EUCOM Economic Analysis - Part I

[Surferbeetle]

A government rescue of the world's oldest bank may substantially impact the Italian political sphere...

Paschi Pressed to Disclose Derivative Losses as Vote Looms, By Sonia Sirletti & Elisa Martinuzzi - Jan 23, 2013 10:06 AM MT, Bloomberg News, http://www.bloomberg.com/news/2013-0...ote-looms.html

Former Monte Paschi Chairman Giuseppe Mussari resigned yesterday as head of the Italian Banking Association lobby group. The world’s oldest lender is under pressure to disclose the full extent of its use of derivatives after saying in November that it needed an additional 500 million euros of government money to bolster capital because of the contracts. Shareholders meet this week to approve two capital raisings required by the Treasury for the lender to get that aid.

“We will ask for full transparency,” Guido Antolini, a member of Associazione di Piccoli Azionisti Azione Banca Monte dei Paschi di Siena, an association of the lender’s individual investors, said in a telephone interview. “We will want to know what was inherited from previous executives and the actions that the bank is taking to repair the damage.”

Wirbel um Derivate bei Monte dei Paschi, Wirtschaftsnachrichten Gestern, 22:21 (23.01.2013), NZZ, http://www.nzz.ch/aktuell/wirtschaft...chi-1.17958485

Der Wirbel um Mussari, der vorerst widerrechtliche Handlungen kategorisch bestritt, und vor allem auch die Unsicherheit bezüglich der finanziellen Folgen des Skandals führten am Mittwoch vorübergehend zu einem schweren Einbruch des MPS-Aktienkurses von bis zu 11%. Das älteste Geldhaus der Welt, das seit letztem Sommer vom früheren Unicredit-Chef Alessandro Profumo präsidiert wird, hatte Ende vergangenen November bereits mitgeteilt, dass es wegen in Vorjahren eingefädelter Derivatetransaktionen vorsorglich 3,9 Mrd. € statt der bis dahin geplanten 3,5 Mrd. € Staatshilfe in Form sogenannter Monti-Bonds beanspruchen werde.

[Firn]

The count against the miner, better known as Schwarzenberg against Zeman will have at least one certain outcome: a big eurosceptic will no longer be the president of the Czech Republic.

A runoff on January 25th and 26th will decide the winner. While Mr Zeman largely met expectations from pre-election polling, Mr Schwarzenberg more than doubled his anticipated share in what was the first direct presidential election in the history of the country. Some 61.3 % of voters cast ballots after a constitutional change earlier this year did away with a formerly convoluted parliamentary process that was rife with backroom dealing. The head of state has limited powers, but is influential in driving public opinion and appoints members of the Constitutional Court, among other tasks.

Voting patterns were sharply divided geographically and socio-economically, with the left-leaning populist Mr Zeman dominating the eastern part of the country, Moravia, as well as the economically distressed North Bohemian region. Mr Schwarzenberg, an irreverent conservative, held sway in a central swath of the country, trending towards urban and wealthy, as well as from ballots cast by Czech citizens living abroad.

A hot discussion about the (in)famous Benes decrees did fire up additionally the last days of the election.

From an economic point of view the developed central and western parts of the Republic are well intergrated into the European (think German) economy.

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The Sole 24 ore has focused on the MPS affair. It is of course sad and a bit unsettling to hear talk about la sicurezza dei depositi again and see informations pages for savers. It is interesting to note that much of the basic stuff has been among the most read on that site.

[Surferbeetle]

Appreciate the Czech links, from there it was a short walk to the Chalga videos on youtube...that damn globalization.

TAFTA is back, approximately 50% of global trade may be impacted if the negotiators can pull it off. The time table for implementation of Basel III has been relaxed, the LTRO is being paid off (kinda ), there is talk of a Great Rotation from bonds to stocks, interest rates are indeed fluctuating, currency wars are a topic of discussion...hmmm...we are at technical boundaries (52 week highs are regularly being broken) and fundamental valuation boundaries on the stocks that I follow...the phrase 'the market can remain irrational longer than one can remain solvent comes to mind.' I have taken to buying ETFs early in the week and bailing out by the end of the week...

Transatlantic Free Trade Area, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Transat...ree_Trade_Area

From ideas to implementation, Remarks by Mr Stefan Ingves, Governor of the Sveriges Riksbank and Chairman of the Basel Committee on Banking Supervision, at the 8th High Level Meeting organised by the Basel Committee on Banking Supervision and the Financial Stability Institute and hosted by the South African Reserve Bank, Cape Town, 24 January 2013, http://www.bis.org/review/r130124a.pdf?frames=0

Of course, there are plenty of other big ideas being floated on how the banking industry should be restructured in the aftermath of the crisis, particularly those related to varying models of structural separation (eg the ideas of Volker, Vickers and Liikanen). But for those that fall within the mandate of the Basel Committee, we believe that the ideas produced by Basel Committee thinking – translated into the Basel III reforms, and subsequently endorsed by the G20 and Financial Stability Board – provide a substantial foundation on which the banking system can be rebuilt to be much more robust and resilient in the future.

