EUCOM Economic Analysis - Part I

[Surferbeetle]

Greece, like a Ducati 1198 - irresistibly beautiful, exotic, highstrung, unforgiving, a money pit, and after one gets out of the hospital the wife will probably have one killed for the insurance money....and yet....

So now that the LTRO has immunized the Euro Banks (and the US Banks due to the magic of financial globalization) does Greece default?

Greece Debt-Swap Deadline This Week to Show If Europe Moving Past Crisis By Patrick Donahue - Mar 4, 2012 4:00 PM MT, Bloomberg News

The European Union faces a first test in its attempt to turn the page on the two-year debt crisis when Greece’s private creditors decide this week whether to sign off on the biggest sovereign-debt restructuring in history.

The success of the 106 billion-euro ($140 billion) debt swap, confirmed on the eve of last week’s European Union summit, depends on how many investors agree to the writedown by the March 8 deadline. Euro-area finance ministers will hold a teleconference on March 9 to review the deal’s outcome.

[Fuchs]

They should have immunised the banks with new bankruptcy legislation that means the governments step in AFTER the stupid shareholders lost their value (which means the governments would gain property for the taxpayer money, not just throw it away), not by setting up a system in which they prevent the punishment of economic stupidity.
They're harming the markets in the long term this way.

[Firn]

@Surferbeetle:Greece reminds me a bit about the following canzone di Faber. The male fatto in un ora was done over many years but to some extent I fear the lyrics mirror the feelings of many Greeks...

Anyway your point about the inflation is a rather interesting one. So far the massive injection of liquidity has not quite the impact on inflation, clearly due to lack of demand having caused the famous liquidity trap. How long and how strongly it will remained trapped is a key question...

Unternehmensanleihen - Das Beste ist vorbei raises a very important aspect. While bond yields of great companies hit massive heights during the big downturn and financial crisis pushing me to acquire some, but sadly due to the lack of trust into my intellectual judgment, too few, the are now at an almost historic low.

I shifted in the last quarter increasingly from bonds into stocks after considerable thought, aided by Graham. The yield of those German enterprises is around 2%, while the dividends of them should be a tad over 4%. At least the Euro Stoxx 50 pay out roughly 50% of their earnings out to the shareholder so they should earn roughly between 8-9% on the invested capital. Of course it is difficult to know the true owner's earning or the respective ROIC, the return on the owners invested capital.

The Graham/Dodd or Shiller P/E (present price/earnings of the last 7 or 10 years) were also with 11 or 12 at that time IIRC quite attractive. The liquidity is massive but not so much in stocks and despite the troubles in the economy and the markets I thought the margin of safety offered by me with the prices of Mr. Market was quite good.

To sum it up why should I now invest into bonds when I can get at low prices shares of mostly great enterprises earning me roughly 5% more on my capital? It is a businesslike investment which resulted to the recent ralley in considerable speculation gains on paper. We will see how things go on, but as long as enterprises to so well I don't know why I should sell them anytime soon.

P.S: It is interesting that Ben Graham uses very similar words to Ludwig Beck when talking about the importance of trusting a personal judgement and acting on it after a careful and intelligent use of the grey cells. No wonder that I try to limit my ambitions

[Surferbeetle]

Firn,

Appreciate your latest well thought out (and thought provoking) post, i will get back to it later this weekend when there is more time and i can focus the sole braincell that i have left. Until then here are a few placeholders that i will try and cover at that time:

• A Japan Scenario for the rest of the western world

• Target2 Imbalances

• Foreign Direct Imports

• Sector Analysis

• Can stocks be thought about as the present value of expected cash flows?

• Screening Criteria/Growth at a Reasonable Price/Growth/Value/Technical Metrics

• P/E ratio's...how are earnings calculated?

• Currency Exchange Rates/ADR tracking gaps

[Firn]

Interestingly when I reread "The intelligent investor" Graham makes in Chapter 20 the same case, which I must have internalized, about 1972 bond and stock market.

Assume in a typical case that the earning power is 9% on the price and that the bond rate is 4%.; Then the stockbuyer will have an average annual margin of 5% accruing in his favor. Some of the exess is paid to him in the dividend rate; even though spent by him it enters into his overall investment result. The undistributed balance is reinvested into the business for his account [Ideally increasing the future earnings, intelligent buy-back of stocks].

Earning power or earning yield are very roughly the inverse of the price/earning ratio. Of course it just a facet and the book earnings don't tell the whole story and Graham used additional means to screen stocks and analyse enterprises.

I forgot to mention just high the price of some older bonds is right now to get to as such low overall yield. It is indeed a liquidity flight into the perceived safety of good enterprise bonds. A good deal of that big Bertha liquidity was also key to bring down the spreads on PIS gov. bonds.

Worldwide the corporate bonds seem to close in on the historic low:

The potential for issuance to continue surging is strong as companies seek to refinance debt at extremely low cost.

The Barclays index only needs a slight nudge to hit a record-low yield. The index finished Monday at 3.37% -- a six-month low and just one basis point away from the all-time low set on Aug. 4, 2011. The index dates back to 1973.

Basically it should get even better for shareholder, as the companies into which they are invested have to pay considerably less interest. How could I forget to add that point in the first place.

