The great Portuguese sell-off

First Greece was subjugated and forced to yield (still is) national sovereignty, now comes Portugal. One country at a time, the European continent is being captured via economic warfare. Be it the Troika  or the EU itself, all roads lead back to Europe’s powerhouse, Berlin, and it’s Fourth Reich making the capture. With the Vatican undergoing a leadership transition and possible candidate elected this St. Patrick’s Day, we could likely soon see the revived Holy Roman Empire.

Little by little, the Portuguese state is going down in defeat. In April 2011, when the country got a loan of €78bn from the troika (EC, ECB and IMF) to avoid bankruptcy, it committed itself to privatisation. But under the leadership of Passos Coelho, a model student of the fiscal discipline demanded by the troika, the sell-off of the “crown jewels” – what’s left of them, that is – has sped up.

Losing control of their destiny

For the 80,000 or so inhabitants of Viana, like for the rest of the country, the powerful wave of privatisation is causing a lot of worry. “Some of these state enterprises are gems, others are junk buckets, but they’re all strategic assets. And we’re losing them forever,” worries Bernardo S Barbosa, head of the local weekly Aurora do Lima. The Socialist mayor, José Maria Costa, shares a growing national concern: the feeling that the country is losing its sovereignty. In a vast room at City Hall, this engineer by training reacts very angrily to the policy of the executive: “By taking away our public assets, which are so vital, to the benefit of foreign companies, and private interests at that, we’re losing control of our own destiny. I even fear that in the end it will affect our freedom and democracy.” Continue reading

Money for Nothin’ Writing Checks for Free

When coming from PIMCO, alarm bells should be going off.

Mr. Bernanke never provided additional clarity as to what he meant by “no cost.” Perhaps he was referring to zero-bound interest rates, although at the time in 2002, 10-year Treasuries were at 4%. Or perhaps he knew something that American citizens, their political representatives, and almost all investors still don’t know: that quantitative easing – the purchase of Treasury and Agency mortgage obligations from the private sector – IS essentially costless in a number of ways. That might strike almost all of us as rather incredible – writing checks for free – but that in effect is what a central bank does. Yet if ordinary citizens and corporations can’t overdraft their accounts without criminal liability, how can the Fed or the European Central Bank or any central bank get away with printing “electronic money” and distributing it via helicopter flyovers in the trillions and trillions of dollars?

Well, the answer is sort of complicated but then it’s sort of simple: They just make it up. When the Fed now writes $85 billion of checks to buy Treasuries and mortgages every month, they really have nothing in the “bank” to back them. Supposedly they own a few billion dollars of “gold certificates” that represent a fairy-tale claim on Ft. Knox’s secret stash, but there’s essentially nothing there but trust. When a primary dealer such as J.P. Morgan or Bank of America sells its Treasuries to the Fed, it gets a “credit” in its account with the Fed, known as “reserves.” It can spend those reserves for something else, but then another bank gets a credit for its reserves and so on and so on. The Fed has told its member banks “Trust me, we will always honor your reserves,” and so the banks do, and corporations and ordinary citizens trust the banks, and “the beat goes on,” as Sonny and Cher sang. $54 trillion of credit in the U.S. financial system based upon trusting a central bank with nothing in the vault to back it up. Amazing! Continue reading

Chinese Group Buys 80% of AIG Plane Unit for $4.2B

A Chinese group agreed to buy 80.1 percent of American International Group Inc. (AIG)’s plane-leasing unit (0067543Q) for $4.23 billion in the nation’s largest acquisition of a U.S. company.

The acquisition gives the group control of the world’s second-largest aircraft lessor as rising travel in China and Asia spurs demand for planes. AIG, which counts the U.S. government as its largest investor, is selling the Los Angeles- based unit as Chief Executive Officer Robert Benmosche focuses on insurance operations and works to reduce debt. Continue reading

Morgan Stanley’s Doom Scenario: Major Recession in 2013

The global economy is likely to be stuck in the “twilight zone” of sluggish growth in 2013, Morgan Stanley has warned, but if policymakers fail to act, it could get a lot worse.

The bank’s economics team forecasts a full-blown recession next year, under a pessimistic scenario, with global gross domestic product (GDP) likely to plunge 2 percent.

