Around the Globe 04.09.2013

Slovenia Faces ‘Severe Banking Crisis’: OECD.

Slovenia Next For Bailout | DARECONOMICS.

Slovenia 10 Year Bond Yield

The OECD is a day late and a dollar short on this one.  Slovenia, like Cyprus, is a ticking time bomb.  It must sell €1bn in bonds by June 6th to rollover maturing debt.  It will  not be able to at a reasonable interest rate, if at all, leading to a hastily arranged bailout (or in) sometime around June 5th according to troika standard operating procedure.

Charles Gave: “France Is On The Brink of A Secondary Depression” | Zero Hedge.

France Faces ‘Devastating Scandal’ as Economy Stalls.

The French economy is in trouble, and like the periphery countries it will have a difficult time creating and implementing the necessary reforms due to political gridlock.  Powerful labor unions will not budge, and a scandal ridden government lacks the political juice to commence the difficult process of restructuring the economy and cutting the budget.

France has the same problem as the PIIGS.  The euro is much too strong a currency for its economy:

Euro Fair Value France

Easing food prices, mild recovery cool China March inflation | Reuters.

China CPI with Trendline

Chinese inflation continues its downward trend according to official figures.  The article spins this as good news, because it allows the People’s Bank of China more leeway to engage in stimulative monetary policy à la the Fed, BoJ, BoE and ECB.  However, lower inflation also points to slackening demand.  Maybe the ghost city boom is coming to an end.

Cypriot committee suspends probe into bank transfers list | Reuters.

Just like their Greek brethren, the Cypriots are enduring a kerfuffle.  Recall that while the French FM, Christine Lagarde handed the Greek FM a list of Greeks who maintained secret accounts in Switzerland filled with politically prominent people.

The deputy chief of the Cypriot central bank is refusing to hand over a complete list of large account withdrawals for the last year.  He rationalizes this action by claiming that there is too much information for Parliament to sift through and gives them a mere 15 days worth instead.

The chart we highlighted yesterday illustrated that smart money had been fleeing from Cyprus for quite some time.  This smart money does not want the dumb money to know who it is.

JPMorgan Leads Job Cuts as Banks Seek to Bolster Profit – Bloomberg.

The TBTF banks have been steadily decreasing employment since the onset of the GFC.  Business remains flat, so the only way to increase profits is by cost-cutting.  If there is really a housing recovery, then why do the banks keep cutting their mortgage units?

UK bank leverage disclosure: It’s worse than it looks..

So this chart is really worse than it looks? Ugh.

Bank assets to GDP

In Berlin, treasury secretary talks up policies to spur demand | Reuters.

Germany is a land of few retail options, and consumer spending comprises less than half of its GDP.  A growing retail sector would be a source of new jobs and economic growth, and the increased competition would lower prices for the German consumer.  It would also increase Germany’s imports to help its struggling Eurozone brethren in the periphery.

Spain’s PM wants more powers for ECB – FT.com.

The power Rajoy implies but refuses to state openly is the ability to monetize Spain’s debt.  Tension has been rising between the core and the periphery since the onset of the Euro Crisis.  This articles hits on a few of the bones of contention between the two groups:

  1. ECB policy.  The periphery would prefer lower interest rates and QE (money printing) just like the Fed’s, the BoJ’s and BoE’s current policies.
  2. The periphery would like a banking union with the rich countries footing the bill for resolutions and depository insurance.  After what happened in Cyprus, it is unlikely that  a true banking union will ever come to fruition with perhaps a common regulatory scheme the only thing in the cards.
  3. The creditor countries should run a more expansionary fiscal policy to stoke their economies.  The American treasury secretary is in Europe right now saying the same thing.
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