Links: 2013-04-29
News links for 29 Apr 2013
Macro and Other Market Musings: Is Monetary Policy Capable of Offsetting Fiscal Austerity?
“The U.S. series shows a stable NGDP growth rate of about 4%, consistent with the NGDP level figure linked to above. The Eurozone NGDP, however, shows a pronounced decline starting in 2010. So both regions have fiscal austerity, but only the United States has stable aggregate demand growth. The easiest explanation for the difference is monetary policies: the Fed has been far more aggressive than the ECB in responding to the slump. Yes, this is not definitive evidence, but it certainly is suggestive that monetary policy makes a big difference in offsetting fiscal austerity.
P.S. Scott Sumner, Ryan Avent, Marcus Nunes, and Matt Yglesias reply as well. “
Moody’s says Italy may still eventually need bailout – Independent.ie
“”We cannot yet rule out Italy will end up asking for help to the European Central Bank and the European Stability Mechanism,” Dietmar Hornung, senior credit officer at Moody’s, was cited as saying in Monday’s told La Repubblica.”
Landesbanken profits at highest since start of financial crisis – FT.com
“Collective profits from Germany’s Landesbanken have reached their highest level since the onset of the financial crisis, showing a measure of recovery for a sector that was among the country’s biggest recipients of bank bailouts.
The Landesbanken are regionally-controlled banks that lend mainly to the corporate and public sectors and rely on market borrowing for most of their funding.
Stabilising the Landesbank sector became one of the most urgent issues for Germany’s government and financial regulators after four of the six largest Landesbanken by assets needed state aid in the wake of the financial crisis.”
Greens and SPD close ranks in battle against Angela Merkel – FT.com
“Germany’s main centre-left opposition parties closed ranks over the weekend in their uphill battle against Angela Merkel, with the Greens signalling a decisive shift to the left.
During a three-day party congress in Berlin five months before national elections, the Greens positioned themselves to the left of the Social Democrats (SPD) with calls for higher income tax and a property levy on the rich.”
Lisbon to take JPMorgan and Santander to court over ‘toxic’ sales – FT.com
“Lisbon is to take court action against JPMorgan and Spain’s Banco Santander over what it says were “toxic” derivatives sold to public sector companies.
The move is part of a government effort to stem potential losses of up to €3bn from complex hedging products.”
Scientists on brink of HIV cure – Telegraph
“Researchers believe that there will be a breakthrough in finding a cure for HIV “within months”.”
Still stuck on central-bank life support | Reuters
“The ECB is the most conservative of the world’s main central banks. Its main short-term rate, now at 0.75 percent, is higher than the equivalent rate of the Fed, the Bank of England and the Bank of Japan. And unlike its peers the ECB has not engaged in quantitative easing – printing new money to buy bonds.
But the ECB seems to be softening. “I would argue that the ECB should be thinking of easing policy; whether they are currently is more debatable,” said Stephen King, global chief economist for HSBC in London”
BBC News – Greek parliament approves 15,000 civil service job cuts
“The Greek parliament has passed a bill which will see 15,000 state employees lose their jobs by the end of next year.
The bill passed by 168 votes to 123, and had the support of the three parties making up the ruling coalition.”
The Power of Understanding Monetary Realism
“every single economic school that exists is based largely on promoting some sort of policy agenda. For instance, the Keynesians will almost always respond to an economic problem with “more government spending”. Monetarists will almost always respond to an economic problem with “the Fed can fix that”. Austrians will almost always respond with “the government can’t fix that”. Market Monetarists will always respond with “NGDP Targeting can fix that”. MMTers will almost always respond with “bigger deficits and our government Job Guarantee can fix that”.”
Monetarism Falls Short (Somewhat Wonkish) – NYTimes.com
“I’m not claiming that there is nothing the central bank can do; but as I’ve tried to explain before, monetary policy can, for the most part, gain traction under current circumstances only by changing expectations about future actions (and changing them a lot). Meanwhile, fiscal policy has a direct, current effect on the economy, which easily trumps attempts to move the economy by changing the Fed’s messaging.
Sorry, guys, but as a practical matter the Fed – while it should be doing more – can’t make up for contractionary fiscal policy in the face of a depressed economy.”
