Reuters
“European officials, emboldened by a victory over banker bonuses, will propose legislation this year giving shareholders voting rights to challenge executive pay at public companies.
Corporate largesse is under attack across Europe with Switzerland last week voting to impose some of the world’s strictest controls on executive remuneration amid public anger at Wall Street-style excess in the country’s boardrooms.”
French and Italian debt chiefs warn on EU Tobin Tax – Telegraph
“Officials in charge of managing French and Italian public debt have warned that Europe’s ‘Tobin Tax’ on financial trades risks damaging the sovereign bond market and may prove self-defeating.”
Poland Cuts Rates as Worst GDP Slowdown in 12 Years Looms – Bloomberg
“Poland’s central bank cut its main interest rate by more than economists estimated to a record low as the worst economic slowdown in 12 years looms after consumer spending plunged amid Europe’s debt crisis.
The Narodowy Bank Polski lowered the benchmark seven-day reference rate by 50 basis points to 3.25 percent today. None of the 38 economists surveyed by Bloomberg predicted the move, with the median forecast a quarter-point cut.”
King to Osborne: Split Royal Bank of Scotland – WSJ.com
“Mr. King, who retires in June after 10 years at the helm of the U.K. central bank, told a parliamentary commission examining standards in banking that he favors splitting RBS into a healthy lender that can be sold back to the private sector quickly and a “bad bank” stuffed with RBS’s souring loans and other undesirable assets. Fully nationalizing RBS, 81%-owned by the taxpayer, might not be necessary, Mr. King said, although he didn’t elaborate.”
Fed should stop easing, have some patience: Plosser | Reuters
“The U.S. Federal Reserve needs to stop continually easing policy and have some patience because there are risks associated with its massive bond-buying program, Philadelphia Fed President Charles Plosser said on Wednesday.
“We are not even standing pat. We are trying to be easier and easier and easier,” he told reporters. “That’s why I believe it’s time … to quit trying to ease.””
US companies add 198,000 jobs – FT.com
“US private sector employers created more jobs than expected in February, indicating resilience in the country’s labour market in spite of sharp federal budget cuts that are expected to slow economic growth.
ADP, the payroll processor, said on Wednesday that businesses added 198,000 new jobs last month on a seasonally adjusted basis. Economists surveyed by Bloomberg had expected 173,000 new jobs.”
Meredith Whitney Is Super Bullish On Bank Of America
““I think that Citigroup Inc. (NYSE:C) does ok, but I think Bank of America Corp (NYSE:BAC) is the stock to own this year without a doubt. There is so much financial leverage with that name. They will return I think over $4 billion in buybacks. It could be $5 billion in buybacks this year and really move the needle. I think that stock easily goes to 15 in the next six to nine months.”
On which bank is having the hardest time justifying their cost base:
“They all are. They’re all running at excessive expense ratios. Bank of America, in 2010 announced its cost-cutting initiatives, and two years later we’re only starting to see results…It takes a long time…The point is, if you’re not on top of it now, you will be behind the game.””
You Missed the Epic Bull Market. You’re Not Alone – Businessweek
“Now, with stocks pricing in fiery Armageddon, he thought it was time to go headlong into the market, so help him G-d. Hell, he thought, if the system were going down any more than it already had, we’d all be eating cat food anyway. The reward for taking just basic market risk, he argued, hadn’t looked so attractive in years.”
The Pros Who Called the ’09 Bottom – MarketBeat – WSJ
“The few who did see through that haze, like Bogle and Jeff Saut and Doug Kass, were the early adopters of a bull run that now, nearly four years to the day from that low, has returned the Dow Jones Industrial Average back to it 2007 high.”
Samsung Galaxy S3 bug lets anyone bypass lockscreen with minimal effort
“On the code entry screen, press Emergency Call
Press Emergency Contacts
Press the Home button once
Just after pressing the Home button, press the power button quickly
If successful, pressing the power button again will bring you to the S3′s home screen.”
Android Accounted For 79% Of All Mobile Malware In 2012, 96% In Q4 Alone, Says F-Secure | TechCrunch
“Is it because Android is the most popular smartphone platform in the world right now, or is it because it’s just fundamentally easier to attack? In any case, Google’s mobile juggernaut Android continues to be the world’s biggest magnet for mobile malware. According to a report out today from security specialists F-Secure, Android accounted for 79% of all malware in 2012, up from 66.7% in 2011 and just 11.25% in 2010. On the other side of the spectrum, Apple’s iOS, the world’s second-most popular platform for smartphones in terms of new purchases, remains one of the least compromised, with 0.7% of malware on its platform.”
“Even though it fell 1.3 percent between October and December to 52.3 percent share, Android still is the most popular smartphone operating system in the U.S. Apple’s share grew 3.5 percent to 37.8 percent.”
