Links: 2013-04-17
Lots more links since I was off for a few days. Here’s the second batch. Sorry for the onslaught but I have a lot more. I will thin out the less important ones to prevent overload. I intend to take a break tomorrow so I might release a second round of links today just to play catch up.
Cheers,
Edward
News links for 17 Apr 2013
“In the aftermath of events like the Boston Marathon bombings, Twitter is often criticized for the way it indiscriminately distributes lies as well as facts — but as chaotic as that process is, we are better off for having it.”
Dish’s $25.5 billion Sprint bid may force others to act | Reuters
“Dish Network Corp, the No.2 U.S. satellite TV provider, on Monday offered to buy wireless service provider Sprint Nextel Corp for $25.5 billion in cash and stock, a move that could inspire other telecoms or video companies to consider their own prospects of combining.”
When Can We All Admit the Euro is an Economic Failure? – Tim Duy’s Fed Watch
“The last month of data flow from Europe is nothing short of depressing. It seems that the history of the Eurocrisis can be summed up as a repeated effort to snatch failure from the jaws of defeat. The Euro and the policy framework that supports it is now clearly inconsistent with anything but sustained recession.”
On Coordinated Monetary and Fiscal Policy – Tim Duy’s Fed Watch
More on unified fiscal and monetary policy from Tim Duy in October this time. This is exactly where Japan is headed with the third prong of the attack coming via reform policy. Will it work, though? We are all watching.
“I tend to think that neither fiscal nor monetary policy by itself will support a sustained recovery in which the interest rate environment normalizes and fiscal stimulus can be eliminated without fear of renewed recession. The two need to work hand in hand; the Federal Reserve has provided the monetary environment conducive to additional fiscal stimulus. Congress and the Administration now need to take advantage of the environment. Or, alternatively, if the fiscal authorities are not issuing sufficient new financial assets such that there is upward pressure on interest rates, they need to be issuing more. “
Why I Agonize About The Zero Bound – Tim Duy’s Fed Watch
This Tim Duy post is from September and foreshadowed the unified monetary policy position that the Japanese took. Increasingly, I think this unified policy stance will be the norm.
“the Fed’s forecast that the US economy will be stuck at the zero bound into 2015 does not leave me filled with confidence; the risks are all too high that the economy will experience a recession before then. But I very much doubt the Fed can simply raise interest rates to normalize the yield curve. That would simply invert the yield curve, and such inversion is a harbinger of recession. As long as the economy is operating at sub-optimal levels, monetary policy will be constrained by the zero bound. To lift the economy well clear of the lower bound, we need greater cooperation between fiscal and monetary authorities. I suspect this will require making explicit what is often viewed as crazy but many would argue is already implicit in recent policy, the monetization of some fiscal spending.”
Another Spring Slowdown? – Tim Duy’s Fed Watch
“While expectations for a solid first quarter GDP report are running high, the most recent data flow has been somewhat sloppy. Sloppy enough that it should raise red flags for monetary policymakers pushing to end QE by the end of this year.”
Yellen and the Reach for Yield – Tim Duy’s Fed Watch
“although the Fed might not want to use monetary policy to blunt any suspected financial stability risks, they may find themselves in a place where they believe they have no other choice because alternative tools are not available.
Not an immediate issue, but one to keep an eye on. The Fed is not likely to be so dismissive of financial stability risks the next time around.”
ekathimerini.com | Greece sells 1.625 bln euros of 3-month T-Bills, yield steady
These funding costs are extraordinarily high. It’s horrific actually.
“Greece sold 1.625 billion euros ($2.12 billion) of three-month T-bills on Tuesday to roll over a previous issue that comes due on April 19, its debt agency (PDMA) said.
The T-bills were priced to yield 4.05 percent, unchanged from a previous March 19 auction.”
Greece set to win more bailout aid, may seek debt relief | Reuters
“Greece received a clean bill of health from its international creditors on Monday, securing more rescue aid and prompting its finance minister to say he would ask for much more debt relief if Athens keeps meeting its bailout targets.”
Greece slashes civil service jobs in new bailout | World news | The Guardian
“Athens agrees to shed 4,000 public sector jobs in return for latest EU/IMF/ECB aid package worth €8.8bn”
Amazon’s Letter To Shareholders Should Inspire Every Company In America – Business Insider
I wonder about this since Amazon’s low-margin strategy compares unfavorably in terms of profits to Apple’s high margin one. Remember, Blodget is not a disinterested party since Bezos is a Business Insider investor. Read this though.
