Archív značiek: japan

Nothing Has Been Solved

The Euro crisis is not definitely solved. Greece unemployment rate in April 2013 was 26.9% compared to 23.1% in April 2012 and 26.8% in March 2013. The number of employed amounted to 3,636,042 persons. The number of unemployed amounted to 1,337,621 while the number of inactive to 3,337,051. It means that 3.6 million people in Greece are working to support 4.6 million of inactive people. And we had another problem in the country as well. Non-performing loans just surged to €66 billion, amounting to a whopping 29% at the end of March from a „manageable“ 24.2% at end-December. That’s a ridiculous 20% increase in total NPLs in three months that was only exposed due to the Troika’s stress testing!grecko_nepokoje

Portugal’s president threw country into disarray on Thursday calling for early elections next year. President Silva proposed a cross-party agreement between political parties to guarantee wide support for austerity measures needed for Portugal to exit its bailout next year, followed by elections. It was surprise for Prime Coelho who thought he had overcome a cabinet crisis. The 10 Y yields on governmental bonds were automatically almost 8 % which creates unsustainable environment to serve country´s debt.

France is destroying 8,000 jobs a day.” It said Pierre Gattaz, the new leader of business federation in France. It is probably overblown but it illustrates the situation in the country. France is being suffocated by high taxes and an over-regulated system and rising unemployment is direct outcome. Christophe de Margerie, head of the energy giant Total, said it very clearly: “The real problem we have in France is the state. Some 55pc of GDP in the hands of the state, and it is not being very well run. We live in a nanny culture where people expect the state to take care of everything.”

The International Monetary Fund lowered its 2013 global GDP growth forecast to 3.1% from 3.3%. According to IMF US will be down to 1.7% from 1.9% and the euro area GDP to contract 0.6% in 2013, downgraded from the previous estimate of a 0.3% contraction. The revision was made for 2014 as well.

The Japanese government plans to adopt a different measure of inflation. The government plans to use so called „core-core“ CPI which excludes volatile prices of fresh food and ass well as energy costs. The change could result in more pressure being put on the central bank to keep flooding the market with yen as the inflation target becomes harder to achieve. Ok. So it seems to me that inflate to infinity is the government official plan now.

As I mentioned above we had the FOMC minutes and Ben Bernanke appearance. The FOMC minutes have shown that it is very probable that the committee is divided about the present 85 billion bond buy policy and the final confusion came from the chairman who claimed that “Highly accommodative monetary policy for the foreseeable future is what’s needed” which is a little bit contrary to the FOMC minutes. We had a resignation of one member of the committee afterwards when Elizabeth A. Duke submitted her resignation following day which could be a logical response of what the „other half“ of the Fed thinks about present time policy. But who knows.

Guess, do outnumber full-time employed workers in the US the number of Americans who receive food assistance and/or are on disability? Simple answer is not. But do not be so fast. There are 116 million Americans with full-time jobs, which include 21.9 million government workers. The number of Americans who receive some kind of social assistance is 112.5 million. So far so good there are only 3.5 million more Americans with full-time jobs than there are Americans who are reliant on the government. Not very good perspective.

Matúš Pošvanc

Be Careful What Money You Have in the Bank

The last week meeting of EU finance ministers brought about new rules on bank collapses. The new rules are definitely inspired by Cyprus event. Under the new regime, banks‘ creditors and shareholders would be the first to take losses. But if this proves insufficient to rescue the bank in question, savers holding uninsured deposits worth more than €100,000 would also take a hit. The forced losses could account for as much as 8 percent of a bank’s total liabilities. Only then would national governments step in and provide a taxpayer-funded bailout worth another 5 percent of the liabilities and the ESM will be able directly to finance problematic banks. So dear reader, please let´s be careful which bank you chose and if you or your business has bank account over €100,000. And you should be careful because some of banks just count on the bail out or bail in scheme. How do I know? The same was true with the Anglo-Irish bank which was saved by the Irish government. The taped conversations between two bankers revealed that the Irish government pumped €7 billion of emergency cash into the bank just on bankers fabricated estimation. In reality they need more money but the strategy of bankers was to pull government into the process of bail out and once the government began the flow of money, it would be unable to step out of the process. I must admit that in some way it is a very clever thinking. But is this the pattern how bankers think about money we have entrusted to them?anglo_irish_bank

Portugal is facing another 2.3 percent contraction of its economy this year. The Prime Minister Passos Coelho stated that he does not see any possibility for more tax increases and his government would focus on reducing spending. We will see how successful will be because he has still problems with 600,000 public workers who have mostly stayed immune to mass job cuts due to the constitutional court decision. But according to IMF the only possible way for Portugal is to cut its spending on wages and pensions which constitute almost half of the government expenditures that are not use for interest payments.

