EUCOM Economic Analysis - Part I

[Firn]

Sorry about the double post, I think it helps to the reader more then overly long posts.

Wiki has a decent write-up about the Dividendum

Dividends are not created of course equal.

The Deutsche Telekom AG is an interesting case. It does not divide the earnings of the company but the earnings + the capital. If a company earns over the last 7 years something like 0,5 per share but pays out a bit more then 0,7 something is usually very wrong. At least for the investor and 8,5€ per share certainly don't look cheap from this angle alone. ( At a low enough share price a disinvesting business could be quite attractive)

The France Telecom looks different. Over the last 7 years it has paid out 1,3€ per share while earning roughly 1,7 €. That is a high proportion and might be a bit too much as the shareholder might have had a higher return from higher amount of retained capital*. Quite recently FT has decided to cut the dividend to 0,8€ for 2012 and 2013. Earnings have suffered a bit but they should be higher then 1,2 IIRC for 2012. At a price of ~ 8€ the dividend yield is very high, at least before the dreaded taxes. It is certainly remarkable that in a world without taxes a shareholder with 1 share could have bought another one 7 years later just with the dividends. (No inflation and investment taken into account) Of course in this case he might be not too happy as he invested into this first share somewhat over 20€.

The first stock is not worth a second look, as time is precious, but the second one might be well worth the time even with those wicked French socialists² in power.


*A business typically needs to invest more then the depreciation takes just to keep it's current position to it's competitors.

²They leave you just 60% of your dividend while the dear US takes less the 30% away...

[Fuchs]

In simple terms 1€ spent on an investment means 1€ of increased demand while 1€ spent on an asset means that only a part of that dollar creates demand - especially if the rates are so low due to the liquidity trap.

He's still wrong to put the blame on the corporation instead of on the bank.

Meanwhile if he's irritated by the reserves held by banks - part of them are obligatory, and the Fed is free to pump more money into the system if those reserves are a problem.

Money held back slows down the rate of circulation which according to a quite established theory (not necessarily the theory Krugman likes) means less inflation. So this "less inflation" can be seen as a problem as Krugman does or as an opportunity to do something that usually drives inflation, such as the Fed giving the U.S. a gift in shape of buying some debt obligations at ridiculous conditions.

He's very, very arbitrary in blaming liquidity-hoarding corporations.

[Firn]

He's still wrong to put the blame on the corporation instead of on the bank.

Meanwhile if he's irritated by the reserves held by banks - part of them are obligatory, and the Fed is free to pump more money into the system if those reserves are a problem.

Money held back slows down the rate of circulation which according to a quite established theory (not necessarily the theory Krugman likes) means less inflation. So this "less inflation" can be seen as a problem as Krugman does or as an opportunity to do something that usually drives inflation, such as the Fed giving the U.S. a gift in shape of buying some debt obligations at ridiculous conditions.

He's very, very arbitrary in blaming liquidity-hoarding corporations.

I think he is perfectly right for the very reasons he wrote. The lack of direct investment of an (greatly) increased share of the national income is no good for the aggregate demand. It is 'just' one part of a bad economic spiral but still not a good one for the whole economy.

BTW dividends would of course tend to go to people which will reinvest most of the captial, buying assets instead of consuming. At least Uncle Sam would get more revenue and this by hardly taxing the poor.

[Firn]

Just a nice old link about a bet between Buffet and Protg Partners LLC.

Here's the bet, which Loomis says hasn't been reported before but has been in existence since the beginning of this year:

"Protg has placed its bet on five funds of hedge funds - specifically, the averaged returns that those vehicles deliver net of all fees, costs, and expenses. On the other side, Buffett ... has bet that the returns from a low-cost S&P 500 index fund sold by Vanguard will beat the results delivered by the five funds that Protg has selected."

Both Buffett and Protg (the firm, not the funds) have contributed $320,000 to buy a zero-coupon Treasury bond that will cash out at $1 million when the wager concludes in 2018.

Still a long way to go but it is interesting tor read about the score at roughly half-time:

The strategy with the best return at the end of 2017, including the costs associated with the funds, will be the winner, with a guaranteed $1 million going to either Buffett's designated charity (Girls Inc of Omaha) or Seides' (Absolute Returns for Kids.)