[Surferbeetle]

Originally Posted by Fuchs

They should have immunised the banks with new bankruptcy legislation that means the governments step in AFTER the stupid shareholders lost their value (which means the governments would gain property for the taxpayer money, not just throw it away), not by setting up a system in which they prevent the punishment of economic stupidity.
They're harming the markets in the long term this way.

Fuchs,

Hope to get to this and try and formulate/provide a semi-coherent response with respect to the gap between theory and reality and cost/benefit considerations:

• The idealism of Ayn Rand

• The reality of depending upon your team in order to provide 360 24/7 security services (work breakdown structure - task, skill set, cost, schedule, etc.)

• Recognizing, understanding, and utilizing the tools of nation building through the prisms of the private sector and the public sector

• Guiding Principles for Stabilization and Reconstruction, USIP, Chapter 9 Sustainable Economy

• Motorcycles = power/weight = ~170hp/410lbs = Ducati

• Economy = destruction/political representation = ~2 trillion Euros/X number of political representatives = Greece?

• Economy = construction/political representation = ~ 2.4 trillion Euros-year/X number of politicians = Germany?

In the meantime, the February 25th-March 2nd edition of The Economist (hardcopy or digital if you have a subscription or here if you don't) has a 14 page special report on Financial Innovation which will either keep you awake a bit longer or put you right to sleep...

[Surferbeetle]

Originally Posted by Firn

I shifted in the last quarter increasingly from bonds into stocks after considerable thought, aided by Graham. The yield of those German enterprises is around 2%, while the dividends of them should be a tad over 4%. At least the Euro Stoxx 50 pay out roughly 50% of their earnings out to the shareholder so they should earn roughly between 8-9% on the invested capital. Of course it is difficult to know the true owner's earning or the respective ROIC, the return on the owners invested capital.

Firn,

Keeping mind that i am only a small beer retail guy (I track and work in a small 'universe' of stocks with small amounts of money that is 'disposable'), went from investing (~3-5 year horizon) to tactical trading (~2% profit/loss on principle risked) in January with a small portfolio. Booked a years worth of profits in Feb.

Today's a bloodbath in the Euro financial sector's exposed to Greece, FDI into the Euro industrials (and the 'promised' delivery of future dividends) is not happy, and the euro is down.

Massive amounts of risk and uncertainty out there as we close in on the 8th of March (Athens threat to bond holdouts, By Richard Milne and David Oakley, Last updated: March 6, 2012 5:40 pm, Financial Times, www.ft.com)

Sell when the angels sing, buy when the blood runs in the streets?

[Firn]

Originally Posted by Surferbeetle

Firn,
Sell when the angels sing, buy when the blood runs in the streets?

This month there won't be any personal buying or selling until the trend gets more bloody. In the latter case it might be worthwhile. Of course nobody knows the future as it has that nasty habit of being unpredictable, that is why one should prepare for it. I have already a list of bonds up I would shift in that case, depending of course on their price.

The economic situation is as it is and the stock market won't have a big impact on that in the short term. All we can do is to make the best of it and look now on then if there are any new threats or chances for the dear money.

In the end I'm completely confident that in the long term the investment will pay off. Fear has already been my dear friend in the past as well as the angels singing, considering that despite my often glaring omissions my portfolio advanced in the last 7 years a bit over 50% while the Euro Stoxx 50 lost IIRC over 10%.

On a big sidenote I really hope that Europe will grow again, it is just painful to see so many young people out of work in many regions. So much productive power, so much hope lost there. Puts things into perspective.

[Firn]

More on the flight into safety by some desperate liquidity.

Bund zahlt Anlegern so niedrige Zinsen wie noch nie

Der deutsche Staat kommt so billig zu Geld wie noch nie. Bei der Emission von Staatsanleihen mit fnfjhriger Laufzeit fiel der durchschnittliche Zins auf 0,79 Prozent, teilte die mit dem Schuldenmanagement des Bundes beauftragte Finanzagentur am Mittwoch mit. Noch nie fiel die Rendite bei einer Versteigerung in dieser Anleihenklasse so niedrig aus. Das alte Rekordtief lag bei 0,9 Prozent und wurde im Januar erreicht.

Trotz der niedrigen Rendite hatte der Bund keine Probleme, Geldgeber zu finden. Die Aufstockung der Bundesobligationen splte gut 3,3 Milliarden Euro in die Staatskasse, sie war 1,8-fach berzeichnet. Das war unter dem Strich eine sehr gute Auktion, sagte Analyst Michael Leister von der DZ Bank.

0,79% yield for 5 year bundesanleihen, we are really witnessing financial history.

Pil in calo. E la cassa integrazione vola

L'economia frena, la cassa integrazione decolla. Il Pil nell'Eurozona calato dello 0,3% nel quarto trimestre 2011, cos come quello della intera Ue a 27. In Italia il calo si conferma pi sensibile della media Ue: -0,7% nell'ultimo trimestre dello scorso anno. il dato della seconda stima resa nota da Eurostat che conferma i dati preliminari pubblicati lo scorso 15 febbraio. Nel confronto su base annuale, ovvero rispetto al quarto trimestre del 2010, il prodotto interno lordo della Ue-17 risultato aumentato dello 0,7%, quello dell'Italia invece calato dello 0,5%.

Unsurprisingly bad news from the Italian economy, the last decade was a terrible one in part thanks to a bald man. We have really suffered quite a bit more then many other EU member states. Let us hope that we finally will have true reforms able to tap into the many, mostly human ressources of this country.