“Late last week, Amazon CEO Jeff Bezos published his latest letter to shareholders.
This year’s letter, like most of Bezos’ letters, should inspire most companies to change the way they do business.
Specifically, it should inspire companies to do business the way Amazon does business — sacrificing this year’s profits to invest in long-term customer loyalty and product opportunities that will create bigger profits next year and for years thereafter.”
Yield hunt boosts Asian junk debt – FT.com
“It may only be April, but the global hunt for income has led to so much demand for high-yielding Asian debt that 2013 is already a record year for issuance.
Junk-rated borrowers have so far raised $18.1bn in the market this year, bettering the previous full-year high of $16.2bn set in 2010, according to data from Dealogic.”
UK pension deficits set to rise by £100bn – FT.com
“UK companies reporting annual results for the year to March are expected to report an increase of more than £100bn in their aggregate pension scheme deficits, according to actuarial forecasts.
This year’s reporting season is likely to expose larger, not smaller, pension shortfalls than existed a year ago, despite sharp rises in stock and bond markets where retirement schemes have invested their assets.
That is because investors, including pension schemes, have piled into corporate bonds in recent months, seeking higher yields than those on risk-free debt.
The effect of all that buying has driven down yields on high-quality corporate debt that are used to calculate corporate pension liabilities that show up on company balance sheets.”
Leading German economist calls for dissolution of eurozone to save EU | World news | The Guardian
“Joachim Starbatty speaks out as breakaway Eurosceptic party Alternative für Deutschland holds founding conference”
Sober Look: Declining dry powder of LBO funds
This meshes with what I hear from insiders, that fund sizes are declining. The multiples of deals though is still at nosebleed levels and the covenants too are suggestive of froth.
“The private equity industry’s capacity for leveraged buyouts continues to decline. Here are some reasons for this trend”
The ‘laws of economics’ don’t exist | The Edgy Optimist
“Economics is based on a limited amount of information compiled over the past hundred or so years. We have no way of knowing with any exactitude the gross domestic product of imperial Rome, of Spain in its 16th century golden age or of the United States in 1820s. We can try to fill in the blanks retrospectively, but that’s all. We don’t know because those numbers didn’t exist. All these economic laws are based on what a few cogent thinkers such as Adam Smith and David Ricardo observed at the end of the 18th century and what a new set of 20th century statistics (GDP, unemployment, inflation) suggest.
In short, even if there are laws of economics, we haven’t been observing them for long enough to know what they actually are.”
Germany’s public debt rose to 81.9% of GDP in 2012 with the total debt measured as 2.17 trillion euros according to this Bundesbank press release.
Andrew Bailey: it’s ‘odd’ UK bank bosses have avoided formal charges – Telegraph
“Britain’s chief financial regulator, Andrew Bailey, has said it is “more than odd” that the chairmen and chief executives who were at the helm of the failed banks have avoided formal charges.”
Big depositors in Cypriot banks to lose 8.3 billion euros: document | Reuters
“Large depositors who kept their money in the two biggest Cypriot banks stand to lose up to 8.3 billion euros through the restructuring of the two institutions, a European Commission document showed.”
EU banking union ‘could need treaty change’ – Telegraph
“Germany’s finance minister has claimed that a banking union could require changes to EU law, potentially putting the brakes on a plan designed to prop up the euro.”
Cyprus to ease citizenship requirements, attacks EU hypocrisy | Reuters
“Cyprus will relax requirements for citizenship, including for bank depositors who lost large amounts of money in the deal with the EU and IMF, in an effort to keep foreigners interested in investing in the island state, the president said on Sunday.”
Germany suffering worker shortage – FT.com
“Ursula von der Leyen, Germany’s minister for labour and social affairs, has a problem that most of her European colleagues can only dream of. It is not unemployment. It is a growing shortage of workers in Europe’s largest economy – especially skilled labour.
“The population of working age between 15 and 65 [in Germany] is shrinking,” she says. “If you look at the next 15 years, if we do not change our ways of working – which is the solution – then we will have 6m potential workers less in the labour market, which is approximately the working population of Bavaria.””
Yahoo posts flat first-quarter revenue on declining display ad sales | Reuters
“Yahoo Inc’s first quarter revenue fell short of Wall Street targets, as the Internet company continued to feel the effects of declining traffic to its Web properties and of falling display advertising sales, sending its shares down more than 4 percent.”