Fortune's Carol Loomis reports today that Buffett's chosen fund is up 8.69 percent, easily ahead of the hedge funds picked by Protege with their 0.13 percent average increase.It's vindication, at least so far, of Buffett's long-held argument that over a number of years, the "experts" aren't able to outperform the overall stock market. It's the basis of his belief the fees "helpers" charge investors usually aren't justified.

It might be this one - behold the power of good dividends. Keep in mind that 2008 was a terrible year for the S&P, losing almost practically half of it's value. One could not have picked a worse time in the last 5 years to buy the index fund but that might have just added spice to the wager ...

[Firn]

Bad economic data for Germany, Italy & Co. Italy was hit hard by the recession, the harsh and unbalanced austerity certainly playing a part in that. Maybe even worse the man responsible for a great part of our current economic woes, the man which played a whoring* sunking while Italy burned and put us all into a financial bind seems to profit from the recent developments.

I will be responsible in my district for the voting next weekend, let us hope that the duty won't be too hard.

*a rather factual description of what happened time and time again.

---

Why is France Telecom not worth more? Of course nobody knows for sure, but a quick glance on the key statstics gives us some potential idea.

1) 'Management Effectiveness' is quite dismal. Keep in mind that on average the results were considerably better in the years past. Still not good.

Return on Assets (ttm): 5.44%
Return on Equity (ttm): 12.30%

The capital employed by FT brings (very) little return. The return on equity is a bit better but only thanks to high leverage. The high goodwill is of interest as it is amount of intangible assets on the balance sheet. A lot of question marks on those lines. If it is 'good' economic goodwill it would drive up the return on the tangible assets but it is impossible to tell before looking up the statements in detail.

2) Profitability doesn't looked too good. Recently FT has become under heavy pressure by competitors in the home market.

Profit Margin (ttm): 8.28%
Operating Margin (ttm):

3) The balance sheet shows the considerable leverage and a great deal of goodwill and intangible assets compared to the tangible ones and equity. Lots of questions here, especially if the goodwill is indeed good or if it is a no-will. The long-term debt is high, how long-term is it and how high the interest?

So the stock looks 'cheap' at first and comes with a might dividend even if multiplied by 0.6 but as usual one has to do first the homework.

[Fuchs]

GDP figures have a certain margin of error, especially early ones.
-0.6% is nothing really noteworthy as an early GDP change figure, since the technological rate of progress has moved towards 1.5 % over decades and you need to subtract the demographic influence from this in order to get the natural GDP growth path figure.

Many people have not adjusted their growth expectations to 'GDP per working age capita' yet.

[Firn]

GDP figures have a certain margin of error, especially early ones.
-0.6% is nothing really noteworthy as an early GDP change figure, since the technological rate of progress has moved towards 1.5 % over decades and you need to subtract the demographic influence from this in order to get the natural GDP growth path figure.

Many people have not adjusted their growth expectations to 'GDP per working age capita' yet.

I agree about the point, however to a good amount that working age capita GDP sustains every single capita in a country. I will leave it there as we already discussed it and the traps laying around the concept of the GDP are many. Makes me think of Winston and his view on democracy or Buffets take on the GAAP.

As one of the biggest and most important countries in Europe prepares to vote in just a week I think it is just to shift the focus in this direction.

Monti points the finger at the PdL, the party of our ridicolous sunking.

L'Italia - ha aggiunto Monti - e' un paese importante, un paese del G8, e' certo puo' anche cadere nel ridicolo come e' accaduto per l'atteggiamento ridicolo tenuto da qualcuno in passato.

According to Monit Bersani (center-left) offered him the role as president ( the Quirinale is the current home of Napolitano) on the condidtion that the would stay out of the elections.

Se ci sara' un governo Bersani lei entrerebbe nella compagine?, gli chiedono: Dipende se nel programma ci sono le riforme che noi vogliamo e per le quali io ho compiuto l'insensatezza di rinunciare a posizioni che mi venivano prospettate. Il Quirinale? E non solo, perche' ci tengo a fare queste riforme.

The swiss NZZ reported how 'Benedetto uomo' (the blessed man) and his shock retire as Bishop of Rome, as well as Sanremo might heavily influence Berlusconis campaign which is only based on emotions and glibberish.*

Italiens Parlamentswahlen finden zwar erst am 24. und 25. Februar statt, doch hörte der Wahlkampf laut dem sarkastischen Kommentar von Luigi Crespi, einem führenden Demoskopen, bereits am 11. Februar um 11 Uhr 46 auf. Crespi wies damit überspitzt darauf hin, dass der von Papst Benedikt XVI. am Montag angekündigte historische Amtsverzicht die Medienberichterstattung über die Wahlen marginalisiert hat.