Knaves, Fools, and Me (Meta) – NYTimes.com
“The key to understanding this is that the anti-Keynesian position is, in essence, political. It’s driven by hostility to active government policy and, in many cases, hostility to any intellectual approach that might make room for government policy. “
What to Play Next in Japan’s Stock Rally – Barrons.com
“Despite the 40% rally over the past four months, Kazuyuki Terao, chief investment officer for Allianz Global Investors in Tokyo, says Japanese stocks are still pretty reasonably priced. “The market is trading at just over 14 times this year’s earnings,” he notes. Indeed, many portfolio managers believe there are likely to be more earnings upgrades over the next six months, which means the market may be cheaper than it looks. Naoki Kamiyama, a strategist at Bank of America Merrill Lynch in Tokyo, sees corporate earnings growth of 36.4% in the current fiscal year ending March 2014, compared with a 40% rise in the fiscal year just ended.”
Spanish house prices need to fall further, Goldman warns – Telegraph
“Spanish house prices need to fall another 10pc, posing fresh problems for the country’s troubled banking sector, Goldman Sachs has warned.”
ekathimerini.com | Argentine Economy Minister’s interview with Greek journalist goes viral
“Bothered by a Greek reporter’s repeated requests to release Argentinas true inflation rate, Economy Minister Hernan Lorenzino interrupted an interview, saying the issue is too “complex” to explore and telling an aide “I want to leave.””
#MeQuieroIr #Lorenzino EN ESPANOL [OFICIAL] – YouTube
This video is going viral in argentina right now because of the fake inflation numbers Cristina Fernandez’s government is using.
Reinhart and Rogoff – Responding to Our Critics – NYTimes.com
“In an Op-Ed essay for The New York Times, we have tried to defend our research and refute the distorted policy positions that have been attributed to us. In this appendix, we address the technical issues raised by our critics.”
Could Apple buy Intel? | Technology | guardian.co.uk
When you have a lot of cash, this is the kind of thing that you are tempted to do. Is it wise though?
“Such a bold move would get rid of Samsung as a supplier and solve Apple’s cash problem – but it is not without difficulties”
When stability goes belly up | Business Spectator
“That’s not to say that instability is always a bad thing: to Schumpeter (and to Austrian economists), instability is an essential part of the creative process of capitalism. Its darker side, which Minsky focused upon, was the tendency for this instability to lead to excessive debt and, ultimately, a Depression.
Though this might surprise some people, I’ve tended to stand closer to Schumpeter than to Minsky on this. Minsky argued that the destructive instability was endemic to capitalism, as much as the creative instability was, because finance necessarily had to be destabilizing. I have tended to argue instead that finance’s destructive tendencies arise because we let the banks finance Ponzi schemes — bubbles in real estate and shares — that add to debt without adding to the capacity of society to finance that debt. Eliminate that tendency, I have argued, and the destructive side of finance could be tamed.
Now I’m not so sure”
Economic mood in euro zone sours again in April | Reuters
“Morale in the 17-country bloc slipped 1.5 percentage points to 88.6, the European Commission said on Monday – worse than the decline to 89.3 expected by economists polled by Reuters.”
IMF flags risks of asset bubbles, middle income trap in Asia | Reuters
“The IMF said India, the Philippines, China and Indonesia needed to improve their economic institutions while India, the Philippines and Thailand were also exposed to a larger risk of growth slowdown stemming from sub-par infrastructure.
Malaysia and China were the highest-ranked developing Asian countries in an IMF chart measuring institutional strength while Indonesia, India and the Philippines were at the bottom.”
“Android on average accounted for 64.2% of all handset sales in the 12 weeks that ended March 31.
The only market where Android did not dominate was Japan, where Apple’s iOS just about eked out a lead against it (49.2% versus 45.8% of sales) for the three months ending March 31. Elsewhere, the figures indicate that regardless of whether the market is developed (U.S., UK, Germany) or emerging (China) or struggling financially (Spain), collectively, Android handset makers are winning them all, with sales figures for the platform reaching their high point in Spain, at 93.5% of all smartphone sales.”
