Links: 2013-06-27
I am going to make this quick unfortunately given time constraints but I did want to make a few comments about threads in the news.
US: In the US, the NSA scandal appears to be dying down. Note, however, the links on encryption technology and on the EFF’s suit against FBI facial recognition. It tells you the lasting legacy here will be a heightened sense of awareness about privacy and security issues in the US and elsewhere. I believe this will be favourable for technology companies in the security/privacy business, especially those operating outside the US (and the UK). Hurt by the scandal are US companies most leveraged to the cloud where the US government can access data most readily. This scandal will continue to simmer as more revelations are destined to come.
The drop in US GDP estimates for Q1 were surprisingly large and were attributed to lower than expected retail sales growth. I think the key takeaway here is that US households are constrained by the slow growth in wages and in anemic job growth, coupled with declining labour participation rates and still high levels of debt. I believe a releveraging is always going to be possible during an economic upswing as a result of easy money. But the tenor of the releveraging has to be muted given this backdrop. And this releveraging will be unwound in the subsequent downturn. It is unsustainable. The only way for the US to grow sustainably is via wage and job growth that is simply not in the pipeline.
Europe: The fallout from the Anglo Irish pone scandal is probably going to be that Ireland will have a hard road to how on retroactive bank debt relief. It looks to me like the Irish taxpayers are going to get stuck with the bill. While Ireland is projected to grow this quarter, the longer-term outlook given this huge debt bill is a lot more muted. I think most of the upside in Irish government bonds is behind us at this point.
On the bank resolution scheme, as everyone knew, Cyprus WAS the template. The chorus of policy makers’ denials was ridiculous. Now we see that bail-ins are coming because sovereigns are too indebted to take the bill. The Irish example is the best one in exactly why this is appropriate. The biggest problem is with deciding between unsecured depositors versus taxpayers and how the setup in Europe could lead to bank runs. In practice, people generally believed that almost all of their deposits were safe due to an implicit state guarantee even if this wasn’t explicit. But now, the opposite is true. And I believe this will mean an enhanced risk of bank runs as the largest depositors will flee at any sign of trouble, creating a self-fulfilling dynamic for the weakest banks. You need to recap these weak banks for this bank resolution scheme to be viable. Right now, Europe’s banks are poorly capitalized.
Japan: We are back in business with Japan. The markets there have stabilized. Most of the upside has been locked in and I don’t foresee another huge move upward here. But I think the panic has subsided for now. Let’s see what kind of economic data we get.
China: Could the bubble be unwinding? It is hard to say how far the government will allow this liquidity crisis to continue. Clearly they want to put on a show of force regarding excess credit growth. But the downside risk is collapsing growth. I believe every time we see policy stimulus removed, that’s what we will get, growth much lower than 7%, maybe 3 or 4%. That’s not acceptable, so I believe eventually we will see accommodation.
Tech: Note that Samsung is coming out with a huge variety of smartphone form factors, from larger to smaller, with phone cameras and the like as well. I call this the supermarket approach because it’s like consumer goods companies that sell breakfast cereal in different varieties in order to reach every consumer. This strategy is going to box Apple in and make it hard for Apple to break out of its niche at the upper end. I see mobile handset volume slowing a lot from here in the upper end, with more of the demand coming from the upgrade from feature phones. And we should note that Nokia has ditched its Symbian OS. That means feature phone sales are going to slow.
That’s it for now. Here are the links.
Marc Rich dies: Glencore co-founder and former fugitive was 78 | News | Financial Post
Risk Assets/Fed
Gold Miner Writedowns at $17 Billion After Newcrest – Bloomberg
Gute Laune in Fernost: Asien-Börsen erholen sich – n-tv.de
Asian indices are doing better
US rate volatility sparks surge in junk-rated debt yields – FT.com
Junk Bonds Suddenly Don’t Look So Good Anymore
EM junk bonds: the post QE wallop, in one chart | beyondbrics
Risk of 1937 relapse as Fed gives up fight against deflation – Telegraph
I think this is overblown. I don’t see this as a 1937 thing.