Britons’ disposable income fell the most since 1987 as data showed in the U.K. Although the GDP rose 0.3 percent in the first quarter of this year and the economy is showing signs of strength consumers are under pressure. Why? One of the reasons is raising inflation which outpaces pay growth. The fiscal constrains has left the BOE as the main source of support for the economy. New governor Mark Carney will hold its first meeting on July 3-4 and we will see if he has for the U.K. any surprise in his pocket in the meaning of new monetary policy rules.

Last week we witnessed some stress on the China´s inter-bank market due to the tighten liquidity. The People’s Bank of China stated officially this week that it has provided liquidity to some financial institutions to stabilize money-market rates and will use short-term liquidity operations and standing lending-facility tools to ensure steady markets. The situation in China is calmed for now but the pot is still gurgling. The main problem is the country´s shadow banking system which flourishes in China because an estimated 97 percent of the nation’s 42 million small businesses can’t get bank loans within the normal banking system and savers seek for higher returns.

The FED published its latest balance sheet data which shows us that the assets of FED reached $3,478,672,000,000; a new all-time high of course and up $615 billion from last year. One of the consequences of the FED´s policy is that it moved high quality collateral from private hands; this collateral is the base for interbank confidence and source of shadow banking liquidity. FED´s policy allegedly stands behind the so called U.S. economic recovery which looks like follows. Approximately three-quarters of Americans are living paycheck-to-paycheck according to a survey released by The survey revealed that 27 % of Americans have no savings and approximately just one in four Americans have some money to cover at least 6 month of expenses. And once we realized that more than 47.7 million Americans are now on some form of food stamps program (it was only 17.1 million in 2000) it must to be clear that this is quite strange recovery of the economy.

Matúš Pošvanc

Power of Central Banks Moved By Markets

Mario Draghi verbally intervened once again and does not hesitate to tell anything. He said that the ECB is considering further non-standard monetary policy tools and will deploy them if circumstances warrant. He is also aware of the fact that the measures could have unintended consequences but the ECB will be allegedly able to manage them appropriately. He also said that the banking union and supervision of the ECB over the main banks within Eurozone could be one of solutions. But the banking union according to some other sources will not be able operate earlier than at the end of 2014. Important point is that it cannot prevent any crisis because problems within the banking sectors are not coming, they are already here. One of many examples could be the Deutsche Bank which is allegedly horrible undercapitalized according to a top U.S. banking regulator Thomas Hoeing. The Deutsche Bank CEO said that everything is ok and that the bank had made enormous progress on its core tier-one capital ratio. He said that the DB is the one of the best capitalized banks in the world compared to its peers after capital raise of almost 5 billion euros. So if this bank is one of the best capitalized compared to others and it is true at the same time that it is in fact undercapitalized than what the situation in other banks looks like? And European Union finance ministers were dealing about the set of rules for assigning losses when banks fail on Friday. The new rules should set standards for how to prop up or shut down failing banks, along with requirements for the kind of backstops each country must have in place. We will see what they deliver to us.

draghi_bernankeEuropean car sales fell to a 20-year low in May 2013. The most hit car makers were PSA Peugeot Citroen (UG), Renault SA (RNO) and Fiat SpA (F) – reading France and Italy. Registrations dropped 5.9 percent to 1.08 million vehicles from 1.15 million a year earlier. According to analysts, the EU market will shrink by 29 percent from the pre-crisis peak, and may stagnate at that level quite a long. Main reasons behind are high youth unemployment and aging population and of course financial uncertainty connected with the crisis.

As predicted Cyprus economy is driven into a deeper recession, leading to a further rise in unemployment and making fiscal consolidation all the more difficult. Cyprus agreed on rules of rescue which will cause its long and painful death. According to some news Cypriot president beg for revision of the bailout package and easing of strong rules. He wrote: „I urge you to review the possibilities in order to determine a viable prospect for Cyprus and its people.“ We will hear for sure about the country in the future.

