Early today, I wrote a fairly upbeat piece on the European sovereign debt crisis for gold members. The overall gist here is that fiscal union is now coming. And while it remains to be seen who will be a part of that union, the implication is, as German Chancellor Angela Merkel likes to put, “more Europe, not less”. We see the ‘more Europe’ solidarity in the monetisation of debt by the ECB and in the proto-banking union agreement that Merkel and French President Hollande have cobbled together overnight. And markets are responding. Italian debt, in particular, has shown a big response with 10-year yields down from a 6%-handle to a 4%-handle. The Italians were able to get away 18 billion euros in government debt in the second single largest offering in history. That tells you the policies supporting ‘more Europe’ are having an effect.
But this is a big problem for the British where euroscepticism is high. Robert Peston has written a piece on the BBC website that talks about this from the banking angle. His comments suggest that Britain will be increasingly on the outside looking in unless it cedes a lot of national sovereignty and opts to allow the EU apparatus to take on a bigger role in domestic affairs. Moreover, Peston and others in Britain see banking union as a backdoor attack on Britain’s role as a financial centre. They fear Frankfurt’s desire to co-opt this role and believe that banking mutualisation will work to Britain’s detriment as a banking centre.
The question for the Brits in the future will then be a political one more than an economic one: how much of their national sovereignty are they willing to cede to Europe? When thinking about the integrity of the EU, I believe this is the big question going forward aside from Greece’s future in the euro zone. Europe is moving full speed ahead toward a sort of United States of Europe model and some people will not support this.
Europe
BBC News – UK mugged by eurozone banking union?
“It is not at all clear how the government will prevent the UK becoming an increasingly marginal voice in European financial policymaking. And although you might be tempted to think that the arcana of how banks are regulated is of little interest to you, the economic mess we’re in would prove you wrong.
Which is why the eurozone’s life-saving banking union could be the trigger for a momentous debate in Britain, about whether the centralisation of economic and financial decision-making in the currency union, arguably necessary to its survival, will inevitably push Britain towards EU exit.”
Italy raises €18bn in huge bond sale – FT.com
“Italy has raised €18bn through the issue of a four-year inflation-linked bond primarily aimed at retail investors, far more than expected in what the treasury said was the country’s biggest bond sale.
The mammoth Italian bond is the largest amount ever sold in a single debt offering in Europe, according to Thomson Reuters data, coming only behind US issues.”
German financial newspaper Handelsblatt here notes that foreign investors are returning to Italian bonds in the wake of the ECB’s OMT program announcement. As usual, I have to remind you that I’ve been saying all along that the ECB would have to write the check for the sovereign debt crisis to get under control. The EU needs some entity with an unlimited check book to be able to calm dislocated markets – and that entity is the ECB.
Van Rompuy, Barroso and Schulz to collect the EU’s Nobel together | FT Alphaville
“Barroso, the European Council president Herman Van Rompuy and the European Parliament president Martin Schulz will all fly to Oslo in December to collect it together. After all, the EU is all about togetherness.”
Greek poverty so bad families ‘can no longer afford to bury their dead’ | World news | The Guardian
“Vanna Mendaleni is a middle aged Greek woman who until now has not had vehement feelings about the crisis that has engulfed her country. But that changed when the softly spoken undertaker, closing her family-run funeral parlour, joined thousands of protesters on Thursday in a mass outpouring of fury over austerity policies that have plunged ever growing numbers of Greeks into poverty and fear.
“After three years of non-stop taxes and wage cuts it’s got to the point where nothing has been left standing,” she said drawing on a cigarette. “It’s so bad families can no longer afford to even bury their dead. Bodies lie unclaimed at public hospitals so that the local municipality can bury them.””
World’s oldest bank Monte dei Paschi di Siena cut to ‘junk’ by Moody’s – Telegraph
“The world’s oldest bank has been cut to “junk” by Moody’s, as the rating agency warned that there was a “material probability” that the lender may need another cash injection from the Italian government.”
“Crushing any residual optimism among delegates after Wolfgang Münchau’s cautionary forecast at the Fifth Annual European Investment Conference, Felix Zulauf, president of Zulauf Asset Management AG, highlighted slowing growth in China as a portent to a global economic crisis that will strike every single region. Zulauf indicated that “excessive” booms always lead to a bust, and China’s will be no exception. He stated that recent Chinese growth was actually far closer to 3% than official reports of nearly triple that level. In his view, market commentators underestimate the problems in China; consequently, public growth forecasts for Australia, Latin America, and other natural resource countries are too high. He also believes that the Chinese authorities could implement “timid stimulus” after the coming leadership change but without much effect; in short, a “credit boom in reverse” seems imminent.”
La riqueza financiera de las familias cae el 7,6% en el segundo trimestre | Economía | EL PAÍS
Household wealth in Spain was down 7.6% in Q2 2012 compared to the same period a year ago. Just as in the US, the cause is the shrinking price of housing.