Monti will also be at the center of the news this weekend when the pope invites him into the Vatican, allowing him to act as a catholic statesman.

Und mit Konsternation hatte er am Mittwoch zu registrieren, dass Papst Benedikt am kommenden Samstag den scheidenden Regierungschef Monti, der das politische Zentrum im Wahlkampf anführt, zum Abschied empfangen wird.

*my view.

[Firn]

Yesterday evening I took a closer look at some financial statements, with some interesting results. ENEL for example did indeed trade a some point in recent times under the cash per share.

Mostly I looked at the results of stocks I own. Overall it was quite nice, but as written before such bull runs are always a bit two-edged if you have a hard time to find other good investements outside of stocks...

It is always nice to see some contra given. Anyway I will post the latest three trades, at least the price for which I got hopefully more value. Note that this concerns the small part of the portfolio wich is directly invested in equities. The far bigger equity part is in index funds, mostly of the (physical) ETF type.

E.ON: ~15
HP: ~10
Xerox: ~5

Buying fees are roughly 0.5%, portfolio fees 0.1%. Prices in €. Trades happened in the last two weeks. Obviously the sample is (too) small but it will be easier to manage.


We will see how things go in a couple of years. Hopefully we will not have forgotten this thread, but maybe this might be a good thing as good news doesn't create as many posts.

P.S: I just noted the almost perfect price scale of 5-10-15. Funny.

E.ON went down from ~15 to ~13€, a brilliant investment in a strong market
H.P did not too badly from ~ 10 to 12,8€ not too shabby.
Xerox gain some from 5 to 6€

So if one invested 30 € in each stock one has now (with fees but without dividends) roughly 100€ compared to 90€ you had a quarter ago. Not too bad especially if we consider that the € roughly gained 10% on the $. An U.S American could have got a nice return with those three combined.

[Firn]

Tomorrow we will have the last big meeting before for the elections. Let us hope that this sacred duty goes well, especially for the country. It is always a bit of a hassle to get everything right but our district team is good.

Personally I hope we get a clear result with a moderate and pragmatic coalition. History has shown that this is highly unlikely and a look on the lists (from Wiki) shows a big part of the problem:

Per il rinnovo della Camera dei Deputati e del Senato della Repubblica risultano candidate le seguenti liste o coalizioni di liste:[92][93]

Coalizioni di liste

Coalizione avente come leader Pier Luigi Bersani, denominata Italia. Bene Comune e composta da: Partito Democratico,[n 1] Sinistra Ecologia Libertà,[n 2] Centro Democratico,[n 3] Partito Socialista Italiano,[n 4] Moderati,[n 5] Il Megafono - Lista Crocetta,[n 6] Südtiroler Volkspartei,[n 7] Verdi Grüne Vërc,[n 8][94] Autonomie Liberté Démocratie.[n 9][95]

Coalizione avente come leader Silvio Berlusconi, composta da: Il Popolo della Libertà,[n 10], Lega Nord,[n 11] Fratelli d'Italia,[n 12] La Destra,[n 13] Moderati Italiani in Rivoluzione,[n 14] Grande Sud,[n 15] Movimento per le Autonomie,[n 16] Intesa Popolare,[n 17] Partito Pensionati,[n 18] Liberi per una Italia Equa,[n 19] Basta Tasse,[n 20] Cantiere Popolare.[n 21]

Coalizione avente come leader Mario Monti, denominata Con Monti per l'Italia[n 22] e composta da: Scelta Civica,[n 23] Unione di Centro,[n 24] Futuro e Libertà per l'Italia,[n 25] Movimento Associativo Italiani all'Estero.[n 26][96]

Coalizione avente come leader Ottavio Pasqualucci, composta da: No alla Chiusura degli Ospedali,[n 27] Dimezziamo lo Stipendio ai Politici,[n 28] Viva l'Italia.[n 29]

Yes sometimes reading those names one doesn't know if one should laugh or shed tears. Below we have neo-facists, rurals, autonomists, democrats, atheists, seperatists, feminists, ?, neo-fascists, ?, seperatists, seperatists and so forth. Luckily they will play just a small role apart form the MoVimento 5 Stelle.

