Around the Globe 04.12.2013

EU ministers to tackle Cyprus fallout, banking union at Dublin talks | Reuters.

If the eurocrats enjoy anything, it’s having meetings.  This is all they can do presently.  The Germans have to pay for everything, and they certainly will not assume any expenses in the midst of campaign season.  The question is will Germany have the political juice at home to back an expensive boondoggle such as a banking union.  The German taxpayer will be on the hook for trillions of euros worth of liabilities in periphery and French banks, and a nascent bailout revolt movement is gaining steam.

Cyprus Bailout Swells to 23 Billion Euros, Larger Than Cypriot Economy – MarketWatch.

Cyprus GDP with Trend

Cyprus is dying. The bailout amount is 125% of GDP and comes amidst an economy that will be severely contracting for the next few years.  The troika’s bailout of Greece with its writedowns of Greek debt is the proximate cause of the Cypriot banking crisis, so perhaps these loans should just be forgiven.  The loans will never be repaid anyway.

New Drive for Tougher Testing of European Banks – WSJ.com.

Italian Bank Holdings Italian debt_0

This article ignores the fact that the largest toxic asset on the balance sheet of European banks is Eurozone sovereign debt.  Combined with non-performing loans, the zombie bank problem cannot be solved by merely dealing with toxic assets.  Widespread failures of the insolvent institutions are necessary but will never be allowed, because the banks are the largest buyers of their host countries sovereign debt.  Moreover, the rich countries will not allow more stringent stress tests, because they are actually part of the problem with the largest, dodgiest banks in the world:Bank assets to GDP

J.P. Morgan Profit Rises, Revenue Declines – WSJ.com.

JPM Beats Thanks To $1.1 Billion Reserve Release, Revenue Misses, Drops By $900 Million, NIM At Post-Crisis Low | Zero Hedge.

JPM 04.12.2013

The TBTF continue to report record profits due to the largesse of central banks.  Cheap money inflates assets prices, lowers interest costs and allows them to release loan reserves to increase the bottom line.  The important information here is that despite the record profits revenue, which reflects the amount of business actually conducted, continues to fall.  Profits will continue to be robust for quite some time as there are still expenses to cut and loan reserves to release.

March Retail Slide, Miss Expectations, Post Biggest Drop Since June | Zero Hedge.

U.S. Retail Sales Fall 0.4% In March, Largely On Gasoline | Fox Business.

Contrast the different approach to reporting the drop in U.S. retail sales between two different outlets.  Fox business blames the fall on declining gas prices, while ZeroHedge believes the information supports the tapped-out consumer narrative.  Other economic indicators are not so hot, so I tend to agree with ZH.

Economy Bears Turn Bulls Seeing 3% U.S. GDP Few Saw in 2012 – Bloomberg.

At the same time retail sales are dropping with consumer confidence, economists are very optimistic about the American economy predicting growth of 3% of the first quarter.  If this number is attained amidst spending cuts and tax increases, it will be a turn of good fortune.  The deficit may even decline under $1tr.

Analysis: Japan’s big Abenomics gamble: how to tell if it’s paying off | Reuters.

I think that Japan reached the point of no return a few years ago, but hope springs eternal in the mainstream media.  One of the problems with the Japanese economy is that most of it has departed over the last two decades.  Japanese companies have outsourced with gusto, so a weak yen will not spur exports as much as everyone is hoping.

Another problem is the dire demographic situation.  Japan is undergoing an unprecedented population decline.  A great deal of the economic growth witnessed throughout the industrialized countries was due to post-WWII baby booms.  Once the booms dissipated, so did growth.  No amount of money printing will change this.

 

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