[Surferbeetle]

Firn,

Thought this might be of interest as we consider the importance of growth (aka nation building in some circles); I do not see the issues as being limited to America.

Special Report: Restoring US Competitiveness, Harvard Business Review, March 2012

Why U.S. Competitiveness Matters to All of Us
by Nitin Nohria

The Looming Challenge to U.S. Competitiveness
by Michael E. Porter and Jan W. Rivkin

WORKFORCE
A Jobs Compact for America's Future
by Thomas A. Kochan

A Warning Sign from Global Companies
by Matthew J. Slaughter and Laura D'Andrea Tyson

Rethinking School
by Stacey Childress

STRATEGY
Choosing the United States
by Michael E. Porter and Jan W. Rivkin

Does America Really Need Manufacturing?
by Gary P. Pisano and Willy C. Shih

How to Make Finance Work
by Robin Greenwood and David S. Scharfstein

POLICY
Macroeconomic Policy and U.S. Competitiveness
by Richard H.K. Vietor and Matthew Weinzierl

Reviving Entrepreneurship
by Josh Lerner and William Sahlman

Green Rules to Drive Innovation
by Daniel C. Esty and Steve Charnovitz

CONTEXT
The Incentive Bubble
by Mihir Desai

Fixing What's Wrong with U.S. Politics
by David A. Moss

Enriching the Ecosystem
by Rosabeth Moss Kanter

...and here is a quick internet drive-by on some of the topics I am thinking about with respect to my equity selection and trading:


• A Japan Scenario for the rest of the western world

After half a century of trade surpluses, Japan is now in deficit, Jan 14th 2012 | from the print edition, The Economist, http://www.economist.com/node/21542794

Deficit in current account biggest ever, Friday, March 9, 2012, Japan Times, http://www.japantimes.co.jp/text/nb20120309a1.html

• Target2 Imbalances

What is the meaning of TARGET balances?, By Silvia Merler on 29th February 2012, Bruegel, http://www.bruegel.org/blog/detail/a...rget-balances/

Debate on Target 2, Bruegel, http://www.bruegel.org/debate-on-target-2

• Foreign Direct Investment

Inward Foreign Direct Investment from the rest of the world, Eurostat

http://epp.eurostat.ec.europa.eu/por..._code=TGIBC410

• Sector Analysis

By Yahoo Finance

Industry Browser - Industrial Goods Sector - Industry List, http://biz.yahoo.com/p/6conameu.html

Industry Browser - Financial Sector - Industry List, http://biz.yahoo.com/p/4conameu.html

• Can stocks be thought about as the present value of expected cash flows?

Net present value, http://en.wikipedia.org/wiki/Net_pre...ecision_making

• Screening Criteria/Growth at a Reasonable Price/Growth/Value/Technical Metrics

Stock selection criterion, http://en.wikipedia.org/wiki/Stock_selection_criterion

Trend following, http://en.wikipedia.org/wiki/Trend_following

• P/E ratio's...how are earnings calculated?

P/E ratio, http://en.wikipedia.org/wiki/P/E_ratio

Earnings per share, http://en.wikipedia.org/wiki/Earnings_per_share

• Currency Exchange Rates

Currency pair, http://en.wikipedia.org/wiki/Currency_pair

• ADR tracking gaps

ADR Arbitrage Opportunities for Dummies, BEATRIZ AMARY OTAVIO OTTONI, http://people.hbs.edu/mdesai/IFM05/AmaryOttoni.pdf

[Surferbeetle]

Cam Penner, Rye Whiskey from the album What's Kickin

Homeric Similes And Spanish Debt, Posted on March 6, 2012 by Edward Hugh at a Fistful of Euros

“Nothing” remember, “is more hateful to wisdom (astucia) than true cleverness”, which means if you try to go rummaging round round Spain for Goldman-Sachs-style interest-rate-swaps you will almost certainly leave empty handed. Handiwork here is all much simpler, and more artesanal than that, and therein lies the beauty and the sophistocation of the thing.

Hence, if you are someone who is really interested in trying to answer the question about just how high the present level of Spanish sovereign debt actually is (officially it was to have been 67.8% of GDP in December, but that estimate was made before the latest set of budget deficit “revelations” and when the estimate of 2011 GDP was rather higher than it turned out to be, so it is probably nearer to 70% now, even on the official Eurostat EDP measure) you should start here, with the Financial Accounts of the Spanish Economy. The part you really need is Chapter Two the “Financial Accounts” – actually, I will add in a small but revealing personal anecdote here, since when I sent all these links off to the IMF Spanish Mission Head back in the spring of 2010 he mailed me back saying “thanks a lot” – he plainly didn’t know that this sort of thing existed., although the Spanish head of Global Financial issues for the IMF - ex Bank of Spain man José Viñals – most surely did, but he simply hadn’t seen fit to brief his colleague. As I say, this is how Spain works, you have to ask the right person the exactly right question, and make sure you don’t get sidetracked. Otherwise you will learn nothing apart from a lot of useless and most likely thoroughly misleading information.