CasaPound Italia,[n 30] avente come leader Simone Di Stefano
Civiltà Rurale Sviluppo,[n 31] avente come leader Enzo Bosio
Comunità Lucana,[n 32] avente come leader Michele Somma
Costruire Democrazia,[n 33] avente come leader Massimo Romano
Democrazia Atea,[n 34] avente come leader Carla Corsetti
Die Freiheitlichen,[n 35] avente come leader Ulli Mair
Donne per l'Italia,[n 36] avente come leader Maria Cristina Sandrin
Fare per Fermare il Declino,[n 37] avente come leader Oscar Giannino
Fiamma Tricolore,[n 38] avente come leader Luca Romagnoli
Forza Nuova,[n 39] avente come leader Roberto Fiore
Indipendenza per la Sardegna,[n 40] avente come leader Pietro Murru
Indipendenza Veneta,[n 41] avente come leader Lodovico Pizzati
Insieme per gli Italiani[n 42]
Io Amo l'Italia,[n 43] avente come leader Magdi Cristiano Allam
I Pirati,[n 44] avente come leader Marco Marsili
Italiani per la Libertà[n 45]
La Base,[n 46] avente come leader Efisio Arbau
L'Alto Adige nel Cuore[n 47]
Liberali per l'Italia - PLI,[n 48] avente come leader Renata Jannuzzi
Liga Veneta Repubblica,[n 49] avente come leader Fabrizio Comencini
Lista Amnistia, Giustizia e Libertà,[n 50] avente come leader Marco Pannella
MoVimento 5 Stelle,[n 51] avente come leader Beppe Grillo
Movimento Eudonna,[n 52] avente come leader Giovanna Sorbelli
Movimento Naturalista Italiano,[n 53] avente come leader Gabriele Nappi
Movimento Politico Pensiero Azione,[n 54] avente come leader Antonio Piarulli
Movimento Progetto Italia - MID,[n 55] avente come leader Marina Petrini
Movimento Staminali d'Italia,[n 56] avente come leader Erika Graci
Movimentu Europeu Rinaschida Sarda,[n 57] avente come leader Salvatore Meloni
Nation Val d'Outa[n 58]
Partito Comunista - Sinistra Popolare[n 59]
Partito Comunista dei Lavoratori,[n 60] avente come leader Marco Ferrando
Partito Comunista Italiano Marxista-Leninista,[n 61] avente come leader Domenico Savio
Partito del Sud - Meridionalisti Unitari,[n 62] avente come leader Andrea Balia
Partito di Alternativa Comunista,[n 63] avente come leader Adriano Lotito
Partito di Azione per lo Sviluppo,[n 64] avente come leader Alfonso Luigi Marra
Partito per Tutti - Partei für Alle[n 65]
Partito Repubblicano Italiano,[n 66] avente come leader Franco Torchia
Partito Sardo d'Azione,[n 67] avente come leader Giovanni Angelo Colli
Popolari Uniti,[n 68] avente come leader Antonio Potenza
Progetto Nazionale,[n 69] avente come leader Piero Puschiavo
Rialzati Abruzzo - Abruzzo Futuro,[n 70] avente come leader Carlo Masci
Rifondazione Missina Italiana,[n 71] avente come leader Raffaele Bruno
Riformisti Italiani,[n 72] avente come leader Stefania Craxi
Rivoluzione Civile,[n 73] avente come leader Antonio Ingroia
Tutti Insieme per l'Italia,[n 74] avente come leader Antonio Corsi
Unione Italiani Sudamerica[n 75]
Unione Padana,[n 76] avente come leader Giulio Arrighini
Unione Popolare,[n 77] avente come leader Maria Di Prato
Unione Sudamericana Emigrati Italiani[n 78]
Union Valdôtaine Progressiste[n 79]
Vallée d'Aoste[n 80]
Veneto Stato,[n 81] avente come leader Antonio Guadagnini
Voto di Protesta - Diritto alla Dignità,[n 82] avente come leader Giuseppe Cirillo

[Firn]

Really, what should one say. Even if the moderate center-left coalition wins the camera the senate looks absolutely ungovernable.

I mean Berlusconi winning the senato, Grillo in many regions over 30%. What has this country become?

It would be all quite funny if it wouldn't be almost true.

Ah che bello scappa'...