Bernstein: The Fed Will be Behind the Curve When It’s Time to Tighten – PRAGMATIC CAPITALISM
“We live in a boom/bust era dominated by Fed policy. In my opinion, we can thank Milton Friedman for this obsession with Fed policy and the assumption that the Federal Reserve and a group of economists can control the economy with any sort of precision. The 30 year experiment with the Federal Reserve’s interventionist policies is far from over.”
China’s credit-to-GDP ratio, updated (and why it matters) | FT Alphaville
“Following on from our post on Monday comparing China’s relatively low GDP growth and its relatively high levels of new credit…
Here are some updated charts from Michael Werner of Bernstein Research, which show that the total stock of non-government and non-financial debt to nominal GDP continued to climb to new levels in Q1 (it was 193 per cent at the end of 2012)”
Francois Hollande faces austerity revolt from own ministers – Telegraph
“French president Francois Hollande is facing an anti-austerity revolt from his own ministers as he pushes through a fresh round of tax rises and austerity to meet EU deficit targets.”
Women bear brunt of rise in unemployment – Telegraph
“Unemployment has soared by 70,000 to 2.6m, driven by tens of thousands of “stay-at-home mums” forced to seek work between December and February, official figures show.”
IMF warns on risks of excessive easing – FT.com
“Extraordinarily loose monetary policy risks sparking new and dangerous credit bubbles which threaten to tip the world back into financial crisis, the International Monetary Fund warned on Wednesday.
In its global financial stability report, the fund cautioned that further policy reforms were needed urgently to restore long-term health to the financial system before the long-term dangers of monetary stimulus materialised.”
More Evidence That The Economic Peak Is In
This post makes valid points on why the business cycle may have peaked. And I have pointed to June 2012 as a potential peak. The problem is that we don’t really know yet whether this is a mid-cycle slowdown or something more severe yet. I wouldn’t bet the farm on our heading inexorably toward a cyclical trough. It really is not clear cut yet.
Too Much Debt Means the Economy Can’t Grow: Reinhart and Rogoff – Bloomberg
On Reinhart and Rogoff, while their study and book do not imply causation as debt leads to slow growth, their editorial articles do. Cauastion is not proven. And I believe causation goes the other way. The euro crisis certainly does imply this as austerity has led to slow growth and debt increases. Using the Reinhart and Rogoff view to make the case for austerity has been destructive economically.
How can the ECB fight fragmentation of the eurozone? | Gavyn Davies
“Monetary conditions in the eurozone are fragmented. Bank lending rates are, perversely, much higher in the weakest economies than they are in the core. Unless this is solved, the eurozone economy will remain in trouble.
In order to address this issue, the ECB needs to think in ways which are unconventional, and therefore unpalatable for many of the conservatives on the governing council.”
Reinhart-Rogoff recrunch the numbers | FT data
“Carmen Reinhart and Ken Rogoff have had a bad day. The two economic historians’ research, which implied that public debt overhangs can hamper economic growth, was perhaps one of the most cited pieces of work in recent years. Their advice that high debt-GDP ratios – particularly above 90 per cent – are harmful to growth, has become a widely used point in discussion. And it’s under attack by a trio at the University of Massachusetts, Amherst – Thomas Herndon, Michael Ash, and Robert Pollin.”
China local authority debt ‘out of control’ – FT.com
““We audited some local government bond issues and found them very dangerous, so we pulled out,” Mr Zhang said in an interview. “Most don’t have strong debt servicing abilities. Things could become very serious.”
The International Monetary Fund, rating agencies and investment banks have all raised concerns about Chinese government debt. But it is rare for a figure as established in the Chinese financial industry as Mr Zhang, who serves as vice-head of China’s accounting association, to make such stark comments.
“It is already out of control,” Mr Zhang said. “A crisis is possible. But since the debt is being rolled over and is long term, the timing of its explosion is uncertain.””
La dette de la France dépasserait 94% du PIB en 2014 – LExpansion.com
The French government have raised their government debt forecast to 94% of GDP for 2014. This is up 3.5% from previous forecasts. I see this as significant in light of Angela Merkel’s comments about Germany’s lack of fiscal space. It says that the euro zone’s two largest economies cannot support bailouts that affect the balance sheet. To me, this is a signal that either the ECB has to do more heavy lifting or baili-ins will have to become more frequent.