[Surferbeetle]

Cam Penner, Walk On, from the album Felt Like a Sunday Night

Los sindicatos exhortan al Gobierno a retomar el dilogo para desconvocar la huelga general, TONI FUENTES / AGENCIAS / Barcelona, Domingo, 11 de marzo del 2012 - 17:24h, El Peridico

Ms de 450.000 personas, segn los sindicatos, y 17.000, segn la Guardia Urbana, se han manifestado en Barcelona contra la reforma laboral aprobada por el Gobierno bajo el lema Ni reforma laboral, ni recortes, una protesta convertida en un llamamiento a que la huelga general del 29 de marzo sea un xito. La manifestacin se ha celebrado al mismo tiempo en una sesentena de ciudades de toda Espaa.

Toxo: "Si el Gobierno no rectifica, habr conflicto y no terminar el da 29", MANUEL V. GMEZ Madrid 11 MAR 2012 - 14:47 CET, EL PAS

"La huelga del da 29 no es el fin de nada, que sepa el seor Rajoy que la movilizacin va a continuar alrededor de las alternativas". Este es el mensaje que el secretario general de CC OO, Ignacio Fernndez Toxo, ha querido lanzar al Gobierno al trmino de la gran manifestacin convocada en Madrid por los sindicatos. "Seor Rajoy, tiene el mes de marzo para abrir la mesa de negocio y para presentar unos Presupuestos razonables y los sindicatos estarn ah", ha agregado Toxo, quien, junto al secretario general de UGT, Cndido Mndez, ha advertido que las medidas adoptadas por el Ejecutivo para salir de la crisis no son temporales, sino "para toda la vida".

Los dos sindicatos mayoritarios han organizado 60 manifestaciones en Espaa que sirvan para poner en marcha la maquinaria de movilizacin contra la reforma laboral y de paso medir sus fuerzas para la huelga general del 29 de marzo. Segn las estimaciones sindicales, la participacin en la marcha ha sido de medio milln de personas. Fuentes policiales lo reducen a entre 25.000 y 35.000 asistentes.

Ignacio Fernndez Toxo, by wikipedia

Comienza su vida laboral como aprendiz en la Empresa Nacional Bazn de Construcciones Navales Militares S.A. (Bazn), empresa que se fusion con Astilleros Espaoles, S.A. (AESA) en julio del 2000, constituyendo la empresa Izar Construcciones Navales. En esta empresa continuar su vida laboral hasta que es prejubilado dentro del ERE iniciado por la SEPI en abril de 2005.
Durante su juventud fue militante de la Liga Comunista Revolucionaria2 y posteriormente del Partido Comunista de Espaa.

Su actividad sindical comienza en Bazn durante su etapa como aprendiz. Con 19 aos participa en la organizacin de la huelga general de Ferrol del 10 de marzo de 1972. Durante las manifestaciones la Polica Armada acorral a algunos huelguistas, entre los que se encontraba el joven aprendiz Toxo, y comenz a disparar indiscriminadamente, hiriendo a ms de 40 personas y matando a dos trabajadores de Bazn, miembros de CCOO, Amador Rey y Daniel Niebla.3 La vida sindical de Toxo, que acude regularmente a la ofrenda floral anual frente al monumento en Ferrol a los asesinados el 10 de marzo, fue marcada profundamente por esta experiencia de juventud, como se desprende de sus sucesivas declaraciones sobre los hechos.4

Como consecuencia de la huelga del 10 de marzo Toxo ser despedido y condenado a 5 aos de prisin.5 Toxo huye del penal de La Corua y pasa a vivir en la clandestinidad hasta la aprobacin de la Ley de Amnista de octubre de 1977, no obstante lo cual se presentar a las elecciones generales de Espaa de 1977, como cabeza de lista del Frente por la Unidad de los Trabajadores para la provincia de La Corua.6 Por aplicacin de la ley de amnista Toxo recuperar su empleo en Bazn, donde llegar a ser elegido presidente del Comit Intercentros de la empresa.7

En noviembre de 1987 es elegido Secretario General de la Federacin del Metal de CCOO en sustitucin de Juan Ignacio Marn,8 cargo que ocup hasta noviembre de 1995, cuando se fusionan las federaciones del Metal y de Minera del sindicato. Tras la fusin, Toxo es elegido Secretario General de la organizacin resultante, la Federacin Minerometalrgica de CCOO, cargo que ostentar hasta que en 2004 es sustituido por Felipe Lpez Alonso. En esta etapa es de destacar su defensa de la posicin sindical ante la reconversin industrial y, muy especialmente, su participacin en la organizacin de la Marcha de Hierro.9

Desde 2004 a 2008 desempe el cargo de Secretario de Accin Sindical y Polticas Sectoriales de la Confederacin Sindical de CCOO, y es miembro del Consejo Confederal y de la Comisin Ejecutiva Confederal del sindicato.
El 19 de diciembre de 2008 fue elegido Secretario General de CCOO en el 9 Congreso Confederal, sustituyendo a Jos Mara Fidalgo.10
El 18 de mayo de 2011 fue elegido Presidente de la Confederacin Europea de Sindicatos en sustitucin de Wanja Lundby-Wedin, miembro del sindicato LO de Suecia.11

Generación 'nimileurista', CARMEN PÉREZ-LANZAC Madrid 9 MAR 2012 - 17:59 CET, El Pais