ECB Website, Open market operations, http://www.ecb.int/mopo/implement/om...ex.en.html#com

ECB Says Banks to Repay More Than Forecast of 3-Year Loan, By Stefan Riecher - Jan 25, 2013 5:56 AM MT, Bloomberg News, http://www.bloomberg.com/news/2013-0...next-week.html

Some 278 financial institutions will return 137.2 billion euros ($184.4 billion) on Jan. 30, the first opportunity for early repayment of the initial three-year loan, the Frankfurt- based ECB said in a statement today. That compares with the median forecast of 84 billion euros in a Bloomberg News survey of economists. The ECB’s first loan totalled 489 billion euros and banks can continue to make early repayments in coming weeks.

The ECB still allows banks to borrow as much money as they want against eligible collateral for periods of one week, one month and three months. Some economists say this reduces the importance of the three-year loans being repaid.

Government Bond Yields, Bloomberg, http://www.bloomberg.com/markets/rates-bonds/

China’s Yi Warns on Currency Wars as Yuan Close to ‘Equilibrium’, By Jeff Black & Zoe Schneeweis - Jan 27, 2013 11:00 AM MT, Bloomberg News, http://www.bloomberg.com/news/2013-0...ilibrium-.html

Japanese Economy Minister Akira Amari said in Davos that his nation aims to defeat deflation rather than weaken the yen, after Prime Minister Shinzo Abe’s push for laxer monetary policy sparked a slide in the currency. His comments on Jan. 26 followed a week in which German and Canadian policy makers joined a worldwide chorus highlighting a recent plunge in the yen as a worry.

“A currency war, a series of ###-for-tat competitive devaluations, would trigger trade protection measures that would damage global trade and therefore growth globally,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Plc in Hong Kong who previously worked for the World Bank. “That would not be good for any country with a stake in the global economy.”

Reasons to feel bullish as political clouds fade, January 25, 2013 8:29 pm, John Authers, Financial Times, www.ft.com

What could possibly go wrong? Stock markets have had a great start to the year. The talk about a “Great Rotation” from bonds into stocks, and of a new Bull Market in equities, is deafening.

As the US fund manager John Hussman points out, the following combination currently holds: the S&P is more than 8 per cent above its average of the preceding 52 weeks, more than 50 per cent above its four-year low, and trades well above its historic average cyclically adjusted earnings multiple; while treasury yields have risen over the past six months, and investor bullishness far outweighs bearishness. This combination has been seen nine times in the past four decades, and in all but one a correction ensued.

[Firn]

Thanks for the links and the comments.

Sounds like the cannons have fallen silent for now, the markets certainly had a great run and thankfully the Italian (and Spanish) state doesn't have to pay so much to get money on the financial markets. There is more then just talk about huge flows from (IMHO very expensive) bonds into stocks. And exactly this worries me more then just a bit.

As I have written before I had over the whole last year 75% in stocks for the simple reasons that I thought the value was lower then the price by some margin of security and that decent bonds were overpriced. Now the gains look nice but I almost feel like there are no really good options around to invest money I take out of stocks.

What is to be done?, asked Lenin, although I wouldn't like his answer

[Fuchs]

What is to be done?

I was always under the impression that people who actively manage their savings are in large part doing so for fun.

The crowdsourced credit/investment thing should be quite a playground to such people.

[Firn]

I was always under the impression that people who actively manage their savings are in large part doing so for fun.

The crowdsourced credit/investment thing should be quite a playground to such people.

With fun might express it better.

As a generally pragmatic/ignorant person I stay away from crowdsourcing, it seems to me to be too much effort for too little capital with too little return for the risk.


The mainstream has now run some articles about the prince oft bonds, something of which I have written for quite some time.

[Surferbeetle]

What is to be done?

Fishing, surfing, and exploring out away from the urban world reveals natural law, 'red in tooth and claw'. Our 'friend' the lawyer/philosopher/revolutionary was tough enough to track and ride the shark but nonetheless blind to it's true nature. The attempts to shackle and cage it were very unhealthy for all involved...China/The Great Leap(s) Forward, Yugoslavia, Czechoslovakia, Iraq, and of course the USSR...the oppressive architecture, the lack of opportunity, the repugnant police state/Mukhābarāt, and the marrow deep fear of the citizenry made for a toxic and bitter experience. All are noteworthy examples of what happens when the State loses it's way.

WSJ.de...nice catch, was not aware of it until now. The Anleihemarkt Zetibombe is interested in us even if we are not interested in it. So, are Jens Weidmann and Dylan Grice modern day Cassandras? Can Ben Bernanke, Janet Yellen, Mark Carney, Stanley Fisher, and others guide the policy makers out of the wilderness?

For fun and with fun.

Alt J, An Awesome Wave, Intro, youtube, http://www.youtube.com/watch?v=EAC9Ecf1Xgc