[Firn]

I tried to collect my wits after the 'risultato ingovernabile':

1) La madre degli imbecilli e' sempre incinta, the mother of the idiots is always pregnant. The success of the Berlusconi&company is hard to stomach, as many voters gave him their vote and trust already two times and should have seen what he has done with it twice. He came within 0,4% of winning the camera and was only narrowly beaten in the senato. Disgraceful.

2) Grillo and his movement hit indeed like a tsunami and has changed the political game, as with such a strong third force he has broken up the logic of the last twenty years. Until the triumph of the M5S, which became from 0% the strongest political party a relative majority in the popular vote resulted also in an absolute majority in the senato. Even with that advantage the smaller parties within a coalition could blow up governments as we have seen so often. It is rather shocking to note against the backdrop of our chronically unstable coalitions that we have now arguably the most gridlocked senato of the last twenty years....


So, what next? I see three paths:

1) The center-left, possibly with the center with or without Monti try to form a minority government. In this case the support of at least some Grillini will be key. In Sicily there was some moderate action and support by members of the M5S and Grilli and some of his movement did state that they were willing to vote for laws case by case.

Even a relative short duration would allow us to get a new president, which in turn could dissolve the chambers. Our current one can not do so if I understood the situation correctly as he is very close to end his term.

2) A great coalition with the right. Very difficult to imagine that, we have quite leftist members in the center-left coalition and quite rightist on the right plus persons like Silvio in the midst of all. The chances that nothing works are high. The M5S might profit from it's predictable failure. This might lead to path 3 with even better cards for Grillo.

3) New elections. The old parties possibly fear rightly a Grillo landslide if we have new elections. If you look at the numbers he is not that short from getting the majority in the camera and the senato. Still it is hard to see how we can avoid them and who knows what the result will be?

Not bad either. BTW the pencils Italy used to vote are at least 'engineered in Germany' by Faber-Castell. And they also gave this great songwriter his nickname...

[Firn]

I'm a bit sorry that I center the thread on Italy, but I do think it is one of the most important topics. La Repubblica does of course report the words of dear Peer, who called Peppe and Silvioclowns. I just hope he won't send us the cavalry, supported by blogging industry captains who sponsor his campaign!

Of course he is in this rare case pretty much spot on, but he was of course dead wrong to say it in public, especially while our president stays for three long days in Germany...

Far more important are the manovre di palazzo, the political maneuvers going on. And the words used by some is far more foul then 'clowns':

Dove ancora campeggia il post dal titolo: "Bersani, morto che parla". E dove Grillo sembra chiudere in maniera netta a qualsiasi forma di collaborazione organica con il Pd definendo Bersani stalker politico" che "da giorni sta importunando il M5S con proposte indecenti invece di dimettersi".

"Ha passato gli ultimi mesi a formulare giudizi squisitamente politici - si legge nel pezzo, in cui Grillo elenca tutti gli attacchi (a dir la verit pi che mai ricambiati) ricevuti in campagna elettorale dal segretario democratico: dal "autocrate da strapazzo" al "ci porta al disastro". "Ora questo smacchiatore fallito - si legge ancora - ha l'arroganza di chiedere il nostro sostegno (...) Il M5S non dar alcun voto di fiducia al Pd (n ad altri). Voter in aula le leggi che rispecchiano il suo programma chiunque sia a proporle. Se Bersani vorr proporre l'abolizione dei contributi pubblici ai partiti sin dalle ultime elezioni lo voteremo di slancio (il M5S ha rinunciato ai 100 milioni di euro che gli spettano), se metter in calendario il reddito di cittadinanza lo voteremo con passione".

Grillo also stated yesterday that Berlusconi bought 'most of his votes'. Still it is Italians insulting Italians, dear Peer...

I have a hard time to see any coalition between the three relevant political forces which seem to hate each other with quite some passion. Still path 1) which I outlined above seems to be the most likely but we will see with little doubt new election before 2015, even before. I hope that we get the election of the new presidente della Repubblica done as soon as possible.

[davidbfpo]

Europe has spent hundreds of billions of euros rescuing its banks but may have lost an entire generation of young people in the process, the president of the European Parliament said.

Since the region's debt crisis erupted in Greece in late 2009, the European Union has created complex rescue mechanisms to prop up distressed countries and their shaky banking sectors, setting aside a total of 700 billion euros.

But little has been done to tackle the devastating social impact of the crisis, with more than 26 million people unemployed across the EU, including one in every two young people in Greece, Spain and parts of Italy and Portugal.