Austria backs German call for EU treaty change over banks | Reuters
“Austrian Finance Minister Maria Fekter backed Germany’s call for changing European Union treaties to allow banking union, saying new institutions being set up needed proper legal underpinning.
Berlin said on Saturday the EU’s Lisbon treaty had to be changed to allow common rules on shutting troubled banks – a central element of the union that aims to stabilise the euro zone and prevent taxpayers from footing bills for bank rescues.
“This is legitimate and we share this view,” Austria’s Fekter told reporters late on Monday for publication on Tuesday.”
Germany ‘too weak to withstand more stimulus’, says Angela Merkel – Telegraph
“In 2009, Germany boosted its crisis-hit economy, Europe’s largest, with large-scale spending. The €50bn package was the biggest of its kind since World War II and included investment in education and infrastructure, as well as tax cuts for firms and individuals.
But now, said the Chancellor, “we do not have the strength for a second economic package without losing international confidence”.”
Analysis: Euro zone bank troublespots don’t come down to size | Reuters
“Though the implosion of Cyprus’s bloated banking system has put other euro zone economies with outsized financial sectors such as Luxembourg and Malta in the spotlight, loan quality is the real litmus test of a country’s financial stability.”
Fed, BOE Officials Don’t See Signs of Emerging Equity Bubbles – Bloomberg
“Kansas City Fed President Esther George said this month record stimulus for more than four years may create financial instability that could hurt employment over time.
“We should not underestimate the risk of an extended period of zero interest rates and the accompanying incentives that may lead to future financial imbalances,” George said on April 4 in El Reno, Oklahoma. “Such imbalances could unwind in a disruptive manner and cause the labor market recovery to stumble.””
Germany puts brakes on EU bank union with treaty call | Reuters
“Speaking after a meeting of European Union finance ministers on Saturday, Germany Finance Minister Wolfgang Schaeuble said the EU’s Lisbon treaty had to be changed to allow common rules on shutting troubled banks – a central element of the union.
“Banking union only makes sense … if we also have rules for restructuring and resolving banks. But if we want European institutions for that, we will need a treaty change,” he said.”
U.S. Warns Japan on Yen – WSJ.com
“The Obama administration used new and pointed language to warn Japan not to hold down the value of its currency to gain a competitive advantage in world markets, as the new government in Tokyo pursues aggressive policies aimed at recharging growth.
In its semiannual report on global exchange rates, the U.S. Treasury on Friday also criticized China for resuming “large-scale” market interventions to hold down the value of its currency, calling it a troubling development. The U.S. stopped short of naming China a currency manipulator, avoiding a designation that could disrupt relations between the world powers.”
Marc to Market: Great Graphic: Household Debt/Income
“One of our interpretative points is that Bank of Canada Governor Carney is leaving Canada as the proverbial bloom is coming off the rose. The economy is under-performing. The positive terms of trade shock appears to be going in reverse. Excess are evident in the housing market and households. Finance Minister Flaherty had hoped to make a recommendation to the government of Carney’s replacement by the end of the month, but this may be delayed until early May. Carney steps down in June and joins the Bank of England in July. “
Cyprus gold sale profits must be used to pay back ECB, orders eurozone – Telegraph
“The sale of Cypriot gold reserves worth €400m will be used to pay back the European Central Bank as the eurozone forces the tiny Mediterranean island to take on an extra €6bn in bail-out costs.”
Eurozone industrial output rises in February – Telegraph
“The 0.4pc rise in the 17-nation currency bloc from January was above the expected 0.2pc increase forecast by economists, figures from the EU’s statistics office Eurostat showed.
But the pick-up only partially offset the previous month’s downwardly revised fall of 0.6pc.
Netherlands and Slovenia saw the highest increases with 3.4pc, while Estonia and Malta had a 3.9pc drop in industrial production in February. The UK managed an above-average 1pc rise in industrial production and France and Europe’s biggest economy Germany were also on the up with figures of 0.8pc and 0.9pc.”
Austrians’ love of bank secrecy has deep roots | Reuters
“Call it the battle for grandma’s passbook.
That is how politicians here are framing a debate over whether Austria should roll back banking secrecy and share information on depositors with European partners and the United States. Luxembourg’s decision this week to open its books has fixed attention on Austria, the last EU holdout.
The discussion has touched a nerve in a country where the confidentiality banks offer is so cherished that banking secrecy is anchored in the constitution.”
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