BBC News – EU summit: France says bank deal helps eurozone fusion
“The French president says a deal to start building a banking union on 1 January will enable the eurozone to speed up economic integration.”
Europe mistakes market lull for vote of confidence – Telegraph Blogs
I don’t agree with the tenor of commentary here though I think Spanish yields can rise again. Overall, I am less bearish.
“Sovereign debt strategist Nicholas Spiro says Europe’s leaders have mistaken the bond calm of recent weeks for a vote of confidence in their crisis strategy. Woe betide Spain.
The country is left dangling in the wind.”
Merkel proposes ‘solidarity fund’ to aid struggling EU members – European, Business – Independent.ie
“Addressing German lower-house lawmakers hours before EU leaders meet in Brussels today, Merkel laid out her vision for a Europe with closer financial cooperation, budgetary policy and more common economic policies. Alongside would be a fund “limited in time and project-based” and possibly stocked by the proposed financial transaction tax, she said.
Merkel’s calls for a fund came as Germany and several other EU countries seek stronger central powers to intervene when member states break budget rules.”
A Cypriot seniority quirk? | FT Alphaville
“flipside of Cypriot banking assets being some 835 per cent of GDP (according to 2011 IMF data.) Meanwhile, bad loans continue to pile up Greece, while to quote S&P: ‘The banks’ domestic loan books are deteriorating faster than we had originally anticipated’. These costs are not over.”
The Irish Economy » Ireland is not Denmark when it comes to mortgages
“1. We are not, nor were we ever, Denmark.
2. Changing wholesale to this system has risks, most of which I won’t go into here, but the Danes give defaulting households 6 months and we’d really like that to be longer, say a year.
3. Changing to this system would imply loans at 80% LTV, most banks are at 92% LTV, this would make it more difficult for first time buyers.
4. We’re in the middle of negotiations on the various capital requirements directives, this could throw a spanner in the works with the EU.”
IMF calls Lisbon’s austerity ‘imperative’ – FT.com
“individual “country circumstances” are important, citing recent comments by Christine Lagarde, the IMF’s managing director, that “a fiscal adjustment programme over a period of time cannot be one size fits all. It has to be adjusted based on the parameters of each country”.”
Technology
Verizon Profits Up on Surge in Wireless Subscriptions – Arik Hesseldahl – News – AllThingsD
“For the quarter, it made a profit of $1.59 billion, or 56 cents per share, on $29 billion in revenue, after adjusting for some items. On a non-GAAP basis, earnings were 64 cents per share.
It finished the quarter with 95.9 million wireless customers, up by 1.8 million from the prior quarter, compared with 882,000 in the same quarter a year ago.
The results are pretty much in line with what analysts had expected: 64 cents a share and $29 billion in sales.”
“Total smartphone sales were 6.3 million (down from 10.2 million in the previous quarter). While sales of mobile phones totalled 76.6 million during the quarter, of which 6.5 million were its Asha full touch phones.
The company also noted shrinking cash reserves. Nokia’s net cash fell to €3.6 billion ($4.7 billion) by the end of the quarter, down from €4.2 billion in June.”
Apple Forced to Run Public Apology in 14pt Arial
“Having lost its appeal against the UK High Court of Justice’s ruling, which decided Samsung’s tablet designs didn’t infringe on the iPad, Apple is being forced to make a public apology.
The best bit? The judge in question has described how it has to do it. Apple will have to post notices on its website, and in newspapers, explaining why it’s sorry. In Arial. With a font size no smaller than 14 pts. Brilliant.”
Google Introduces $249 Samsung Chromebook – Bonnie Cha – Product News – AllThingsD
“Today, Google introduced its new Samsung Chromebook, which will cost just $249. The companies’ previous Chromebooks cost between $300 and $550.
Based on Google’s cloud-based Chrome operating system, the Chromebook features an 11.6-inch, 1,366 by 768-pixel display, measures 0.8 inches thick and weighs 2.5 pounds. It’s equipped with two USB ports (USB 3.0 and USB 2.0), an SD card memory slot, an HDMI connector and a headphone jack.”
Microsoft profit slips as PCs fizzle; Windows 8 awaited | Reuters
“Microsoft Corp’s quarterly profit fell a greater-than-expected 22 percent, as sales of computers running its Windows operating system dipped and some revenue was deferred ahead of upcoming releases of its core Windows and Office products.”
Google results miss; shares dive after premature report | Reuters
“Google reported net revenue – excluding traffic acquisition costs – of $11.3 billion for the third quarter, below Wall Street’s expectations for about $11.9 billion.
For the fourth consecutive quarter, the company reported a decline in average cost-per-click (CPC), a critical metric that denotes the price advertisers pay Google.”