Hace seis años, en agosto de 2005, una joven catalana escribió una carta a este periódico. Se titulaba ‘Yo soy mileurista’, término que ella acuñó. Carolina Alguacil tenía entonces 27 años y se quejaba de la precariedad laboral de su generación: “El mileurista es aquel joven, de 25 a 34 años, licenciado, bien preparado, que habla idiomas, tiene posgrados, másteres y cursillos. Normalmente iniciado en la hostelería, ha pasado grandes temporadas en trabajos no remunerados, llamados eufemísticamente becarios, prácticos (claro), trainings, etcétera. Ahora echa la vista atrás, y quiere sentirse satisfecho, porque al cabo de dos renovaciones de contrato, le han hecho fijo (…) Lleva tres o cuatro años en el circuito laboral, con suerte la mitad cotizados (...). Lo malo es que no gana más de mil euros, sin pagas extras, y mejor no te quejes. No ahorra, no tiene casa, ni coche, ni hijos, vive al día. A veces es divertido, pero ya cansa (...)”. Releer hoy aquella carta deja un sabor amargo. Porque evidencia que se ha retrocedido. El mileurismo ha dado paso a una versión aún más precaria de sí mismo, el nimileurismo. “Antes éramos mileuristas y aspirábamos a más. Ahora la aspiración es ganar mil euros”, resume la propia Alguacil, que estudió Comunicación Audiovisual, es autónoma y se ha mudado a Córdoba. “Ni mucho menos me imaginaba yo entonces que la cosa iba a ir a peor”. Ella ya no es mileurista, pero no cree que gane lo que debería: “No me conformo”.

En España viven 10.423.798 personas de entre 18 y 34 años. Al igual que Pedro, reman contra los elementos y un mercado laboral menguante mientras los ya viejos problemas empeoran y se alimentan: salarios precarios, paro de larga duración, sobrecualificación, tardía emancipación, fuga de cerebros… Su ingreso medio neto (incluyendo a los parados), es de 824 euros al mes. Y los que están trabajando, ganan de media 1.318 euros mensuales (datos del Consejo de la Juventud de España). Profesiones que parecían a salvo del mileurismo, ya no lo están. La Politécnica de Valencia siguió los primeros pasos laborales de ingenieros y arquitectos que se licenciaron en 2008: uno de cada cuatro no llegaba a mileurista. Y lo que es más grave: el nimileurismo había avanzado un 8% respecto a los graduados un año antes.

Ante la falta de expectativas, muchos cerebros de la generación mejor preparada siguen haciendo las maletas, protagonizando una fuga de cerebros “sin precedentes”, en palabras de Fátima Báñez, ministra de Empleo y Seguridad Social. Según el último eurobarómetro de la Comisión Europea, un 68% de los jóvenes españoles está dispuesto a marcharse de España; un 36% por un plazo limitado. Y un 32%, por mucho tiempo. Sólo cinco países —de 31 encuestados— nos superan: Islandia, Suecia, Bulgaria, Rumania y Finlandia.

Youth on the move, Flash Eurobarometer, Fieldwork January 2011 (A Gallup poll with 30309 respondents)

[Firn]

I will take a closer look at that Harvard Business Review if I find a bit more time.

Nanneddu meu

Nanneddu meu, su mundu er gai:
a sicut erat non torrat mai.
Semus in tempus de tirannia
infamidade e carestia.
Como sos populos cascan che cane
gridende forte: "Cherimos pane".
Famidos nois semos pappande
pane e castanza, terra cun lande.

Let us hope that things will not turn out quite as harsh as in that coro sardo. The latter however seems to be already true in some areas of Europe, especially for the young:

Peus sa famene chi forte sonat
sa janna a tottus e non perdonat.
Avocadeddos laureados
busciacca boida, ispiantados.

Worse, the hunger strongly knocks
at everyone's door and doesn't forgive
Advocates with degrees
the pockets empty, penniless.

(My own poor translation)

Interest rates: Libor – a benchmark to fix

Their answers are now at the heart of a sprawling regulatory investigation into possible manipulation of the London interbank offered rate, one of the most important reference points of the global financial system.

At least 10 enforcement agencies in the US, Canada, Europe and Japan are examining whether bankers and brokers colluded to rig Libor – the index interest rate used for $350tn worth of financial products – and other widely watched rates to boost profits from their in-house trading positions.

If that goalpost was indeed moved it would show quite an modus operandi, certainly one which won't increase my trust into the financial system as a whole.

P.S: Sonata sarda - just to enjoy a piece of old European tradition before the wedding day.

[Surferbeetle]

Had a very interesting discussion today with a friend regarding the importance of a free press in providing transparency and accountability...

LIBOR/London Interbank Offered Rate by Wikipedia

The Libor is the average interest rate that leading banks in London charge when lending to other banks. It is an acronym for London Interbank Offered Rate (LIBOR, /ˈlaɪbɔr/). Banks borrow money for one day, one month, two months, six months, one year, etc., and they pay interest to their lenders based on certain rates. The Libor figure is an average of these rates. Many financial institutions, mortgage lenders and credit card agencies track the rate, which is produced daily at 11 a.m. to fix their own interest rates which are typically higher than the Libor rate. As such, it is a benchmark for finance all around the world. [1]

Bank lending probe lights up dark financial corners, Dr Gillian Tett, February 9, 2012 6:08 pm, Financial Times, www.ft.com

Being a financial journalist often feels akin to chasing bars of soap in the bath. On occasion, we hear fascinating rumours, and peer into dark corners of finance, aware that something odd is going on. Yet, all too often the “story” quarry slips away for lack of evidence or of quotable sources – or because powerful financial public relations officials are waving libel laws in our face.

