EUCOM Economic Analysis - Part I

[Surferbeetle]

Firn,

Thanks for the great links Send some music back if you get a chance

The FAZ article was spot on ... sometimes, although i know it's 'not polite' i really wonder about who is on our/US list of high net worth individuals who have made deals with the IRS regarding their previously 'tax-free' Swiss accounts...oops bummer ha!

John Authers, a very bright Lex contributor, has a sobering article worth the time in the FT: To reduce banks’ risks, profits have to shrink, February 24, 2012 8:25 pm

With respect to Italy's stats, you might also take a look at the US Food Stamp Participation graph at CS Monitor. The date range on this particular graph is limited from 2005 to 2011, it would be interesting to chase the longer trend line over a number of recessions...the early 80's were a rough time in the US while we boomed in the 90's...another time perhaps. Cycles such as the Kondratiev, Kuznets, etc are interesting to think about in this context as well.

Stocks (aka real-time applied supply and demand equations) are similar to fishing...know what you looking for, where it hangs out, and what it's gonna take to get that sucker in the frying pan...never easy, never guaranteed, but sometimes....I swear that fish was this big...ha ha. Along those lines:

• Google Finance has upped it's game and is now showing 'realtime' intraday equity prices (although you still can't download intraday time series data)

• NASDAQ has an interesting website which includes a short interest indicator

And of course the always necessary disclaimer (and also the thing the world market needs to avoid doing): Etrade Baby loses everything on the YouTube

Let's hope not

[Firn]

Firn,

Thanks for the great links Send some music back if you get a chance

Don Raffaè - Fabrizio De Andrè. It might be difficult to understand even for fluent Italian speakers.

The FAZ article was spot on ... sometimes, although i know it's 'not polite' i really wonder about who is on our/US list of high net worth individuals who have made deals with the IRS regarding their previously 'tax-free' Swiss accounts...oops bummer ha!

This article had the most comments I have yet seen on the FAZ on such matters. It is just very human to be enraged by the very real possibility that some smart persons not only preach water and drink wine but are also attacking those who are helping out.

With respect to Italy's stats, you might also take a look at the US Food Stamp Participation graph at CS Monitor. The date range on this particular graph is limited from 2005 to 2011, it would be interesting to chase the longer trend line over a number of recessions...the early 80's were a rough time in the US while we boomed in the 90's...another time perhaps. Cycles such as the Kondratiev, Kuznets, etc are interesting to think about in this context as well.

As you said the graphic does show just a short period of time and doesn't start at zero, so it is 'just' a drastic snapshot.

Stocks (aka real-time applied supply and demand equations) are similar to fishing...know what you looking for, where it hangs out, and what it's gonna take to get that sucker in the frying pan...never easy, never guaranteed, but sometimes....I swear that fish was this big...ha ha. Along those lines:

• Google Finance has upped it's game and is now showing 'realtime' intraday equity prices (although you still can't download intraday time series data)

• NASDAQ has an interesting website which includes a short interest indicator

Thanks for the links, I'm always interested in sites who give you the ability to track developments over longer timeframes. Sadly so far one can hardly get them easily adjusted for inflation.

And of course the always necessary disclaimer (and also the thing the world market needs to avoid doing): Etrade Baby loses everything on the YouTube

Let's hope not

Love it!

[Firn]

Eurocrisis Live

6.12pm: Here's a summary of the main events today (although I'll leave the blog open in case of any major developments)

• The eurogroup has given conditional approval to Greece's aid package, but fallen short of a final decision. After meeting in Brussels, eurozone finance ministers agreed to authorise some of the €130bn programme, but will wait for Greece to complete its Private Sector bond swap before giving the green light.

• EU leaders continue to meet in Brussels. Growth is top of the agenda, with David Cameron warning that the region suffers from a growth crisis as well as a debt one.

• The organisation overseeing the credit default swap sector ruled that Greece has not suffered a credit event. ISDA said that recent Greek developments did not, themselves, trigger CDS contracts, but left the door open to give a different answer as events develop.

• The Eurozone manufacturing sector shrank again. Greece, Spain and Italy all suffered sharp contractions, but the UK grew in January.

Thanks for the comments and for reading. More again tomorrow....

The "dicke Bertha" of Draghi has provided a massive boost for mostly southeuropean banks. Stocks have risen sharply as the ECB shows that it is ready to give cheap credit even for the long term.

Personally I do think it is necessary, however it is of course poison for the guys keeping their money in low-yield securities and accounts. Happy are those who bought a lot of European stocks in the last months, like Warren Buffet. At least you get a share of that money.

ECB "laying the seeds for the next crisis"

A leading British banker has warned that the huge sums of money being pumped into western economies to underpin banks and promote financial stability risk "laying the seeds for the next crisis".

As central bankers on both sides of the Atlantic played down expectations that they were poised to unleash a fresh round of money creation, Peter Sands, the chief executive of Standard Chartered bank, warned it was "going to take time for the rich West to sort itself out".