More than ever, the economic outlook hinges upon the actions taken or not taken by governments and central banks,” Morgan Stanley said in a report. Continue reading

Why Miami Is Becoming the ‘Russian Riviera’

Essentially, real estate brokers are letting in the Russian mob — not Russians simply wanting to ‘escape the cold.’ Today, most (if not all) of the rich Russians are part of the communist oligarchy. If you’re not part of the team, then you’re one of the serfs with no future prospects. Real estate brokers today are motivated by both greed and an easy sell to countrymen awash in oil & gas revenue as well as a fractured American economy that has Americans selling their homes or losing them. They essentially have no clue who or what they are letting in.

On a recent afternoon, Miami real-estate agent Jill Eber is taking a Russian millionaire on a mansion-shopping trip.

“This is the Versace Room,” Eber says, walking into a vast living room of blue velvet sofas and gold French Imperial lamps. “It really makes a statement.”

The mansion, “Castello del Sole,” sits on an exclusive island on Miami Beach and has eight bedrooms, nine baths and a three-story foyer with fresco ceilings. The grounds include two yacht docks, a tennis court, guest villas, a five-car garage and a lagoon-style pool with over 100,000 gallons of water.

The asking price: $37 million. Continue reading

Goldman to Clients: Brace for Another 8% Drop in S&P

The S&P 500 is set to fall another 8 percent by the end of the year, on top of the 7 percent decline seen since the year’s high reached in September, according to a new strategy note by Goldman Sachs.

“Uncertainty swirling around the “fiscal cliff” that must be resolved by year end, the pending jump in capital gains taxes at the start of 2013, and the debt ceiling that will be reached in late February, represent clear and present downside risks to the market in the near term,” wrote the analysts, headed by Chief U.S. Equity Strategist David Kostin. Continue reading

Eurozone suffers double-dip recession

Latest figures show that gross domestic product slumped in the three months to September.

The eurozone is officially back in recession after three years of sluggish growth as the sovereign-debt crisis continues to impede recovery. Continue reading

The Tragedy Of The Euro! What About Germany?

Brecht Arnaert writes: 2012 has been a year of great turmoil for the euro. But our economy is not the only thing that is in crisis. Our economic theory is too, and even more so: for decades macro-economic policy has been conducted within a Keynesian framework, and while no Keynesian economist has predicted this crisis, or even is able to explain it’s causes, we are still listening to them today to get out of the mess they brought us into. I would say that this is a problem of legitimacy.

I am telling this not only as an economist. I am a defender of liberty too. What is happening in Europe right now should not only worry economists, but every freedom-loving citizen. As we speak, measures are being taken to take away our liberties in a way that Hayek described so well in his “Road to serfdom”: each government intervention requires more government intervention, until no freedom is left anymore. Step by step our property rights are being eroded, and, not too far from here, in Brussels, a giant Moloch called the European Commission is centralizing powers with a speed that would have been unimaginable before the Treaty of Lisbon. Continue reading

Schäuble Warns Worst Is Yet to Come

Europe’s debt crisis seems to have entered a calm phase, but that’s only an illusion, German Finance Minister Wolfgang Schäuble said on Tuesday. The worst is probably still to come, he warned.

The financial markets have been notably calm of late. Stock indexes have ticked upwards and interest rates on sovereign bonds have drifted downwards. The euro has also remained relatively stable against the dollar. And investor panic seems to have dissipated. Continue reading

US Households Are Not “Deleveraging” – They Are Simply Defaulting In Bulk

Lately there has been an amusing and very spurious, not to mention wrong, argument among both the “serious media” and the various tabloids, that US households have delevered to the tune of $1 trillion, primarily as a result of mortgage debt reductions (not to be confused with total consumer debt which month after month hits new record highs, primarily due to soaring student and GM auto loans). The implication here is that unlike in year past, US households are finally doing the responsible thing and are actively deleveraging of their own free will. This couldn’t be further from the truth, and to put baseless rumors of this nature to rest once and for all, below we have compiled a simple chart using the NY Fed’s own data, showing the total change in mortgage debt, and what portion of it is due to discharges (aka defaults) of 1st and 2nd lien debt. In a nutshell: based on NYFed calculations, there has been $800 billion in mortgage debt deleveraging since the end of 2007. This has been due to $1.2 trillion in discharges (the amount is greater than the total first lien mortgages, due to the increasing use of HELOCs and 2nd lien mortgages before the housing bubble popped). Continue reading

Recession ‘taking hold’ in Eurozone, OECD says

With Greek at 24.4% in June and as the Eurozone facing an acceleration of inflation, one might expect to see more of what has taken place in Spain — just on a wider scale.