Interbank borrowing rates such as Libor are a case in point. Five long years ago, I first heard tales of strange happenings in the Libor, Tibor and Euribor world. So I duly wrote a column expressing general concerns about the accuracy of Libor, and my FT colleagues peered deeper into Libor, and then the wider swaps world (check out, for example, the 2010 piece co-written by Michael Mackenzie, himself a former broker, on the oddities of “page 19901”). But, wherever we looked, we faced obfuscation; catching anything tangible in that slippery, slimy pond seemed hard.

No longer. This week it has emerged that almost a dozen traders and brokers around the world have been fired, suspended, or put on leave, amid a multinational probe into alleged manipulation of Libor. In particular, there are allegations that financial players have colluded to influence these rates, which serve as a benchmark for some $350tn worth of financial products worldwide, either to trade directly, or influence how other securities are priced.

Why I Am Leaving Goldman Sachs, By GREG SMITH, Published: March 14, 2012, NYT

TODAY is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.

To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.

It might sound surprising to a skeptical public, but culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.

The Quiet Coup, By SIMON JOHNSON, ECONOMY, MAY 2009 ATLANTIC MAGAZINE

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

What Makes Countries Corrupt, Richard Florida, NOV 10 2010, 2:51 PM ET , The Atlantic

The United States and other advanced nations are stepping up their efforts to combat corruption in poorer, less developed nations by publicizing the corruption and by punishing their own companies when they engage in it. The U.S. Congress added a bipartisan amendment to pending financial reform legislation, requiring oil, gas, and mining companies to disclose every payment they make to foreign governments, according to a recent report in The Economist.

But can such efforts stem the tide? My own analysis suggests that before we can deal with systemic corruption we must first come to grips with the fact that it doesn't occur in a vacuum -- it is a symptom of deeply rooted economic and social maladies.

The map above shows how the nations of the world stack up on Transparency International's 2010 Corruption Perception Index or CPI, which tracks government bribes, kickbacks, embezzlement, and other forms of public corruption. Topping the list as the world's least corrupt nation is Denmark, followed by New Zealand, Singapore, Finland, Sweden, and Canada. The United States ranks 22nd. The BRIC nations--Brazil, Russia, India, and China--rank in the bottom third of the CPI, even though they are among the fastest-growing nations in the world. Countries like Angola, Somalia, Afghanistan, and Iraq are at the very bottom.

SEC, at Wikipedia

The U.S. Securities and Exchange Commission (frequently abbreviated SEC) is a federal agency[2] which holds primary responsibility for enforcing the federal securities laws and regulating the securities industry, the nation's stock and options exchanges, and other electronic securities markets in the United States. In addition to the 1934 Act that created it, the SEC enforces the Securities Act of 1933, the Trust Indenture Act of 1939, the Investment Company Act of 1940, the Investment Advisers Act of 1940, the Sarbanes–Oxley Act of 2002 and other statutes. The SEC was created by section 4 of the Securities Exchange Act of 1934 (now codified as 15 U.S.C. § 78d and commonly referred to as the 1934 Act).

FSA, at Wikipedia

The Financial Services Authority (FSA) is a quasi-judicial body responsible for the regulation of the financial services industry in the United Kingdom. Its board is appointed by the Treasury and the organisation is structured as a company limited by guarantee and owned by the UK government.[1] Its main office is based in Canary Wharf, London, with another office in Edinburgh. When acting as the competent authority for listing of shares on a stock exchange, it is referred to as the UK Listing Authority (UKLA),[2] and maintains the Official list.

[Surferbeetle]

European Stocks Decline as BMW, Daimler Retreat on China, By Tom Stoukas - Mar 20, 2012 11:05 AM MT, Bloomberg News

Vehicle sales in the world’s second-largest economy will probably miss the China Association of Automobile Manufacturers’ forecast for 2012, according to an official at the state-backed body.

Total vehicle deliveries -- forecast to grow 8 percent this year -- may fail to increase by even 5 percent because of the “difficult” economy, Gu Xianghua, one of two deputies to the secretary general at the CAAM, said at a conference in Qingdao today, giving his personal opinion.

Wen lays ground for Tiananmen healing to begin, By Jamil Anderlini in Beijing, 20 March 2012, 1:24 PM, Financial Times, www.ft.com

As Mr Wen prepares to step down at the end of this year as part of a once-in-a-decade political transition, he may be gambling that the time has come to right historical wrongs as a way of launching political reform.

NRW-WAHL, Röttgen, der Hasardeur, von Georg Watzlawek, 20.03.2012, 13:00 Uhr, Handelsblatt

DüsseldorfVon der Alternative „Berlin oder Düsseldorf“ will Norbert Röttgen nichts mehr hören. Keine Fragen von Journalisten, und auch keine Beiträge seiner Vorstandskollegen. „Wir hatten im Landesvorstand lange kontrovers diskutiert, aber jetzt ist Kampfzeit“, begründet der CDU-Spitzenkandidat für die Wahl in Nordrhein-Westfalen die Tatsache, dass er jede Personaldebatte unterbunden hat. Und er weiß, welches Risiko er damit eingeht: „Es gibt eine Linie – und derjenige, der sie entschieden hat, übernimmt die volle Verantwortung“.