Krugman and I were both wrong about the Fed and interest rates
The Fed’s bad timing | Felix Salmon
Privacy/NSA Scandal
Four years ago, Ed Snowden thought leakers should be ‘shot’
Spectacular Highway Shooter Investigation Raises Data Privacy Concerns – SPIEGEL ONLINE
Facebook follows Google with super-tough encryption technique most services don’t use | The Verge
EFF Sues FBI, Wants Access To Records Of The FBI’s Facial Recognition Program | TechCrunch
Leahy proposes new oversight of surveillance programs
Senators demand NSA correct inaccurate claims over privacy protections | World news | guardian.co.uk
Europe
Francia entra en recesión | Economía | Cinco Días
France is going into recession
Repsol Rejects Argentina’s Offer of Compensation for YPF Appropriation – WSJ.com
Austerity support frays at edges among EU smaller fiscal hawks – FT.com
Anglo tapes revelations make front page news in Germany – Independent.ie
ekathimerini.com | Greece birthrate drops further
Europe strikes deal to push cost of bank failure on investors | Reuters
Irish GDP figures to show 0.3pc Q1 bounce – Independent.ie
Millions told they will have to work longer or cut spending to pay the mortgage – Telegraph
This is why rates WON’T rise. Same goes for the US
“In a bleak warning, the Bank of England warned that just a small rise in rates from the current 0.5 to 1.5 per cent could cause significant levels of “borrower distress” and yet more bank losses.
A rise to 2.5 per cent could force households holding 20 per cent of Britain’s £1.3 trillion of mortgage debt to take some kind of action to keep up with repayments. “
Italy could need EU rescue within six months, warns Mediobanca – Telegraph
Merkel Campaign Platform Full of Expensive Promises – SPIEGEL ONLINE
“on Monday she urged Europeans to not constantly be looking for the next “pot of money.” Yet her platform is full of expensive promises.”
Merkel Offers Her Election Manifesto – NYTimes.com
North America
Alberta floods expected to cut Canada’s GDP growth in half | Economy | News | Financial Post
Alberta’s flood risks knocking Canadian economy off course | Economy | News | Financial Post
Bulk of U.S. Sugar Loans Went to Three Companies – WSJ.com
This is corporatism plain and simple.
A Look at Case-Shiller, by Metro Area – Real Time Economics – WSJ
“The composite 20-city home price index, a key gauge of U.S. home prices, was up 12.1% in April from a year earlier. All 20 cities posted year-over-year gains for January, February, March and April.
Prices in the 20-city index were 2.5% higher than the prior month. Adjusted for seasonal variations, which reflect a traditional stronger spring selling season, prices were 1.7% higher month-over-month. No city posted a monthly decline, though prices in Detroit were flat.”
The Real Reason 1Q GDP Took a Hit
Emerging Markets
Moody’s downgrades Hong Kong banking system to ‘negative’ | South China Morning Post
Liquidity crunch a catalyst for big China slowdown – analysts /Euromoney magazine
China: PBoC tries again to ease cash crunch concerns | beyondbrics
“The PBoC seems to have judged that it needed to do more and, well into the evening local time, it issued a statement saying that it would supply cash to help banks facing temporary difficulties – and had already done so. It said interest rate volatility and tight liquidity would “gradually ease” once “emotional factors” were eliminated.
But this isn’t likely to be the last word on the matter. The central bank is committed to squeezing banks to curb over-rapid credit growth, which is seeing loans expanding this year at 22-23 per cent. “
Poland’s economy showing signs of life | beyondbrics
Retail sales numbers are consistent with accelerating recovery in Poland.
India: the rupee hits 60 | beyondbrics
“Emerging market currencies have depreciated sharply this month, following the US Federal Reserve’s announcement that it may well begin “tapering” quantitative easing. But the rupee again went into freefall on Wednesday, while other emerging market currencies remained relatively calm.”
Tech
Amazon brings its AutoRip music feature to UK customers | Technology | guardian.co.uk
Google backtracks on plan to pull paid Android apps in Argentina | The Verge
Verizon in Talks to Buy Into Canadian Telecoms – WSJ.com
All About The New Windows 8.1 Start Button & Improved Start Screen
Dish Withdraws Its Bid for Clearwire – NYTimes.com
So, Dish loses Clearwire spectrum to Sprint which it cannot buy either because of a bid from SoftBank. Seems like Dish is a loser here and SoftBank/Sprint a winner. But what about price? I don’t know the answer to that.
Apple and Samsung should be ‘scared’ of Huawei – Telegraph
Extend the battery life of your MacBook, no matter how old it is — Tech News and Analysis
A Few Thoughts on the Galaxy NX and Galaxy S4 Mini – Droid Life
Apple MacBook Air 2013 (mid 2013) review | PC Pro
TWRP Manager App Released For TeamWin Custom Android Recovery
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