PARIS (AP) — Europe’s debt crisis is pushing the 17-country eurozone toward recession and dragging down the global economy, the Organization for Economic Cooperation and Development said Thursday.

Even growth in traditional economic powerhouse Germany is slowing, and the OECD’s interim assessment said that Europe’s largest economy could slip into recession by the end of the year.

Full article: Recession ‘taking hold’ in Eurozone, OECD says (AP)

Investors Prepare for Euro Collapse

The markets are now in the early stage of panic transactions. In the end, people will see that Europe’s loss is Germany’s gain.

Banks, companies and investors are preparing themselves for a collapse of the euro. Cross-border bank lending is falling, asset managers are shunning Europe and money is flowing into German real estate and bonds. The euro remains stable against the dollar because America has debt problems too. But unlike the euro, the dollar’s structure isn’t in doubt.

Banks, investors and companies are bracing themselves for the possibility that the euro will break up — and are thus increasing the likelihood that precisely this will happen.

There is increasing anxiety, particularly because politicians have not managed to solve the problems. Despite all their efforts, the situation in Greece appears hopeless. Spain is in trouble and, to make matters worse, Germany’s Constitutional Court will decide in September whether the European Stability Mechanism (ESM) is even compatible with the German constitution.

There’s a growing sense of resentment in both lending and borrowing countries — and in the nations that could soon join their ranks. German politicians such as Bavarian Finance Minister Markus Söder of the conservative Christian Social Union (CSU) are openly calling for Greece to be thrown out of the euro zone. Meanwhile the the leader of Germany’s opposition center-left Social Democrats (SPD), Sigmar Gabriel, is urging the euro countries to share liability for the debts.

Banks are particularly worried. “Banks and companies are starting to finance their operations locally,” says Thomas Mayer who until recently was the chief economist at Deutsche Bank, which, along with other financial institutions, has been reducing its risks in crisis-ridden countries for months now. The flow of money across borders has dried up because the banks are afraid of suffering losses.

According to the ECB, cross-border lending among euro-zone banks is steadily declining, especially since the summer of 2011. In June, these interbank transactions reached their lowest level since the outbreak of the financial crisis in 2007.

The fear of a collapse is not limited to banks. Early last week, Shell startled the markets. “There’s been a shift in our willingness to take credit risk in Europe,” said CFO Simon Henry.

He said that the oil giant, which has cash reserves of over $17 billion (€13.8 billion), would rather invest this money in US government bonds or deposit it on US bank accounts than risk it in Europe. “Many companies are now taking the route that US money market funds already took a year ago: They are no longer so willing to park their reserves in European banks,” says Uwe Burkert, head of credit analysis at the Landesbank Baden-Württemberg, a publicly-owned regional bank based in the southern German state of Baden-Württemberg.

One person who has long expected the euro to break up is Philipp Vorndran, 50, chief strategist at Flossbach von Storch, a company that deals in asset management. Vorndran’s signature mustache may be somewhat out of step with the times, but his views aren’t. “On the financial markets, the euro experiment is increasingly viewed as a failure,” says the investment strategist, who once studied under euro architect Issing and now shares his skepticism. For the past three years, Vorndran has been preparing his clients for major changes in the composition of the monetary union.

They are now primarily investing their money in tangible assets such as real estate. The stock market rally of the past weeks can also be explained by this flight of capital into real assets. After a long decline in the number of private investors, the German Equities Institute (DAI) has registered a significant rise in the number of shareholders in Germany.

Particularly large amounts of money have recently flowed into German sovereign bonds, although with short maturity periods they now generate no interest whatsoever. “The low interest rates for German government bonds reflect the fear that the euro will break apart,” says interest-rate expert Burkert. Investors are searching for a safe haven. “At the same time, they are speculating that these bonds would gain value if the euro were actually to break apart.”

Indeed, investors are increasingly speculating directly against the euro. The amount of open financial betting against the common currency — known as short positioning — has rapidly risen over the past 12 months. When ECB President Mario Draghi said three weeks ago that there was no point in wagering against the euro, anti-euro warriors grew a bit more anxious.

Full article: Investors Prepare for Euro Collapse (Spiegel Online)