Landesbanken, Das teure Erbe der WestLB, von Anke Henrich, 19.03.2012, Die WirtschaftsWoche

Diese Antwort war sicher nicht geprobt. 29. Februar 2012, Landgericht Düsseldorf. Eine Richterin verhandelt die Klage eines Anlegers gegen die WestLB. Da schwant ihr etwas. „Sagen Sie mal“, fragt sie den Anwalt der WestLB, „wer ist denn zuständig, wenn Ihre Bank im Juli zerschlagen wird?“ Spontan und aufrecht antwortet der Advokat: „Das wissen wir noch nicht.“

Die beiden sind nicht allein. Auch das Land Nordrhein-Westfalen (NRW) und seine Steuerzahler, die milliardenschwere Garantien für die ausgezählte WestLB übernommen haben, können die Langzeitfolgen des WestLB-Niedergangs nicht überblicken. Ebenso rätseln WestLB-Kunden, die mit der Bank noch eine Rechnung offen haben.

Sie alle wollen wissen: Wer übernimmt ab Juli die Lasten aus dem Erbe der WestLB, wo überall liegen noch Leichen im Keller – und welche Konsequenzen haben die plötzlich angekündigten Neuwahlen in Nordrhein-Westfalen für die Landesbank? Schließlich platzte ein Haushaltsentwurf, der auch eine Milliarde Euro Rücklagen für die WestLB enthielt.

Die Zeit für eine Antwort drängt. Denn am 30. Juni läutet das Totenglöckchen in der Düsseldorfer Herzogstraße. Dann wird die Landesbank zu Grabe getragen, weil es EU-Wettbewerbskommissar Joaquin Almunia so wollte: Sie sei dank staatlicher Hilfen jahrzehntelang im Wettbewerb bevorzugt worden.

Germany-China rail freight plan, Last Updated: Thursday, 10 January 2008, 12:22 GMT, BBC News

...rail freight service between Germany and China, that would be twice as quick as sea travel, has been backed by six countries, Chinese media says.

The China Daily state newspaper says China, Mongolia, Russia, Belarus, Poland and Germany are to work together on the Hamburg to Beijing train route.

DB Schenker Begins Germany-China Container Rail Service, Bruce Barnard, Special Correspondent | Oct 13, 2011 12:31PM GMT, The Journal of Commerce Online - News Story

DB Schenker said its new daily rail container service between Germany and China, starting in late November, will more than halve the transit time of sea transport.

[Firn]

Business made difficult for a Greek start-up.

It was about a year ago that Fotis I. Antonopoulos, a successful Web program designer here, decided he wanted to open an e-business selling olive products.

Luckily, he already had a day job.

It took him 10 months — crisscrossing the city to collect dozens of forms and stamps of approval, including proof that he was up to date on his pension contributions — before he could get started. But even that was not enough. In perhaps the strangest twist of all, his board members were required by the Health Department to submit lung X-rays — and stool samples — since this was a food company.

One of the reasons why Greek is in trouble. One really only appreciates the qualities of his own bureaucracy when being confronted with a much worse one. Nevermind the old Roman one , reminding posters about the EU comission or the Polish city halls.

Strangly it seems most popular in Germany offering inside of the inner working of the Arbeitsamt - while in Italian it is taken as a satirical symbol of the Italia attuale.

[Surferbeetle]

With so much sunshine in Greece one wonders what is being done by the 'elites' for the good of their country; meanwhile others are busy making things happen instead of making excuses...

Germany’s $263 Billion Renewables Shift Biggest Since War, By Stefan Nicola - Mar 19, 2012 5:34 AM MT, Bloomberg News

Not since the allies leveled Germany in World War II has Europe’s biggest economy undertaken a reconstruction of its energy market on this scale.

Chancellor Angela Merkel is planning to build offshore wind farms that will cover an area six times the size of New York City and erect power lines that could stretch from London to Baghdad. The program will cost 200 billion euros ($263 billion), about 8 percent of the country’s gross domestic product in 2011, according to the DIW economic institute in Berlin.

Germany aims to replace 17 nuclear reactors that supplied about a fifth of its electricity with renewables such as solar and wind. Merkel to succeed must experiment with untested systems and policies and overcome technical hurdles threatening the project, said Stephan Reimelt, chief executive officer of General Electric Co. (GE)’s energy unit in the country.

Utilities running gas-generating plants in Germany lost 10.92 euros a megawatt-hour today at 12:16 p.m. local time, based on so-called clean-spark spreads for the next month that take account of gas, power and emissions prices. That compared with a profit of 20.95 euros in October 2009, according to data compiled by Bloomberg. U.K. generators earned 2.06 pounds ($3.27), down from a profit of 7.02 pounds in October.

A gigawatt is about enough to supply 800,000 homes in the U.S. and a bit less than the capacity of a nuclear reactor.

Germany’s efforts in the industry are sending shocks through European power markets. When it’s windy and sunny, turbines and solar cells flood the grid with electricity, undermining the economics of natural-gas fired generators, since clean energy has supply priority over fossil fuels.

Utilities running gas generating plants in Germany lost 10.92 euros a megawatt-hour today at 12:16 p.m. local time, based on so-called clean-spark spreads for the next month that take account of gas, power and emissions prices. That compared with a profit of 20.95 euros in October 2009, according to data compiled by Bloomberg. U.K. generators earned 2.06 pounds ($3.27), down from a profit of 7.02 pounds in October.