Some analysts have pointed to Japan as the next financial crisis trigger. But it could happen anywhere today; for example in China. It seems that counterparty mistrust among financial institutions reached extreme levels in China last week where so called Shibor, or the Shanghai Interbank Offered Rate, has been surging. The rate is simply a barometer of liquidity in the Chinese credit markets. The situation was probably dangerous because the PBOC had to intervene to calm the markets and provide liquidity. Fitch also warns about China´s credit bubble and problems with its shadow banking system. “There is no transparency in the shadow banking system, and systemic risk is rising. We have no idea who the borrowers are, who the lenders are, and what the quality of assets is, and this undermines signaling,” said Charlene Chu from the Fitch.

It was the FED´s press conference which was the most monitor event of the last week. And what are the highlights of Bernanke’s press conference? First job gains and housing has increased consumer confidence, second most Fed members are not in favor of agency debt, third monetary policy will continue to support the economic recovery, fourth bond purchases may “moderate” later this year, and finally bond purchases could end around the mid of 2014. But the fact is that the Federal Open Market Committee left the monthly pace of bond purchases unchanged at $85 billion. Tricky is that only the idea that the “drugs” will be taken away from the addicted economy suffices to generate a significant declining effect in almost all markets. No. No. There will be not be any end of this policy.

Matúš Pošvanc

We Intentionally Created Bubble

The hearing in front of the German Constitutional Court about the legality of the Outright Monetary Transactions (OMT) scheme of the ECB was on Tuesday and Wednesday, but the final verdict is not expected before autumn. The ECB reconfirm before the hearing that there is no upper limit of the program as a reaction to the German newspaper report published last week on Sunday. Report stated that the ECB had set a limit of 524 billion euros on the OMT scheme. “As indicated on various occasions, there are no ex-ante limits on the amount of Outright Monetary Transactions. Their size would be adequate to meet their objectives,“ said spokesman of the ECB. The German Constitutional Court is primarily is interested about legality of ECB actions and not whether the European Central Bank’s (ECB) was successful with its policy. I am not a lawyer but it seem to me that decision of the court will be complicated and not very clear if we realize that the OMT mechanism were not use anytime and in fact it is more an verbal intervention without any exact written rules and conditions. But expectations about the decision are in the mood that the court will tell something like “yes but …”.bubliny

Andy Haldane, Bank of England director of financial stability warned of the risk to global financial stability last week when he stated in a wide-ranging testimony to MPs „Let’s be clear. We’ve intentionally blown the biggest government bond bubble in history … We need to be vigilant to the consequences of that bubble deflating more quickly than [we] might otherwise have wanted.“ The Bank of England immediately issued a statement that Haldane’s remarks were just his „personal views“ and stressed that „Any attempt to return interest rates quickly to more normal levels would recreate recession conditions.“

Switzerland will join the international push against tax dodgers and help develop global standards allowing banks to share customers’ details to combat tax evasion. This is a recommendation of a committee appointed by the finance ministry. This will mean the end of the tradition of bank secrecy in the country. According to Boston Consulting Group Switzerland is the world’s biggest offshore wealth management center. And it seems to end this primacy.

Spain’s credit rating stayed at BBB-. The rating remains at the same level because of the country’s commitment to the implementation of a comprehensive fiscal, structural reform agenda remains strong but outlook is still negative. But high unemployment, recession, shaken banking sector and budget deficits are not the best outlooks for the economy.

It could be Japan which causes some global financial meltdown due to the policy which consists of fiscal stimulus and monetary easing. Japan is one of the most indebted nations and the situation becomes more and more dangerous if we realize that Japan use almost 50 % of its tax revenues to service their government debt. But we needn’t be worried because Mr. Abe has a genial plan to promote buying government bonds by public which is very similar to former Soviet or German propaganda. So let´s meet the Japanese girl band whose skirts get shorter when the Nikkei rises and whose debut single called “Abeno Mix” has direct references to quantitative easing and construction bonds:

The U.S. budget deficit increased in May by 10 %. Outlays exceeded receipts by $138.7 billion last month compared with a $124.6 billion shortfall in May 2012. On the other hand the U.S.’s AA+ credit-rating outlook was increased this week after two years to stable from negative by Standard & Poor’s. The main reasons behind are that the U.S. has strong economy and monetary system and that the U.S. dollar has the world’s key reserve currency status. I think that the S&P should also wonder how the U.S. repays its debt worth more than $ 16 trillion. This is also the main reason why the FED is not able significantly taper its bond purchase program although investors are behaving as if they don’t believe to the FED (the yield on the 10-year Treasury note has risen to 2.15 percent from 1.63 percent). The only possibility to taper the program is to rely on presupposition that other central banks will boost their balance sheets and these stimuli go global and keep low yields in the US. Otherwise the U.S. government will have huge problems to service its government debt.