But Sands's main concern was that support operations by western central banks, which have seen trillions of dollars pumped into the financial system through so-called quantitative easing, could set the scene for more trouble in the years ahead.

Breaking ranks from his fellow bosses, Sands, whose bank is focused mainly in Asia, said: "Banks are still going to have to refinance their loans in three years time. It's not clear what the exit strategy is, nor is it possible to predict what the long-term consequences will be."

It may very well be that we are laying the seeds for an inflation driven crisis in two to three years. However with the Eurozone suffering a recession, unemployment going through the roof in souther Europe I see hardly an alternative. So far the banks were unable or unwilling to lend so the ECB is pumping and pumping money into them until they can not take it anymore. It is of course a massive gift, taxing the individuals with capital.

The president of the Bundesbank, Jens Weidmann, has warned the European Central Bank president that yesterday's Long Term Refinancing Operation (in which €529bn was loaned to European banks on generous terms) poses significant dangers to the eurozone economy. In a letter to Draghi, Weidmann urged the ECB boss to return to safer monetary policies.

[Surferbeetle]

Firn,

Appreciate the tunes; i was able to catch a few words here and there, but had to chase the written lyrics...alora, i count on my feo Spanish to allow me to read French and Italian and will sometimes use google translate when i am feeling especially lazy.

Eros Ramazzotti - Bambino Nel Tempo, was popular when i last visited. HD is said to have received an assist from Porsche on the engine and Getrag on the transmission for the new one. The old school nightster is a fun one though the engine can be a bit much for the frame & tires in the corners...me880/z4 combo (prefer the z1/z4) is getting it done on the other/old-reliable/teutonic one. Long distance riding weather is almost here...wanna break 100k miles

Dicke Bertha is further covered in Gavyn Davies' latest at the FT and in the follow on comments: ECB liquidity is not a free lunch, March 4, 2012 12:20 pm by Gavyn Davies, Financial Times, www.ft.com

The initials LTRO, barely ever discussed prior to last December, now form the most revered acronym in the financial markets. Before the first of the ECBs two Longer Term Refinancing Operations in December, global equity markets lived in fear of widespread bankruptcies in the eurozone financial sector. Since LTRO I was completed on December 21, equities have not only become far less volatile, but have also risen by 11 per cent.

With LTRO II completed last week, over 1tn of liquidity has been injected into the eurozones financial system. Private banks were permitted to bid for any amount of liquidity they wanted, the collateral required was defined in the most liberal possible way, and the loans will not fall due for three years. Any bank that might need funds before 2015 should have participated to the hilt, thus eliminating bankruptcy risk fora long time time to come.

What can there possibly be not to like about this? A few things. Some observers point to the danger of a zombie banking system, kept alive artificially as a wing of the central bank. And, in a much-publicised private letter to Mario Draghi in February, Jens Weidmann, Bundesbank president, expressed concerns that the latest two LTROs will expose the ECB to potential losses which will undermine its capital base.

The Economist has an interesting article: Measuring inflation, Which of these is not like the others?, Feb 24th 2012, 5:46 by H.J. | SO PAULO

IN THIS weeks print edition, we explain why we have decided to drop Argentinas official inflation statistics and publish a private-sector estimate, State Streets PriceStats Index, instead. The PriceStats method involves an automated daily trawl of huge numbers of internet prices, instead of the traditional government approach of identifying a representative basket of goods and then sending dozens of mystery shoppers out to buy those things monthly. It was dreamed up by an Argentine, Alberto Cavallo, who set up a website, Truth in Argentine Statistics , and did the research needed to validate the method during his studies at Harvard University. You can find out more about the theory at the Billion Prices Project, a collaboration between Mr Cavallo and Roberto Rigobon, another Harvard economist an economist at MIT Sloan School of Management. The two set up PriceStats to commercialise the idea, and now the company produces daily inflation information for 19 countries, which are available from State Street, an investment bank a financial services firm.

With respect to corrections for inflation, some of the goldbugs have been pricing houses in terms of gold over time and producing some rather alarming downward sloping charts which span the last few years of the recession.

Bernard Baumohl, The Secrets of Economic Indicators, 2nd Edition provides the following websites in order to track the pressures of inflation:

• Consumer Price Index
• www.bls.gov/cpi/

• Producer Price Index
• www.bls.gov/ppi

• Productivity and Costs
• www.bls.gov/lpc

• Employer Costs for Employee Compensation
• www.bls.gov/news.release/ecec.toc.htm

• Employment Cost Index
• www.stats.bls.gov/news.release/eci.toc.htm

• Historic Rates of US Inflation (the CPI) going back to 1913 - I had no luck with the site given this evening, and did a search using the second site but have not yet found downloadable stats
• http://woodrow.mpls.frb.fed.us/resea...c/hist1800.cfm

• http://search.newyorkfed.org/mpls_pu...ource=mpls_pub

The wikipedia entry on Weimar hyperinflation is also very interesting:

The hyperinflation in the Weimar Republic was a three-year period of hyperinflation in Germany (the Weimar Republic) between June 1921 and July 1924.

[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]

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...