Link:http://www.reuters.com/article/2013/...r&dlvrit=56943

A Reuters article citing at length the German Social Democrat who sits as President of the European Parliament, without doubt he is trying to make a mark as an EU summit approaches later this week. If there is one EU institution that is irrelevant in policy-making and democratic accountability it is this parliament - a very comfortable place to to sit and pontificate.

[Firn]

Link:http://www.reuters.com/article/2013/...r&dlvrit=56943

A Reuters article citing at length the German Social Democrat who sits as President of the European Parliament, without doubt he is trying to make a mark as an EU summit approaches later this week. If there is one EU institution that is irrelevant in policy-making and democratic accountability it is this parliament - a very comfortable place to to sit and pontificate.

The European Parliament certainly go merkelanized to some degree in the last years but it is quite relevant and busy in many areas if you go a little deeper. No wonder that those pesky Americans, not alone of course, offer help in shaping those key laws. I also voted for an guy there, if I'm not mistaken.

While I share certainly not all ideas of the center-left faction in the European parliament he is pretty much spot on. So much potential, so much productivity vasted by a mostly cyclical problem made worse by the wrong policies.

In any case that Austrian student showed excellent initiative and with others he brought attention some serious issues.

[Firn]

Quite a day in Europe and a rather rough one mostly for the people of Cyprus and a fair amount of Russian&Co. Who would have imagined that such a little island not even reaching 0,5% of EU's GDP could have cause such troubles. I bet that more money was 'burned' in stocks today then was necessary to keep the gray&bad banks of the Cybrian banking sector running. But wait, if memory serves right, there was a similar colder island, with very similar problems some years ago. Another green island, part of the EU, had also a massive financial sector which was blowing up.

The Icelandic raiders refused to give anything back to those who willingly lend to get a higher return on their money while the Irish burdened with some help the heavy load. In Cyprus we have seen a mix proposed, although far less bloody then in Iceland. Once again people brought partly black money there to wash it white while earning a handy return, far above the European norm. Still it was stupid and immoral to hit those who have little, especially after up to 100.000 were guaranteed a day before.

While the EU and the ECB handled the issue badly I'm honestly disgusted by the way the powers in Cyprus treated their people. From a variety of sources it emerges that key player of the ruling coalition wanted to have the burden shifted more 'equally'. To take less from the rich and tax evaders they wanted to take a good deal from the poor. Not only did they try to protect the former but also their personal wealth. I would be not surprised at all if there were lots of last-minute transfers from the politcal caste and the well-connected. Disgraceful.

[davidbfpo]

It was odd to listen to a German politician being interviewed on the BBC radio yesterday about Cyprus. Best bit was when he mentioned all the work to guarantee EU-wide bank deposits up to 'X' level and along comes Cyprus - which has ruined any public faith in secure banking.

What is more interesting is the exposure of Russian deposits and the potential for questions about "dirty" money and money laundering. Whatever the pretence of much anti-money laundering regulation, it is clear that for (some) governments "dirty" money is a source of income, albeit at a price sometimes.

[Firn]

From the left-leaning liberal Zeit

Nach Angaben aus Teilnehmerkreisen hatten EZB-Ratsmitglied Jrg Asmussen und die Euro-Gruppenchef Jeroen Dijsselbloem genau einen solchen Plan ausgearbeitet, der Kleinanleger verschonte. Als der Vorschlag dem zyprischen Prsidenten Nikos Anastasiades vorgestellt worden sei, habe dieser jedoch kategorisch abgelehnt. Um das ntige Geld zusammen zu bekommen, htten die Vermgen ber 100.000 Euro mit einer Zwangsabgabe von deutlich mehr als zehn Prozent belastet werden mssen. Das habe Anastasiades abgelehnt.

Danach soll es im Brsseler Sitzungssaal hoch her gegangen sein. Schuble, Dijsselbloem und Vertreter von EU, EZB und IWF unterbrachen die Sitzung mehrmals, um sich die Zyprer im Einzelgesprch vorzunehmen. Samstagfrh habe der Niederlnder Dijsselbloem dann vorgeschlagen, dass die Einlagen ber 100.000 Euro mit 12,5 Prozent belastet werden.