Matúš Pošvanc

We Need Reforms

The European Central Bank warned about the risk of a renewed banking crisis. The main reasons behind are the euro zone’s slumping economy and a surge in problem loans. The logic is simple. Prolonged recession will cause that many borrowers were not able to repay their debts which creates more stress for European banks balance sheets still not recovered from 2008 event. The ECB did not mention specific banks but it said the most vulnerable were those in countries with high unemployment or falling house prices; translated it means banks in Italy, Spain, Greece, Portugal and Netherland.

reformyAnd we should be worried about unemployment. It is over 12 % in Eurozone. Scarier is of course the Europe’s youth unemployment which continues to rise (to 24.4%) and having not fallen for 24 consecutive months. And Spain is the ‚winner‘ with 41 consecutive months without any drop. And who belongs into the club of record holders? Italy 40.5%, Portugal 42.5%, Spain 58.2%, and of course Greece 62.5%.

Yes, we need reforms. UK´s Foreign Secretary William Hague for example called for cooperation between Britain and Germany to lead reforms within the European Union. He stated that „Finding the right balance between integration in Europe for those who need it, and flexibility where it is best for our economies and our democracies, is the great challenge of German and British diplomacy over the next few years.“ But I am not so sure that anything happens. Why? Because German finance ministers Schaeuble thinks on the other hand that we need to preserve Europe’s welfare model otherwise we will witness revolution. And if U.S. welfare standards were introduced in Europe, which are actually almost the same „we would have revolution, not tomorrow, but on the very same day,“ he told in Paris. So what to do? Thanks to God we have European Commission. It came with some solutions. To end austerity and extend deficit deadline. For who? Today for Poland, Slovenia, Spain, Netherland and Portugal. Tomorrow for those who realize that to behave in a responsible manner is not very advantageous.

GDP of Slovenia shrank 4.8 percent from the same period in the previous year. It only means more problems with deficit issue and set up a big question mark over the country if it is able to process cleaning up within its banking sector. On the other hand Slovenia is a Euro club country so rescue package is probably already pre-prepared.

France is fighting with recession. The number of registered jobseekers rose almost by 40,000 in April and the total number of jobseekers was 3.26 million, the highest number ever and is still accelerating. France is trying to cut its public spending and it is very probable that it has many, many options if we consider that the government was able to spend € 250,000 for wines per year during the crisis. Deep underneath the Elysee Palace, next to a bunker with the code name „Jupiter,“ is the best wine cellar in France. There are more than 15,000 bottles and a small portion of this precious stock, about 1,200 bottles, will be auctioned off at a sale on May 30 and 31. You can buy and help France to recover.

There are many unintended consequences of monetary easing. We informed you about McDonalds last time which rose prices of some products more than 20 % in Japan which follows this policy. It is Apple today. Apple raised the price of iPad and iPod in Japan after a weaker yen that’s boosting importing costs.

We have some positive news from the US. Business activity rebounded in May after declining for the first time in more than three years. The Chicago Business Index rose to 58.7 in May from 49 last month; everything below 50 signals contraction. Positive news was strengthening of consumers’ confidence which rose in May to the highest level in almost six years. The Thomson Reuters/University of Michigan index of sentiment increased to 84.5 in May, the strongest since July 2007, from 76.4 a month earlier. On the other hand with a new month we have also some sad record in the US. The total number of people in the receiving disability benefits hit a record 10,978,040 in May, up from 10,962,532 million in April. It means that the number exceeded the population of people living in Georgia, Michigan, North Carolina, New Jersey or Virginia together.

And if you think that you can improve the economy by monetary stimulus you can prepare yourself to be a central banker. How? Just play to be Ben Bernanke by the WSJ application called FEDERATOR. You will see how it is difficult. The target of the play is 2 % inflation and 5 % unemployment. So let´s try it. I tried it eleven times and always failed:

Matúš Pošvanc