The following is a guest post from Chris Cook, a senior research fellow at the Institute for Security and Resilience Studies at University College London. His work is focused on a new generation of networked markets – which will, in Chris’s view, necessarily be dis-intermediated, open, decentralised and, therefore, resilient.
The second attempt to resolve the unsustainable debt burden of Cyprus’s over-leveraged banks spreads the pain differently to the disastrous initial attempt, but looks likely to leave Cyprus as an economic wasteland for generations. Frances Coppola outlined brilliantly yesterday the sort of financial disaster zone which Cypriots can expect. Read more
Paul Krugman has penned a rather wonderful explainer on the economics of Google Reader, and why it makes economic sense for Google to shut down a much-loved service like Reader even if people say they are prepared to pay for it.
Krugman actually picks up where Ryan Avent left off, but the following paragraph does a good job of nailing the problem:
Basically, if the monopolist tries to charge a price corresponding to the value intense users place on the good, it won’t attract enough low-intensity users to cover its fixed costs; if it charges a low price to bring in the low-intensity user, it fails to capture enough of the surplus of high-intensity users, and again can’t cover its fixed costs.
US Treasuries are kicking up with the 10 year threatening to push through 2 per cent for the first time in quite a while. It’s a little bit of economic optimism — better data means more chances of Fed tightening.
Capital Economics did the needful and put voice to the idea that the bull rally in Treasuries might have further to run for all sorts of not very contrarian reasons (our emphasis): Read more
We’ve run a couple of posts here on FTAV recently about how cancellation of QE debt isn’t really such a big deal: more an accounting change than anything material because both treasuries and central banks are part of the public sector.
Here is an argument that this mere accounting exercise could be worthwhile — particularly if the debt-laden developed countries descend into another downturn. Read more
Hat-tip to the FT’s Brussels blog…
Click t0 enlarge — a Eurogroup chart guide on how to cut Greece’s official debt levels (a buyback boondoggle included): Read more
So, we’re going to the wire once again in the now traditional dance between Greece and the troika. As the FT reported on Thursday:
Eurozone leaders face a new round of brinkmanship over Greece’s €174bn bailout after international lenders failed to bridge differences on how to reduce Athens’ burgeoning debt levels, pushing the country perilously close to defaulting on a €5bn debt payment due next week.
Greece’s new budget was announced on Wednesday. With it came projections for the country’s economic health. The patient is not well. Even before the government’s own-self assessment of conditions, revisions by the IMF alone revealed the deterioration, as Exotix’s Gabriel Sterne points out in a note on Thursday. More of his analysis further down, but first this from the FT on the Greek government’s figures: Read more
We’re feeling very nostalgic. From the WSJ:
Euro-zone countries are considering a proposal that would see Greece cut its debt by buying back bonds held by private creditors at a discount.
The exercise–one of a number of options being studied–could persuade the International Monetary Fund to sign off on a loan payment desperately needed by the debt-laden country and keep Greece’s bailout on track for the medium term, two officials with direct knowledge of the discussions said Thursday.
The answer is $49,000, according to the Credit Suisse global wealth report, based on their estimate that global household wealth in mid-2012 totaled $223 trillion at current exchange rates (emphasis ours).
Looking ahead, and assuming moderate and stable economic growth, we expect total household wealth to rise by almost 50% in the next five years from USD 223 trillion in 2012 to USD 330 trillion in 2017. The number of millionaires worldwide is expected to increase by about 18 million, reaching 46 million in 2017. We expect China to surpass Japan as the second wealthiest country in the world. However, the USA should remain on top of the wealth league, with USD 89 trillion by 2017.
Between mid-2011 and mid-2012, only China and North America increased their net worth, and India and Europe saw the sharpest falls, according to the report. The world as a whole had a 5.2 per cent fall in household wealth. Read more
Spain has tipped a toe into the 10yr debt market and found the water isn’t as cold as it once was. They managed to get away a larger than planned issue of €3.9bn 3yr and €859m 10yr paper on Thursday with borrowing costs on the longer term paper falling markedly alongside decent demand.
However, the 3yr stuff was a new issue with the yield coming in near enough to this year’s average while the offering of the 10yr paper was small and oh-so-cautious. Read more
In our previous post, we attempted to explain to goldbugs why a fiat-based monetary system provides many more benefits to society than a gold-backed monetary system. More importantly, that to dismiss a fiat system is to potentially misunderstand the role of money and gold in society.
As anthropologist and author David Graeber writes in his book Debt: the First 5,000 years: Read more
For the more reliable the joint liability system, the fewer the incentives that the lower level of government has to economise…
The case for common eurozone bonds taking flak again? Nah. Read more
The Greek fall-out continues with Spanish 10-year yields hitting 6.5 per cent, their highest level in almost six months:
Both Spain and France managed to get decent debt sales away this morning and although yields did jump in Spain there was at least some solid demand to provide solace. Not bad considering it was Spain’s first auction since the country’s rating got cut by S&P last week. The steady demand will also provide reassurance as the ECB’s LTRO effects start to wane.