Daraufhin strmte Zyperns Prsident Anastasiades laut Teilnehmern wutentbrannt aus dem Saal. Er kehrte erst zurck, nachdem ihm ranghohe Unterhndler unmissverstndlich klargemacht hatten, wenn er nicht an den Verhandlungstisch zurckkehre, wren der Staatsbankrott und die Schlieung der Banken unabwendbar. Schlielich stimmte er der Abgabenregelung zu, bestand aber auf eine Hchstgrenze von 9,9 Prozent fr die Vermgen ber 100.000 Euro. Damit war klar, dass alle anderen Guthaben belastet wrden und zwar mit 6,75 Prozent.

This fits pretty much what I had in my mind yesterday. Of course we have to treat every information with care but it fits pretty nicely. One has also to keep in mind Cyprus hard and in hindsight harmful stance on it's banking system and dirty money against European institutions. It is highly likely that many could not stomach the fact that the rich tax evaders would get away while the European taxpayer would have to foot the bill. After Cyprus was told and told again that it had to act on those issues.

Mr. Anastasiades&Co would have know what the game was about and maybe tried to save some face - by coming up with a more 'even' burden for all. It is quite telling how quickly and easily the journalists seem have to got many details. Looks like many are not quite happy how things were depicted earlier...

It is just disgraceful that poorer and less financially sophisticated citziens of Cyprus seem have to pay a considerable amount. It is not like they moved their money to the banks of their island to get a higher return but they just put it into the institution around the corner...

[Firn]

The Telegraph live-blogs the events following the Guardian model.

18.23 Apparently they voted with a show of hands.

18.16 So they voted after all. And surprise surprise, the bank levy bill has been defeated. There were 36 votes against, and 19 abstentions. One MP didn't even show up. Cyprus's parliament has 56 seats.

So they said no. Very bad news indeed, especially for the man on the street, may he or may he not carry a shield crying murder. The banks should not open anytime soon.

I appreciate that things are hectic and if many twitter and talk there must be some pretty idiotic stuff among it:

Germany might be telling the world not to blame it for Cyprus' bailout plan, but one analyst told CNBC that Russia could avenge the loss of billions of dollars it has invested and deposited on the island by cutting Germany's energy supply.
...

On the other hand it is different if you hear something like that:

15.05 Former governor of the Cypriot central bank, Anthanasios Orphanides has launched an powerful rebuke towards Cyprus's European creditors, branding their actions tantamount to blackmail. Speaking to Bloomberg TV, he said:

Decisions like this, much like the decision to haircut Greek debt in October 2011, actually benefit some countries. For example as we’ve seen from markets yesterday a decision like this reduces the financing costs for the German government so the German government can now borrow at negative rates as a result while it inflicts pain on other countries. Not everybody is equal under the law the way European governments are behaving these days.

Such talk is quite dangerous and during the last years I would have been quite glad if some would have said not a single word. He was the fromer top guy of the CCB when the bank secto got out of control and dirty money was pouring in. It happened on his watch and just like terrible governments at home brought us into a mess with few good alternative the Cypriotic leader did shovel their island their own hole. They made themselves dependent on help and goodwill of others which they squandered by doing nada of what they had asked them.

Let us see the offical stance of France:

"The rates could be different and could protect deposits under 100,000 euros, we are waiting for that and we are ready for that," French Finance Minister Pierre Moscovici told CNBC on Tuesday.

"There was a huge problem in Cyprus, nobody can deny that - with a banking sector which was absolutely enormous, with some advantages which were huge too and a lack of transparency- we had to address that, that's what we're doing,"

In short so far: Do what you want but you have to collect enough money to pay your part of the bailout.

[Firn]

Big news indeed from the ECB, seems that my take on the situation was not that far off..

PRESS RELEASE

21 March 2013 - Governing Council decision on Emergency Liquidity Assistance requested by the Central Bank of Cyprus

The Governing Council of the European Central Bank decided to maintain the current level of Emergency Liquidity Assistance (ELA) until Monday, 25 March 2013.

Thereafter, Emergency Liquidity Assistance (ELA) could only be considered if an EU/IMF programme is in place that would ensure the solvency of the concerned banks.

In short. Get a deal done with the EU/IMF or your whole banking sector goes bust.

...

--

I had yesterday time to look at some annual reports and stock movements, and look at the performace of what I bought in the last year. Seethe original post

E.ON went down from ~15 to ~13€, a brilliant investment in a strong market
H.P did not too badly from ~ 10 to 12,8€ not too shabby.
Xerox gain some from 5 to 6€

So if one invested 30 € in each stock one has now (with fees but without dividends) roughly 100€ compared to 90€ you had a quarter ago. Not too bad especially if we consider that the € roughly gained 10% on the $. An U.S American could have got a nice return with those three combined.


