Utter Madness - EU's Demands of Greece

In a leaked document due to be published tomorrow, the EU will tell Greece to reduce "nominal unit labour costs in the business economy by 15% in 2012-2014".

Applying severe austerity measures to an economy that is already imploding is utter madness.

Troika Visit Ireland

"Lucky" Ireland is on the receiving end of the sixth visit of Troika inspectors.

Officials from the International Monetary Fund, the EU Commission and the European Central Bank have begun their 10 day long inspection to see how Ireland is performing under the bailout programmes

The Irish Times reports that promissory notes would be a central focus, as the issue of restructuring of the Euro30BN promissory note issued primarily to Anglo Irish Bank and Irish Nationwide has yet to be resolved.

China Loosens Currency Controls

The People's Bank of China (PBOC) has announced that it is loosening currency controls over the Yuan. As from today, the Yuan can fluctuate up to 1% (the previous limit being 0.5%) in trading against the US dollar from a fixed price set by the central bank.

The move will please the USA, which has been banging on about the Yuan being "undervalued" for years. Ironically, the Yuan finished weaker against the Dollar at the end of today's trading.

Here is the full text:

"The People’s Bank of China Announcement [2012 No.4] 

Along with the development of China’s foreign exchange market, the pricing and risk management capabilities of market participants are gradually strengthening. In order to meet market demands, promote price discovery, enhance the flexibility of RMB exchange rate in both directions, further improve the managed floating RMB exchange rate regime based on market supply and demand with reference to a basket of currencies, the People’s Bank of China has decided to enlarge the floating band of RMB’s trading prices against the US dollar and is hereby making a public announcement as follows:


Effective from April 16, 2012 onwards, the floating band of RMB’s trading prices against the US dollar in the inter-bank spot foreign exchange market is enlarged from 0.5 percent to 1 percent, i.e., on each business day, the trading prices of the RMB against the US dollar in the inter-bank spot foreign exchange market will fluctuate within a band of ±1 percent around the central parity released on the same day by the China Foreign Exchange Trade System. 

The spread between the RMB/USD selling and buying prices offered by the foreign exchange-designated banks to their customers shall not exceed 2 percent of the central parity, instead of 1 percent, while other provisions in the Circular of the PBC on Relevant Issues Managing the Trading Prices in the Inter-bank Foreign Exchange Market and Quoted Exchange Rates of Exchange-Designated Banks(PBC Document No.[2010]325) remain valid.

In view of the domestic and international economic and financial conditions, the People’s Bank of China will continue to fulfill its mandates in relation to the RMB exchange rate, keeping RMB exchange rate basically stable at an adaptive and equilibrium level based on market supply and demand with reference to a basket of currencies to preserve stability of the Chinese economy and financial markets."

The fact that it is a rarity that the PBOC issues statements in English demonstrates that this move is targeted at foreign markets.

Greece's Death March

Greek unemployment has hit a new record high, up to 21.8% in January from a revised 21.2% in December. Youth unemployment now stands at a highly dangerous and shameful 50.8% up from 37.1% in 2011 and 22.6% in 2008.

A country that consigns more than half of its youth to the dustbin also consigns its future to that same dustbin.

Kicking The Can Down The Road

In a clear sign that the financial crisis is far from over, Joerg Asmussen, a member of the executive board at the ECB, has backed calls from the IMF to consider targeted debt relief for homeowners in financial trouble.

The IMF report, published earlier this week, outlined evidence from a number of countries where mechanisms have been put in place to cut household debt levels; thereby boosting personal spending and helping economic growth.

Quote:

"Bold household debt restructuring programmes can significantly reduce the number of mortgage defaults and foreclosures and substantially reduce debt repayment burdens."

That is all very well as a short term palliative to keep us afloat. However, at some stage we will have to significantly boost our earnings (from hard real productive value adding work, not by printing money) if we are to ever get ourselves out of this mess!

Greece General Election Called

In less than a month, on 6 May Greece will hold a general election. The results of which will determine whether Greece tries to continue to uphold it side of the bailout terms.

A Diamond In The Rough?

How much is a top banker really worth these days?

Well, if you are on the board of Barclays it appears that you believe that your CEO (Bob Diamond) is worth £17.7M.

Unfortunately for Diamond not everyone is of the same view. The Association of British Insurers (ABI) has sent its members an "amber alert" note raising concerns over Mr Diamond's pay (the second amber alert it has issued re Barclays).

ABI are less than impressed with the £5.75M contribution by Barclays to settle Diamond's tax bill he incurred when moving from the US to the UK.

ABI are not alone in being peeved at the size of Diamond's remuneration. Standard Life, Fidelity, Aviva and Scottish Widows are also up in arms about it. On Monday Pirc advised its members to vote down the deal.

So, how much is a "top" banker really worth?