German, UK banks slam U.S. plans to toughen capital rules | Reuters
“German and British banking lobby groups on Monday slammed plans by U.S. regulators to toughen rules on foreign banks, saying they risk fragmenting banking supervision and causing major disruption to U.S. bank operations.”
BBC News – On Ferrari patrol with the Dubai police
This is ridiculous. Police with Ferraris?
Are Investors Warming to Greece? – MoneyBeat – WSJ
I am bullish on Greece actually. I think this is a sign that things there are going to improve after the economy has gone through the wringer.
“That a Greek company without a credit rating can sell debt is perhaps a sign that investors are warming to the country again as economic sentiment improved to a three-and-a-half year high in March, according to the Foundation for Economic and Industrial Research.”
ECB: CEEs and the crisis: current challenges and benefits
“Latvia is the leading example of how to adjust through internal devaluation, and it is a model for others in the euro area. Its “V-shaped” economic recovery illustrates what can be done with a strong consensus to undo the excesses of the past. After an initial fall in GDP of almost 18% in 2009, GDP increased by more than 11% from 2010 to 2012, and unemployment has fallen by almost 7 percentage points from its peak.
And Poland is a case in point of how not to get into difficulties in the first place: it is a country with relatively sound macroeconomic fundamentals, which has managed to avoid recession and preserve sustainable growth in recent years.
To sum up, the case for joining the euro area for CEE Member States remains as strong as it has always been – if not stronger, because we have now learned the lessons of the first ten years. But it is not a decision that should be taken lightly. It means fundamental reform of institutions and economic models. And this can only work if the people are ready and willing to endorse it.”
‘Dirty money’ claims were just an excuse for bail-in – Cyprus Mail
“Andreas Frank is an independent adviser to the German Bundestag and Council of Europe, who has already initiated two infringement proceedings against Germany for violations of the EU’s anti-money laundering (AML) directive.
A German national living in Switzerland, he argues that mostly German allegations of money laundering in Cyprus were used to justify the unprecedented Eurogroup decision to force a ‘bail-in’ of depositors in Cypriot banks, the argument being that German taxpayers’ money should not be used to save ‘dirty’ Russian money deposited on the island. “
KKR Lends Support to Spanish Construction – MoneyBeat – WSJ
“private-equity giant Kohlberg Kravis Roberts announced this morning that it’s lending €320 million ($420 million) for seven years to Uralita SA, a Madrid-based maker of insulation, roofing tiles, pipes and other bits and pieces that built the now-deflated Spanish housing bubble. Uralita will use the proceeds in part to repay its current lenders.”
Denmark’s taxes highest in Europe, Ireland among lowest – Independent.ie
“In its 2011 tax report released on Monday, Europe’s statistics agency identified Denmark as having the highest tax burden in the European Union, with income equivalent to 47.7pc of the country’s annual output.
The next three spots were taken by Sweden, Belgium, France and Finland, all with tax takes of just above or just below 44pc, the figures showed.”
Facebook loses millions of users as biggest markets peak | Technology | The Guardian
“Facebook’s dominance in the social media world has come under threat from newer services such as Instagram and Path”
Samsung’s new 7″ Galaxy Tab 3 to take on Apple’s iPad mini, and take phone calls
“Samsung on Monday announced its new third-generation Galaxy Tab, a modestly equipped 7-inch tablet with a 3G-enabled variant that will also double as a phone.”
Switzerland Shorn of Bankers Proves Industrial Juggernaut – Bloomberg
“Behind the headline-grabbing job reductions at Switzerland’s biggest banks is a manufacturing boom that is keeping the economy ahead of the rest of Europe.
Even after 10,000 Swiss job losses at banks led by UBS AG (UBSN) (UBSN) and Credit Suisse Group AG (CSGN) in the past five years, the nation’s unemployment rate has fallen to 3.1 percent, the lowest of Europe’s 10 biggest economies and less than the rate a decade ago. The nation of 8 million is adding workers in factories that make electrical equipment, airline seating, toilets and drugs.”
Deep thoughts on civilisation from Jeremy “Hari Seldon” Grantham | FT Alphaville
“Grantham is out with one of his deepest notes yet, entitled “The race of our lives”.
