Turning Japanese

In echoes of Japan in the 1980's/90's, it seems that the ECB is going down the path of negative interest rates.

As per Financial Acrobat:

"More rumours about negative rates from ECB. Said to have contacted German bank to ask if they could cope with it. It is likely true."

I loved the 80's!

Osborne Encounters Resistance

Poor old George Osborne appears to be encountering some resistance form other ministers to his plans to slash spending by £11.5BN.

As yet, according to the FT, his "colleagues" in government have only come up with £2.5BN in cuts; with some ministers failing to provide Osborne with the list of 10% in proposed departmental cuts he ordered before last month’s deadline.

Could it be that they don't think that he will still be in office in a year, and that as such he can "safely" be ignored?

As with any business, there will always be resistance to cuts. However, also as with any business, if the person who is demanding them is deemed to be "on his way out" the cuts will never materialise.

RBS Sacks 1,400 Staff

The newswires are reporting that RBS has told staff that 1,400 of them will lose their jobs over the coming two years.

Negative Interest rates

It seems that the ECB is considering negative deposit rates, ie charging banks for their deposits.

The purpose of such a move?

To encourage/force banks to lend money in order to boost the flagging Eurozone economy.

Will it work?

No one knows!

ONS Screw Up Again

In September 2012 I wrote the following about the unreliability of ONS data:

"As I have noted many times before it is extremely unwise to rely on figures provided by the ONS, they are always out of date and invariably wrong; eg in February this year inflation figures spiked partly because the ONS (as per usual) had been erroneously under reporting inflation (clothing) for several years, and the resulting correction caused a spike in inflation.

Instead of the government and the Bank of England relying on and using ONS figures to to try to manage the economy, they may as well rely on reading goat entrails as these would be more accurate, timely and easier to interpret!"

Here we are in May 2013, and yet again the ONS have been forced to revise their figures. It seems that Q1 construction figures reported by the ONS were wrong, and need to be revised upwards. As such the UK was not in recession in Q1 2013.

As per the Telegraph:

"The ONS now believes that output in the quarter contracted by 5pc, not the 5.4pc previously thought. In terms of levels of GDP, it has revised construction output for the quarter up by £108m to £25.273bn. 

Philip Shaw, UK economist at Investec, has calculated that an increase of just £70m in national output in the first three months of 2012 would cause growth to be revised from -0.1pc to 0.0pc.

All else being equal, the construction industry revisions would suggest that the economy did deliver just enough activity to escape the technical double dip recession."

As I noted above, it is extremely unwise to rely on figures provided by the ONS!

Greek Youth Unemployment Hits 64.2%

In a damning indictment of the Eurozone's economic policies, and of the folly of joining a single currency system, the youth unemployment (18-24) level in Greece has risen to a disgusting 64.2%.

Levels of unemployment such as this are normally associated with third world countries in the midst of a civil war, or the equivalent. Yet Greece is, allegedly, a first world country and is meant to be an "equal" member of a powerful and prosperous economic block (ie the Eurozone).

The reality is that Greece is not treated as an equal, it should never have joined or been allowed to join the Eurozone and the prosperity within the Eurozone is not evenly spread but confined to the wealthy Northern economies.

As such it is clear that as an experiment the Eurozone is destined to fail, indeed the world will be a better place without it. However, with levels of unemployment such as this in Greece the real danger is that of a plague of dictatorships and civil unrest spreading country by country in the Southern members of the Eurozone.

In order to survive as a democracy and civilised society Greece needs to exit the Eurozone now, others such as Cyprus need also to consider their positions.

Oh and by the way, in case anyone cares, today is Europe Day!

Euro Downright Dangerous

Kudos to Lars Seier Christensen, chief executive of Saxo Bank, who has vented his spleen on the Eurozone.

He said that it was clear that the eurozone would eventually break up, as Brussels claimed even more power and used it “ever more poorly”.  He also, wisely and correctly, noted that "short term" capital restrictions are always introduced as "short term" but end up being long term; and warned that there will be many more.

As per the Telegraph, he said:

"Euro denominated assets will remain unattractive, and downright dangerous, to hold for years to come."

A wise man indeed!

Cable Calls For Decision on Fred Goodwin

Vince Cable, the Business Secretary, is less than pleased that action has yet to be taken by Scottish prosecutors against Fred "the shred" Goodwin (the former CEO of RBS) and other senior directors of RBS for their role in its demise.

The Telegraph reports that Cable has written to Lord Wallace, the Government’s chief legal adviser in Scotland, demanding to know when a decision will be made on whether to ban the former bankers from sitting on company boards.

Cable first asked Scotland’s Crown Office and Procurator Fiscal Service to consider prosecutions in January 2012.

The irony being of course, despite Cable's desire for speed, if a decision to prosecute was taken the trial would be lengthy and extremely complex. Any successful prosecution would then be appealed, and the resulting quagmire of appeals and counter appeals/hearings would take years to resolve, not to mention cost a small fortune.

The question that Cable needs to ask himself is will such a lengthy prosecution really serve the public interest?

A cynic might argue that Cable is playing to the gallery.

Eurozone Unemployment Hits New High

Unsurprisingly, given that monetary policy within the Eurozone is being conducted by unelected and unaccountable anti inflation zealots from the ECB, unemployment levels within the Eurozone hit a record high of 12.1% in March.

The highest increases were registered in Greece (2 1.5% to 27.2% between January 2012 and January 2013), Cyprus (10.7% to 14. 2 %), Spain (24.1% to 26.7%) and Portugal (15.1% to 17.5%) .

Eurostat estimates that there are over 19 million people unemployed within the Eurozone, 3.6 million of them being under 25.

This level of unemployment is not sustainable and is a threat to democracy.

