| UK Headed for Triple Dip Recession? Impact on EU Exit Vote Posted: 25 Jan 2013 05:11 PM PST There is much talk of a triple dip recession in the UK. It depends on how you define it. If you call a recession two consecutive quarters of decline in GDP, with any quarter of positive growth ending the recession, then answer is yes. Here is a chart from the Telegraph article UK heads for triple dip as GDP contracts 0.3pc to consider.  Double Dip? The blue rectangles are mine. I see two recessions not three. With 9 quarters in between recessions, one might ask "Is this even a double-dip setup?" I suggest yes, but there is no clear agreed-upon definition of how many quarters can be between recessions to call it a double-dip. From the Telegraph ... The official figures were the fourth quarter of negative growth in the last five and mean that the UK flatlined for last year as a whole – posting zero growth.
The economy is smaller than it was in September 2011 and still 3.3pc below its pre-crisis peak.
Making matters worse, there was scant evidence in the data that the economy is rebalancing from consumption to manufacturing. Output by Britain's factories fell by 1.5pc in the quarter and by 1.8pc for the year as a whole – the first annual decline since 2009.
Howard Archer, economist at IHS Global Insight, described the situation as "dire" and added: "We believe the economy is essentially flat at the moment. We suspect that GDP will not return to the level seen in the first quarter of 2008 until the first half of 2015 – a gap of seven years." Dire Situation The article notes that 4th quarter GDP was impacted by an unusually long maintenance period for North Sea crude production. However, even if one subtracts that effect, GDP was still negative. The chance UK GDP will not return to the 2008 level until 2015 is indeed a dire setup. Impact on EU Exit Vote This economic mess puts a lot of pressure on Prime Minister David Cameron by the Labour Party , for Cameron to abandon austerity measures. Bear in mind that Cameron has promised to hold a referendum on a UK exit only if he wins reelection, and even then only after he renegotiates the EU treaty. Simply put, Cameron has not promised a damn thing. It's nothing but an election ploy, that will likely backfire. Moreover, if the economy remains sour as I expect, Cameron is likely to lose the next election and the UK's chance to quickly and easily get out of the EU (which the UK should do in my opinion), will go right down the drain. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Much More Beneath the Surface of the Italian Bank Scandal; How Big Are the Derivative Losses? Posted: 25 Jan 2013 10:57 AM PST Yesterday I commented on how Italy's 3rd largest bank hid derivative losses,how it might affect the upcoming Italian elections, and why ECB president Mario Draghi should be under fire as well. For details, please see Italian PM Under Fire; Italy's 3rd Largest Bank Hid Derivative Losses: ECB Says "Matter for the Italian Authorities" (To Sweep Under the Rug). As is typically the case, there is more going on than mainstream media reports. I bounced my article off reader Andrea who is from Italy but now lives in France. Andrea writes .... The article you reported is very well done and describes almost all the facts of the situation.
What is not reported is that Giuseppe Mussari, the recently resigned head of ABI (Italian Bank Association) was the CEO of Banca Monte dei Paschi di Siena at the time of the derivative losses. He resigned following the scandal, but this casts a very negative shadow on the overall banking system. It also makes open a discussion about the widespread belief (repeated as a mantra by the whole political class) that the Italian banks were wiser than foreign counterparts, not involved in toxic things and therefore not needing huge bailouts or supports like anywhere else in the world.
This scandal blasted like a bomb in the campaign. Monti is most likely the one who will be hurt. However, It's unclear who can take advantage. The center-left was at the government only 2 years (2006-2007), so it is quite hard to find evidence to give the blame just to them.
The Economy Ministry and Bank of Italy are blaming each other about the lack of supervision, for different reasons. The probable truth is that both lacked of supervision for their respective parts.
Most likely prosecutors will open an investigation (they are obliged by law to do so in Italy if they are informed of a possible crime) and this could lead to further discoveries.
I think that for Monti to appear in the Parliament to speak about this in the middle of the campaign and with his image of "friend of the finance world" could be a very painful and delicate exercise
So, to summarize, I think we are at the beginning of the story. In an Italy under a bombing of taxes, huge recession and lack of credit from the banks to the real economy, this will be hard to be swept under the rug. The message "the taxes you pay are used to help banks getting out of their toxic speculations" is very easy to deliver in such circumstances.