Finally! More devices using Android 4 than older versions — Tech News and Analysis
“Uptake for Android 4.0 or better continues to rise and there are finally more devices fitting this category than those that use the old Android 2.3 Gingerbread software. That’s good for users and for developers.”
Why Vodafone Should Head for a Verizon Exit – NYTimes.com
“The unit may be worth eight times earnings before interest, taxes, depreciation and amortization, or Ebitda, implying a value of $120 billion for Vodafone’s stake, using Deutsche Bank estimates. Without raising a crazy amount of debt, Verizon could pay $40 billion to $50 billion in cash, with the rest in its own stock. That would leave Vodafone owning about a third of Verizon.
A potential tax bill of $20 billion to $30 billion makes agreeing on a price that’s acceptable to both sides much harder, although paying mostly in shares could delay the due date.”
“The Verizon Wireless unwind, if it were to happen, is the big one. It is now clear that Vodafone played a blinder by sitting of its 45% stake on Verizon Wireless in the long years in which the business was paying no dividends. Market leadership in the mobile in the US was regained and payday arrived eventually: Verizon Wireless distributed $18.5bn (£12.2bn) between the two partners last year.
But great investments sometimes require great exits and a beautiful finale from Vodafone’s point of view might be a sale of its 45%-owned asset at a moment when Verizon is willing to pay over the odds to get 100% control of Wireless’ cash flows. Alternatively, a grand all-share merger, however incredible it seems, would do the trick if Vodafone’s share of the combined pie was inflated beyond current market values.”
Best unlocked Android phone for any budget: March 2013 | Android and Me
“Last year I made the jump to using unlocked Android phones on pre-paid wireless plans, and I couldn’t be happier with the results. I saved a ton of money on my monthly bill, I can choose any Android phone I want, and I no longer have to rely on carriers to deliver my software updates.
For consumers on a tight budget, switcing to the pre-paid world can be challenging at first. The cost of leaving your carrier during the middle of a contract and the cost of buying an unlocked phone could force you to spend 3-6x times your monthly carrier bill.
Once you get past the initial expenses, your savings could quickly add up. I switched from Verizon to Straight Talk (AT&T) and then Solavei (T-Mobile), which instantly saved me around $50 per month, or roughly $600 per year. That same $600 is about the cost of most high-end Android phones that are unlocked and sold without a service contract. This means your potential first-year savings could absorb the entire cost of any new Android phone you want.”
Samsung to unveil 5.9-inch smartphone
“Samsung Electronics said Wednesday that it plans to introduce a 5.9-inch handset in the latter half of the year to solidify its leading position in the rapidly-growing “phablet” market.
”Samsung is working on introducing a new phablet using a 5.9-inch organic light-emitting diode (OLED) screen,’’ an official told The Korea Times on condition of anonymity. “
Turn on Data Compression in Chrome Beta for Android for Faster Mobile Browsing
“In the omnibox, type in chrome://flags. Enable the first setting on that experimental features page, “Enable Data Compression Proxy,” and you’re done.”
Galaxy S4 AnTuTu Benchmarks Crush Galaxy S3, Show More Specs – Droid Life
“If you take a look at the screenshot to the top right, you’ll see that the Galaxy S4 essentially tripled the score that his Galaxy S3 was able to muster. In every single solo category, the GS4 also put up numbers that would put any other device to shame, outside of the HTC One.
The second thing we get from the benchmark is a set of specs that match up to what we have seen a couple of times over the last few weeks. AnTuTu lists a 1.8GHz quad-core Exynos 5410 processor, which may very well be the Octa. We’re also seeing Android 4.2, a 1920×1080 5-inch display, 2.1MP front camera, 13MP rear camera, 2GB RAM, Bluetooth 4.0, and internal storage of either 16GB or 32GB.”
Hybrid V12 Ferrari Revealed in Geneva | The Big Picture
This takes the hybrid revolution to an extreme!
“• LaFerrari from a dead stop to 62 miles per hour in under three seconds;
• Top speed is 205 miles an hour;
• Only 499 of the cars will be built;
• 789-horsepower gasoline engine and a 160-horsepower electric motor;”
Apple Will Miss Its Own Revenue Guidance, Says Citi – Business Insider
“We ran through the meat of the note already. In a nutshell, demand for iPads and iPhones is falling, says Citi after talking to supply chain sources.
As a result, Citi cut its estimates. And the result of those estimate cuts is quite dire.
Citi is now calling for $40.45 billion in sales for the March quarter. Apple guided to between $41 and $43 billion in sales for this quarter. If Citi’s forecast is accurate, then Apple would miss its own revenue guidance.”
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