E.ON from 15 down to ~ 13,5€ - so far so good
HP from 10 to ~ 17,5 € - 75% are quite a decent return in a couple of months
Xerox from 5 to ~ 6,75 - somewhat over 30% gain in the same timeframe

So the orignal 90 have become 120 € in less then half a year. Not so bad. I never understood in good times and bad ones why stocks have to be per se riskier then cash in bank. It all depends on the value you get and the price you pay. It is surprising to what lengths some persons go to get a slightly higher return on bonds and cash while shunning equity out of prinicple because of the volatility...

P.S: Today I sold my considerable investment in HP and Xerox. I invested additional capital in E.ON very recently. The government can be happy as it earned roughly 25% of the return. No taxes were evaded.

[Firn]

Krugman seems to have a rather similar take on part how the levy was shaped up. But he does a neat summary of what seems to be 'The Sum of All FUBAR':

Cyprus: The Sum of All FUBAR

At this point the Cyprus situation is pretty clear — and clarity does not bring reassurance. In fact, it looks as if Cyprus has managed to combine in one place everything that has gone wrong elsewhere.

1. Runaway banking. Cyprus has a huge banking system — assets around 8 times GDP — based on a business model of attracting offshore money with high rates and good opportunities for tax avoidance/evasion.

I’ve done some asking around, and cleared up something that was puzzling me. Officially, only about 40 percent of the deposits in Cypriot banks are from nonresidents, which would imply resident deposits of almost 500 percent of GDP, which is crazy. But the answer is that I do not think that word “resident” means what you think it means. Some of the money is from wealthy expats living in Cyprus; much of it is from rich people who have resident status without, you know, actually living there. So we should think of Cypriot deposits as mainly coming from non-Cypriots, attracted by that business model.

And the business model only works until there’s a big loss somewhere; since Cypriot banks were investing in Greece and in their own domestic real estate bubble, doom was inevitable. Which brings me to:

2. Big domestic real estate bubble, Spain or Ireland-sized. Not yet fully deflated, which means lots more losses to come. And the combination of the real estate bubble and the income from dodgy banking also led to:

3. Massive overvaluation, with Cypriot prices and costs having risen much more than in the rest of the euro area. In 2008 the current account deficit was more than 15 percent of GDP!

What can be done? First off, Cypriot banks cannot honor their debts, which unfortunately overwhelmingly take the form of deposits. So a default on deposits is inevitable.

As I now understand it, the initial screwup was a joint error of the Europeans and the Cypriots. Europe didn’t want an explicit bank resolution, which would among other things have given clear seniority to small insured deposits; instead, it wanted this essentially fictitious tax scheme. Meanwhile, the Cypriot government still has the illusion that its banking model can survive, and wanted to limit the hit to the big overseas depositors. Hence the debacle of the small-deposit tax.

In the end this probably comes, in some version, to what it should have been from the start — a big haircut on deposits over 100,000.

But even then the situation is by no means under control. There’s still a real estate bubble to implode, there’s still a huge problem of competitiveness (made worse because one major export industry, banking, has just gone to meet its maker), and the bailout will leave Cyprus with Greek-level sovereign debt.

So then what? As a number of people have pointed out, Cyprus is arguably better positioned than Iceland to do an Iceland, because devaluing a reintroduced Cypriot currency could bring in a lot of tourism. But will the Cypriots — who haven’t even reconciled themselves to the end of their round-tripping business — be willing to go there?

Truly awesome stuff

Number 1: The sheer amount of 'foreign' resident accounts has only partly been covered by the media. The 40% number does of course greatly underestimated the foreign, partly dirty money parked in Cyprus.

Number 2: I did not follow the housing sector there but it is quite likely that a huge financial boom, with huge inflows and lots of new residents in search of a nice house with a proper washing machine did greatly inflate the prices. I will take his word on that.

Number 3: The perfect fusion, the labor was getting payed better and better, everybody was buying and happy, things were going well almost too well to be good and now it seems they were.

Cyprus must act or it might wake up next week with just the beaches remaining*.

The excellent Guardian coverage shows the all too understandable reactions, ATM by ATM.



*'In Cyprus they have only a financial sector and beaches, now that the financial sector is heading for closure nothing but the beaches will remain'
The Swedish Finance Minister, Mr. Borg.