The key points are:
1) We are facing a critical inflection point not just a financial crisis, and if we don’t make the leap, it could be bye bye human civilisation.
2) We need to do everything we can to ensure the technological leap, which is needed to sustain us, happens. And this can happen if we get our act together.
3) There are vested interests who are mindful to defend the status quo, rather than progress forward. And many people prefer to burry their heads in the sand.
4) The race is going to be very close.”
On vested interests and profits | FT Alphaville
“The problem is that the major driver of the ebb and flow of profits — investment — has started to break apart from its traditional relationship:
Investment used to be a good barometer for profit, the two used to be closely correlated. Since 1987, this is no longer the case. In fact, it’s almost like less investment is leading to more profit.”
Benchmark’s Bill Gurley: Late-Stage Market Is “Most Frothy” Since The Late 1990s | TechCrunch
““The late-stage private market continues to be the most frothy thing I’ve seen since the late 1990s,” he said on-stage in an interview with TechCrunch founder Michael Arrington. “I thought it was going to go away when you had these IPOs trading at fractions of the opening price, but if you have a company that people have selected as the ‘chosen one,’ you’ve got people knocking on your door.”
On the totally opposite end of the market, there’s a dearth of capital for seed-stage companies that want to progress to a Series A round.”
Deutsche Bank hikes capital to strengthen balance sheet | Reuters
“Deutsche Bank said it will beef up its balance sheet with a 2.8 billion euro ($3.7 billion) capital increase and unveiled forecast-beating first-quarter earnings following a wave of aggressive cost cuts.”
ekathimerini.com | Total credit growth in Greece shrinks 7.1 pct y-o-y in February
“Total credit growth in Greece shrank 7.1 percent year-on-year in February, with the pace of decline picking up from the previous month, Bank of Greece data showed Monday.”
Italian PM Enrico Letta urges move from austerity to growth – Telegraph
“Italy’s new Prime Minister Enrico Letta pledged to push for a change to the European Union’s focus on austerity and pursue growth and jobs in an inaugural speech on Monday laying out the priorities for his coalition government.”
PBO: Budget to cost Canada 14,000 jobs, growth from cost-cutting | Economy | News | Financial Post
“The federal government’s most recent “jobs and growth” budget will wind up costing Canada both jobs and economic growth over the next few years, the Parliamentary Budget Officer says in a new report.
The PBO’s latest estimates on the impact of the 2013 budget handed down in March show the cumulative impact will be to reduce economic growth by 0.12% and job creation by 14,000 by 2016.”
App messaging damages mobile networks’ text revenues | Technology | guardian.co.uk
This has been going on for some time and will continue. The telecom guys are scared of becoming dumb pipes and this is why they fervently oppose net neutrality.
“WhatsApp, Apple and BlackBerry chat apps generated 19bn messages a day in 2012 as people switch to data plan services”
Spain Is Beyond Doomed: The 2 Scariest Unemployment Charts Ever – Matthew O’Brien – The Atlantic
“Here’s the story of Spanish unemployment in three acts. During the boom, joblessness was relatively high due to persistent structural problems. Then it shot up fast and faster as Spain’s building bust and then Lehmangeddon hit in 2008. But it has kept climbing up since the panic abated, albeit at a less catastrophic pace, due to the toxic combination of too tight money and budgets.
In other words, austerity hasn’t been the path to prosperity. It’s been the path to perma-slump.
But the real story of the Spanish depression has been the story of the indignados: the mostly young, long-term unemployed.”
Italy struggles with NPLs | Top News | IFRe
This is a marker for debt deflation and must be watched closely.
“Bankers in Italy are growing increasingly worried about their high level of non-performing loans, which are the highest in Europe apart from Greece.
Figures from Barclays show that NPLs as a percentage of Italian banks’ total loans had reached 12.6% by the end of 2012 and are set to reach 13.4% by the end of this year. The latter figure is more than twice the average level in Europe and is not far off Greece’s ratio of 14.3% in 2011.
Barclays analysts project that Italian NPLs will reach 13.6% by the end of 2014, but analysts at Natixis are even more gloomy – estimating that they will hit about 20% of all loans at that point.”
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