Norbert Roettgen, the 46-year-old lawyer who is Merkel’s environment minister and protege, is managing the transition and aims for the nation to generate at least 35 percent of its power from renewables by 2020, up from 20 percent last year.

Roettgen seeks 25,000 megawatts of power generated by wind farms in the North Sea and Baltic Sea by 2030, about the same as 25 nuclear power stations. About 200 megawatts of offshore wind plants are working now.

Already, Germany has built the world’s biggest renewable generation complex, with 53.8 gigawatts of wind and solar generators at the end of last year. Italy last year added a record 9 gigawatts of solar panels, overtaking Germany for the first time. The U.K. plans 18 gigawatts of offshore wind capacity by 2020, up from 1,500 megawatts now.

Some of Germany’s biggest companies are entering the renewables business and backing the innovations needed to make expand the scale of the industry.

Solar’s 80% Plunge Hurts Utilities From Hawaii to Spain, By Ben Sills and Marc Roca - Mar 20, 2012 6:00 PM MT, Bloomberg News

On grassy pasture in western Spain, Fotowatio SL is preparing to build a solar plant to supply electricity 25 percent cheaper than a local utility charges for traditional power, a breakthrough that’s sending tremors through the global energy industry.

Solar panels costs have tumbled 80 percent in the past five years. A technology that in the 1970s was so expensive it only made economic sense for satellites and offshore drilling rigs is today a $100 billion industry that’s transforming the world’s power supply in the same way semiconductor efficiencies put personal computers everywhere, changing the way information flows.

Panel makers such as Baoding, China-based Yingli Green Energy Holding Co. are themselves feeling the strain of crushed margins. The Bloomberg Global Large Solar Energy index, led by Chinese PV panel maker Hanwha SolarOne Co., erased 68 percent of its market value in 2011. At the same time, annual installations jumped 49 percent to about 28 gigawatts.

Twelve of the index’s 17 members will lose money in 2012, according to analyst estimates compiled by Bloomberg. Yingli saw its gross margin reduced to 3 percent in the fourth quarter compared with 11 percent in the preceding three months and lost $510 million in 2011.

The competition is hurting suppliers as it helps the industry accelerate toward so-called retail grid parity, when homes and businesses will be able to generate their own power more cheaply than they buy it from coal- or gas-fired plants through local utilities.

Not every industry observer believes grid parity is around the corner.

Gordon Johnson of Axiom Capital Management Inc., the top- ranked solar-energy analyst of more than 30 tracked by Bloomberg, says the financial strain on panel makers reflects fundamental problems with their business rather than pressure from competitors.

There’s a limit to how much the cost of solar energy can fall because some components -- the racks, cables and inverters that make the power compatible with utility grids -- are not declining as fast and because PV requires backup from conventional plants during the night, he said.

[Fuchs]

Context:

The conservative-liberal (European "liberal"!) government first lengthened the projected service life of the German nuclear powerplants as a gift to the nuclear lobby (and possibly Siemens), then came Fukushima and Merkel did what she had done several times already: She completely gave up a cornerstone of her party's policies and made a u-turn. Now she's doing a more radical anti-nuclear power than did the red (social democrats) - GREEN Schrder government (which was in bed with big business just as all (West) German governments, and with much less style than their pre-'82 predecessors!) .


The switch to less nuclear power wasn't nearly as problematic as the scaremongering of the nuclear lobby had suggested for decades. We're still a net electricity exporter while the extremist pro-nuclear power France is a net importer AFAIK.

There is one major problem, though; the German electrical grid is compartmentalised. This is actually in part still a heritage from a Nazi law from the 1930's (the same Nazi law that made the German electrical grid more unable to cope with damaged powerplants than the Allies ever dared to dream prior to their 1945 Strategic Bombing Survey!).
Said old law created a landscape of regional monopolies (typical fascist-typical gift to big business in exchange for support), which were not much connected.


Now there's a lot talk about a need for additional very high voltage power lines, but planning and building such 'unpleasant' power lines is a slow process and some embarrassing power line failures two or three winters ago had already revealed that even the existing grid requires some overhaul (because the power corporations had pursued easy profit by neglecting maintenance).


The power plants are only the obvious surface; the practical issues are rather about the power line grid. We could have dozens of DESERTEC solar power plants in Africa right now, but what would that be good for if we cannot even transfer their output between North and South Germany?

[Surferbeetle]

Fuchs,

Appreciate the insights

What if the grid is no longer cost effective? What does that mean for centralized planning & control, and allocation of capital in al of it's forms?

Grid parity, by wikipedia

Grid parity is the point at which alternative means of generating electricity produces power at a levelized cost that is equal to or less than the price of purchasing power from the grid. Reaching grid parity is considered to be an important point in the development of new sources of power, the point at which it becomes a contender for widespread development without subsidy support. The term is most commonly used when discussing renewable energy sources, notably photovoltaics, wind power and wave power. It is widely believed that a wholesale shift in generation to these forms of energy will take place when they reach grid parity.

[Fuchs]

Not "cost-effective"?
How would one determine that?

The "well"-earners in the top floors of the glass palaces were simply neglecting long-term thinking.