United States
Manufacturing in Philadelphia Area Grows More Than Forecast – Bloomberg
“The Federal Reserve Bank of Philadelphia’s general economic index rose to 5.7 from minus 1.9 in September, a report today showed. A reading of zero is the dividing line between expansion and contraction. The median forecast of 61 economists surveyed by Bloomberg was for an increase to 1.”
BBC News – Morgan Stanley reports $1bn loss
“much of the reported loss was due to accounting changes linked to the changing values of the debt it holds.
Excluding the effect of those accounting changes, Morgan Stanley made a profit of $561m, up from $68m in the comparable period of 2011.
Also excluding those charges, revenue rose 18% to $7.5bn, which was better than had been expected.”
Schapiro SEC Reign Nears End With Rescue Mission Not Done – Bloomberg
“U.S. District Judge Ellen Huvelle scolded the SEC for extracting “unimpressive” penalties from two executives named in a $75 million settlement with Citigroup Inc. (C)
“When you bring this long complaint and make it sound like there have been all these misdeeds, who’s responsible?” the judge asked at a hearing in Washington. “These things don’t happen without individuals.””
The Dow-to-Gold Ratio Since 1968 Crossing Wall Street
“The trend of gold’s out-performance over the past several years is remarkable. If the Dow had kept pace with gold since August 25, 1999, it would be at 77,800 today instead of 13,500.
On January 21, 1980, the ratio got down to 1, but by August 1999, it had risen to 44. Since then, it’s been down, down, down. In August of last year, the ratio fell below 5.8. By this past August, the ratio got back over 8.2, and today we’re right around 7.75.”
“From Freddie Mac’s weekly survey the average 15-year fixed rate hit an all-time low of 2.66 percent and 0.6 point. This is down from last week’s 2.70 percent. The 30-year fixed rate dropped down to 3.37 percent and 0.7 point from last week’s 3.39 percent. This is just 1 basis point away from its all-time low of 3.36 percent of a few weeks ago. The 5-year ARM rose to 2.75 percent and .6 point from last week’s 2.73 percent.”
Social Security is main income for many older Californians | McClatchy
“Some – like 89-year-old Marcia Howard and her friend, Dolores Scott, 80, who live across the hall from one another at the Eskaton Roseville Manor subsidized housing community for seniors – are living close to the financial edge.
“I worry about making ends meet,” said Howard, a widow. “I can’t go out and buy new clothes. I buy my pants for $7 at Wal-Mart. I have to watch what I spend. I can’t do like I used to. If we go to lunch, it’s Taco Bell.
Despite that, AARP data show that 9 percent of elderly Californians fall below poverty level, with incomes less than $10,890 a year.”
US Election
How Can Romney Recover? – The Daily Beast
“Romney did not deliver last night the calibre performance he displayed during the first debate. How can he up his game for debate three?
Some suggestions”
Balkinization: Binders are Better than Blinders
“The most interesting moment in last night’s presidential debate, to my mind, was this: the most thoughtful defense of affirmative action I have seen in a presidential debate—and it was from Mitt Romney. Moreover, this was a defense of affirmative action as it is actually practiced by the American companies that are serious about affirmative action. Too many of our fights about affirmative action in this country take place in a kind of fantasyland where the employer or school always knows with perfect precision, before practicing affirmative action, who are the most qualified candidates—and then “affirmative action” means rejecting the most qualified in favor of less qualified candidates. In reality, affirmative action often looks much more like what Mitt Romney says he did as Governor: making an affirmative effort to seek strong candidates from outside the usual channels, or to give some applicants a second look, out of an acknowledgment that one’s process otherwise seems to result in a pool with an overwhelming demographic skew (in Romney’s case, an administration of basically all men).”
Elsewhere
This is funny. I am going to move to a 3-second rule now.
Felix Zulauf On China And Europe – Business Insider
“Zulauf said China is actually growing at a 3 percent rate. This is according to the CFA Institute’s Thomas Collimore.
This compares to the 7.4 percent rate reported by the Chinese government earlier this morning.
Zulauf said that while China’s new leadership may implement a “timid stimulus”, it won’t have much effect, and that a “credit boom in reverse” seems imminent.
This will also devastate Australia and Latin America, Zulauf added. Like any aftermath of an “excessive” boom, China will end up going bust.”
BBC News – Viewpoint: Big data and big analytics means better business
Interview With Reddit Troll, ‘Violentacrez’, On Anderson Cooper [Video] | TechCrunch
“Notorious smut peddler, “Violentacrez”, gave his first Interview with CNN’s Anderson Cooper last night. After being outed by Gawker last week, the 49-year-old softspoken software engineer has lost his job and rekindled a fierce debate over the limits of free speech. “I am to some degree apologizing for what I did,” said Michael Brutsch, “Violentacrez is what I did in my spare time to unwind from my 10-hour-a-day job. That’s how I relaxed in the evening. I no longer need to relax in the evening, because I no longer have a job.””