Ten Countries Most Likely To Default

Bottom 10 Sovereign CDS ranked by spread at end-March 2012

Name    5Y Spread   Change   % Change   Feb ranking
Cyprus     1183             4              0%             N/A
Portugal   1075          -90            -8%             2 (0)
Ukraine      859         101            13%            4 (+1)
Argentina   809           32             4%             3 (-1)
Venezuela  712          -13            -2%             5 (0)
Ireland       572          -27            -5%             6 (0)
Hungary    546            50           10%             8 (+1)
Egypt        544           -52            -9%              7 (-1)
Lebanon    459          -17            -4%               9 (0)
Spain         428           55            15%             16 (+6)

Source markit

Greece is not on the list, because it has already defaulted.

Greece's Ever Flexible "Deadline"

On 2nd April I wrote the following:

"Oh, that's easy, Greece has yet again postponed the "deadline" (from 4th April) to 18 April!"

Well I was a little ahead of events, and was two days out on the the date.

Today Greece has announced that it has indeed postponed the deadline for remaining bondholders to accept a debt swap, the new "deadline" is 20th April.

Ever flexible "deadlines" are the tools of fools, conmen and dreamers. 

Big Society Capital

David Cameron has finally defined the "Big Society", and put "his" money where his mouth is, by launching the Big Society Capital.

This a bank that will lend money to charities and community groups. It is funded with £400M stolen by the government from dormant bank accounts, and by £200M funded by other banks.

Greece's Oil Shock

In February I wrote that Hellenic (Greece's main oil refiner):

"are currently negotiating for supplies of oil from elsewhere, any admission that their supplies have been cut will negatively impact those negotiations and cause panic buying in Greece."

Today Hellenic have announced that it has suspended purchases of Iranian crude in April, as approaching sanctions on Tehran have made banking payments virtually impossible.

This of course means that its negotiations for reasonably priced supplies for Greece from elsewhere have just been torpedoed.  

Hardly good news for the imploding Greek economy!

FSA Grows Some Balls

In a rare display of balls, the soon to be disbanded FSA fined Ian Hannam, the Chairman of Capital Markets at J P Morgan Cazenove, £450K.

For good measure the FSA also published their decision:

"The Financial Services Authority (FSA) has today published a Decision Notice for Ian Hannam, the Chairman of Capital Markets at J P Morgan Cazenove. The Decision Notice indicates that the FSA has decided to fine Hannam £450,000 for market abuse.

Hannam has referred the matter to the Upper Tribunal (the Tribunal) where he and the FSA will each present their case.  The Tribunal will then determine the appropriate action for the FSA to take. The Tribunal may uphold, vary or cancel the FSA’s decision.  The Tribunal’s decision will be made public on its website.

In the Decision Notice dated 27 February 2012, the FSA set out its decision to fine Hannam for two instances of market abuse (improper disclosure).  In the FSA’s opinion, Hannam disclosed inside information in two emails sent in September and October 2008 to a prospective client.  The emails contained inside information relating to Heritage Oil Plc (Heritage), an existing J P Morgan client for which Hannam was the lead adviser. 

The September email contained information about a potential offer for Heritage and the October email contained information about a new oil find by Heritage.

The Decision Notice states that the FSA accepts that Hannam did not set out to commit market abuse but considers that Hannam’s failings were serious in view of his experience and senior position within J P Morgan. 

The FSA believes that the size of the proposed fine reflects the serious nature of the market abuse and should act as a deterrent to other market participants. 

Tracey McDermott, acting FSA director of enforcement and financial crime, said:

“Inside information is extremely valuable and must be handled with care to ensure that it is properly controlled and that appropriate safeguards are observed.  This applies to all market participants but is particularly important for senior practitioners who will regularly interact with a wide circle of contacts”.

Hannam is disputing the fine. However, he has today resigned from JP Morgan.

Greece's Deathmarch Continues

The Foundation for Economic and Industrial Research (IOBE) reports that the Greek economy will continue to shrink (5%) this year, and that unemployment is at 20%.

Eurozone Unemployment Rises

Unemployment across the Eurozone has increased from 10.7% in January to 10.8% in February, the highest level since the Euro was imposed in 1999.

Spain leads the field, with a stonking 23.6% of its citizens unemployed!

Greece Postpones "Deadline" Again

Despite the threats and empty rhetoric from the Greek government, and others within the Eurozone, investors in Greek bonds issued under foreign law have not rolled over and acquiesced to threats; instead they have rejected Greece's attempts to restructure the debt at meetings held last week.

In 20 out of 36 meetings, bondholders either turned down the government’s proposal, adjourned the talks or failed to achieve a quorum.

What happens now?

Oh, that's easy, Greece has yet again postponed the "deadline" (from 4th April) to 18 April!

Oh, and by the way, there is a payment due today on some bonds relating to Greek railways.