French borrowing costs actually fell! Interest rates on the €1.6bn of nine-year paper sold fell from 3.29 per cent previously to 2.85 per cent while those on the €3.3bn of 10-year bonds dropped by 2 basis points to 2.96 per cent. Read more
We’ve discussed MMT’s recent foray into the mainstream, and the confusion it has consequently courted.
But that’s the funny thing about the theory. It is naturally divisive because most of the time it fails to communicate its message succinctly. Which is weird, since the premise is actually fairly simple to understand. We’d say it’s akin to looking at an autostereogram. Once you get it, you never see things quite the same way again. But at the same time, try as they might, some people will never be able to see the image. Ever. Read more
Breaking on Tuesday morning: Italy pays more to borrow for three years than it does for 10 years…
RTRS-ITALIAN 3.5 BLN EURO NOV 2014 BTP BOND AUCTION GROSS YIELD 7.89 PCT Read more
European sovereign debt, that is.
And the answer is over €500bn, according to Nomura, which has pieced together data from the IMF and national sources to come up with an updated picture of foreign exposure globally to the Eurozone. Read more
First the good news.
Italy managed to raise the targeted amount of €10bn at Friday’s short-term debt auction. Read more
Thinking of booking the next summer holiday with Thomas Cook?
Tuesday’s price action might make you think twice. Read more
Or as Matt King at Citi put it in his latest presentation, “Payback Time: The Coming Decade of Deleveraging”. In short, we’ve borrowed much too much, and the public sector can’t substantially reduce its debt without a corresponding increase in borrowing in the private sector, or growth will suffer. All of this being particularly painful for countries that can’t unilaterally weaken their currencies.
The charts the Citi strategist uses to make these point are enthralling… but then FT Alphaville does have a tendency to go weak at the knees at the sight of a graph that perfectly encapsulates a story. Read more
Congratulations to Ben Dyson, self-professed “money and banking specialist” for finally discovering, err, money. Or, how money works.
In a column in the Guardian on Tuesday, Dyson recounts in grand revelatory style how the solution to the system’s current ails is nothing other than recognition of the fact that “money has been privatised”. Shock, horror! Read more
So, the billionaire Bakrie Brothers have sorted one of their debt issues.
They have struck a deal to sell half of their stake in Nat Rothschild’s cash shell curiosity, Bumi Plc, to an Indonesian businessman. Read more
On Thursday the Wall Street Journal reported on a doom-laden research note by Goldman Sachs strategist Alan Brazil sent on August 16 to hedge fund clients.
Unfortunately it didn’t share the report, but Zero Hedge has acquired a copy and it makes for interesting reading, even if it’s not quite the PowerPoint equivalent of the Book of Revelations. Read more
Morgan Stanley’s 10-Q statement – that’s a quarterly report for European readers – is getting plenty of attention on Monday.
Or rather, the section on risk factors is getting a lot of attention. Read more
Friday’s newspaper round-up (with a little help from Sky News and now with added Daily Mirror).
French president Nicolas Sarkozy has agreed to drop a plan to help fund a €115bn Greek bail-out with a €50bn bank tax, a significant victory for Angela Merkel, the German chancellor, who extracted the concession at a late night meeting in Berlin ahead of an emergency summit of eurozone leaders, the FT reports. The tax plan, which would have raised €10bn a year for five years through a 0.0025 per cent levy on all assets held by eurozone banks, was strongly resisted by Berlin, which saw the plan as taking too long to implement and raise funds, which would have been used for a massive Greek bond repurchase programme. The deal paves the way for a German-backed initiative for more direct measures to get private holders of Greek bonds to help pay for the bail-out. According to a version of the plan circulated by the European Commission on Wednesday evening, all owners of Greek bonds that come due in the next eight years will be urged to swap their holdings for new bonds that do not mature for another 30 years. Other plans, however, including a French-backed bond roll-over plan, are believed to still be on the table. Read more
Risk assets were starting the week on the back foot, with sentiment still hobbled by worries over eurozone and US sovereign debt issues, the FT reports. Global growth concerns were also overpowering any residual bullishness engendered by a generally positive start to the US second-quarter earnings season, as traders warily eyed Friday’s publication of weak consumer confidence data for the world’s biggest economy. The FTSE All-World equity index was down 0.4 per cent as European bourses saw early losses. The FTSE Eurofirst 300 was off 0.4, with banks softer as investors got the first chance to discount details of the latest European bank stress tests. “Underwhelmed” by the tests’ toughness and disinfectant properties appears to be the verdict. Gold was signalling the anxiety stalking dealing rooms. The precious metal has hit another record at $1,599 an ounce, as investors seek alternatives at a time of fiscal uncertainty. The bullion was currently up 0.3 per cent to $1,598, while silver was selling for $39.88 an ounce, an 11-week high. Read more
About 10 years too late, Yell — the heavily indebted directories group — is going digital.
From Thursday’s strategic review announcement: Read more