Cyprus Parliament Votes

Today the Cyprus parliament will be finally given an opportunity to vote on the bailout plan imposed on it by the IMF/EU.

Pundits expect that the bill will pass.

However, if it doesn't, the EU/IMF will simply delay the bailout until the parliament votes in favour of it.

"Democracy" in action, the EU way!

Eurozone Economic Sentiment Decreases

Unsurprisingly confidence in the Eurozone fell for a second straight month in April.

The Economic Sentiment Indicator (ESI) decreased by 1.5 points in the euro area (to 88.6) according to the European Commission's latest Business and Consumer Survey results.

"In the euro area, the ESI's decline was broad - based across all business sectors, with services witnessing the sharpest drop, while consumer confidence went up. Among the five largest euro area economies,  economic sentiment worsened significantly in Germany (- 2.3) , France (- 2.0) and Italy (- 1.9), while remaining broadly stable in the Netherlands (+0.2 ) and improving in Spain (+ 0. 9). 

The decrease in industry confidence ( - 1. 5 ) resulted from a much more negative assessment of the current level of overall order books and lower production expectations. Managers' assessment of stocks of finished products remained virtually unchanged. The past production and, to a lesser extent, the current level of export order books, which are not included in the confidence indicator, were also assessed more negatively . 

Services confidence dropped abruptly by 4.1 percentage points, driven by significantly worsened assessments of the business situation and demand over the past three months. Demand expectations deteriorated to a lesser extent. 

Consumer confidence increased by 1.2 points, based on a marked easing of unemployment expectations and slightly better expectations concerning households' future financial situation, the future general economic situation and savings over the next 12 months. Retail trade confidence decreased by one point, driven by worsened business expectations and views on the adequacy of current stocks. The assessment of the present business situation worsened only slightly. Also construction confidence decreased (- 1.3), based on weaker employment expectations and assessment s of order books. 

Financial services confidence (not included in the ESI) improved markedly (+ 5.0), fuelled by considerably better assessments of the business situation and demand over the past three months. Demand expectations improved slightly. Employment plans were revised downwards across business sectors, contrasting with the easing of consumers' unemployment expectations. Selling price expectations decreased in industry, retail trade and construction, and increased marginally in services."

According to the Telegraph, "experts" had forecast a decline to 89.3.

The pressure is now on the ECB to cut rates this Thursday. However, given that the ECB is dogmatically sticking to its anti inflation monetary policy, at the cost of millions of jobs in the Eurozone, I do not expect to see any cut in rates.

Cyprus To Maintain Capital Controls

In a remarkably unsurprising development, Cyprus has decided to maintain capital controls during the summer.

The Eurozone finance ministers and ECB will of course be delighted, as this will enable them to continue to crow that there there has been no bank run in Cyprus.

My sympathies to the people of Cyprus, it will be a long hot summer!

The Pain In Spain

Unsurprisingly Spain has had to delay reaching it budget deficit reduction targets by two years, to 2016.

Additionally, it foresees its unemployment rate as being 27.1% in 2013 and 26.7% in 2014.

At what stage will the Europhiles wake up and realise that levels of unemployment such as these are not sustainable in a Western democracy without there being serious blowback?

The above figures are of course subject to revision!

UK Avoids Triple Dipper

In a small ray of sunshine, the Office for National Statistics (ONS) reports that Britain's economy grew by 0.3% in Q1 of this year; thus the UK has avoided entering its third technical recession by the skin of its teeth.

The 0.3% rate of growth even managed to be larger than the 0.1% predicted by economists.

However, before people break open the Bollinger, it should be remembered that 0.3% is not exactly "stellar" and that China is feeling very sorry for itself having "only" managed to grow by 7.7%!

However, as I always say, never rely on ONS statistics they are out of date and will be revised upwards/downwards in due course.

Banks Delay PPI Claims

In March I noted that the financial ombudsman service (FOS) was taking on 2,000 new PPI complaint cases a day, with numbers rising at "unprecedented" rates.

I went on to note that it was clear that the banks were trying to delay payouts:

"Needless to say, as the number of referrals to the FOS rises, so does the length of time it takes for the ombudsman to make a determination. It seems that the delays are also increasing because some companies are causing unnecessary delays.

Natalie Ceeney, chief financial ombudsman, is quoted by the BBC:

"As the complaint levels show no sign of slowing, consumers are increasingly having to wait longer to get their complaints sorted - with many businesses still continuing to cause unnecessary delays.

Where businesses have shown a real commitment to better customer service and diligent complaints handling - including actively engaging with the ombudsman - cases are resolved more quickly and easily, to the benefit of everyone."

None of this is surprising, those who were sold PPI will see this as an opportunity to try to obtain a refund (irrespective of whether they were mis-sold PPI or not) and the banks will do everything they can to try to reduce the costs of the claims.

That being said, had the banks not incentivised their staff to sell policies that were in many cases clearly inappropriate to people who didn't need them/couldn't claim on them when they needed to, then this entire mess could have been avoided.

The greed of the banks is now being repaid by the perspective that the banks' customers have that there is "free" money to be made.
As the old saying goes, "what goes around, comes around".

A claims management company, Emcas, has now also said that banks are rejecting around a third of claims from customers. Ironically, as per the Telegraph, the Financial Ombudsman Service (FOS), which deals with complaints rejected by the banks, is upholding the majority of PPI claims.

Why such an anomaly?

A cynic would argue that the banks are trying to slow things down in the hope that those claiming simply give up.

Needless to say the British Bankers' Association denies that banks were deliberately turning down legitimate claims in the hope that they would avoid having to pay up.

Make of that what you will.

Irrespective of what obstacles (real and imaginary) are put in your way by the banks, do not give up; if rejected by the bank make a claim direct to the FOS, do not use a claims management company (which will charge you a percentage of any compensation that you receive).