Best regards,
Andrea Tangled Web of Giuseppe Mussari Inquiring minds may be interested in the tangled web of places where Giuseppe Mussari had tentacles. Could he and did he hide all of this from the Bank of Italy, then headed up by current ECB president Mario Draghi? How Big Are the Derivative Losses? While pondering what Dragi knew or didn't, let's turn our focus on actual losses. Reuters reports Monte Paschi Shares Plunge on Derivative Loss Fears Shares in Banca Monte dei Paschi di Siena, Italy's third-biggest lender, fell more than 5 percent for the second day in a row on Wednesday on worries of mounting losses on some financial derivative positions which it took in 2008 and 2009.
The price had already dropped 5.7 percent on Tuesday after reports that it is expected to book a loss of at least 220 million euros ($292 million) on one particular derivatives deal related to its debt holdings done three years ago.
That deal, called Alexandria and designed by Japanese bank Nomura, is one of several troubled structured transactions the bank is reviewing to assess their impact on its accounts, Monte dei Paschi said on Tuesday.
At least one other derivative trade, a 2008 deal with Deutsche Bank, is also thought to be under scrutiny, analysts and banking sources say.
The loss on the deal with Nomura is the latest setback for Monte dei Paschi, which requested 3.9 billion euros in state aid to plug a capital hole stemming from its government bond portfolio and hedging bets gone wrong. The bank had already raised its state aid request by 500 million euros in November, citing a possible hit on its capital from past structured transactions still in its portfolio.
But some analysts are beginning to question whether that 500 million cushion will be enough to cover for any losses linked to the derivative contracts. Italian newspaper Il Fatto Quotidiano quoted an anonymous source on Tuesday as saying the loss on the Nomura trade alone could amount to 740 million euros.
"If losses above 500 million euros emerged, the group would struggle even more to fix its capital position," Comi said.
Nomura said on Tuesday the trade had been approved by the Italian bank's board and its then chairman Giuseppe Mussari, but Monte dei Paschi said the Alexandria deal had never been submitted to its board for approval. Mussari stepped down late on Tuesday as head of Italy's banking association, denying any wrongdoing. This mess should hit Draghi and the ECB, but they will do everything possible to sweep it under the rug. Nonetheless, it is highly likely to impact the elections as Andrea notes. If the losses are big enough, Banca Monte dei Paschi di Siena faces nationalization. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Yen Set for 11th Weekly Drop; Japan Records Largest Trade Deficit in History Posted: 25 Jan 2013 12:25 AM PST After a couple of headfakes higher on the daily charts Yen Set for 11th Weekly Drop. The yen headed for a record stretch of weekly losses against the dollar as data showing a decline in Japanese consumer prices added to the case for further monetary stimulus from the central bank.
The Bank of Japan announced open-ended easing and a 2 percent inflation target this week. The Japanese currency remained weaker after touching a 2 1/2-year low as Governor Masaaki Shirakawa said he will make "considerable efforts" to reach the price target. The Dollar Index rose before U.S. data forecast to show home sales increased.
Consumer Prices
Japanese consumer prices excluding fresh food fell 0.2 percent in December from a year earlier, the statistics bureau reported in Tokyo today, the seventh decline in eight months.
Prime Minister Shinzo Abe, who took office last month, has called for "bold monetary policy" to beat deflation and drive the yen lower. The BOJ on Jan. 22 doubled its inflation target to 2 percent and announced open-ended asset buying from 2014.
BOJ board members said Japan's economy is weakening and the central bank will continue with "powerful" monetary easing, according to the minutes released today of the December meeting when it expanded its asset-purchase program by 10 trillion yen ($110 billion).
Shirakawa reiterated in remarks in Tokyo today that while the central bank is conducting aggressive easing, achieving the price-gain target isn't easy. Japan Records Largest Trade Deficit in History The Financial Times reports Japan Records Largest Trade Deficit in History Japan's trade deficit nearly tripled in 2012 to Y6.93tn ($77bn), an unprecedented shortfall for the traditional export powerhouse that could colour debate about the so-called currency wars as Tokyo pursues policies that push down the value of the yen.
The sharp expansion of the deficit, from Y2.56tn in 2011, is a reminder of the increasingly complex challenges facing Japan's economy and its new government, which has promised aggressive measures to end a two-decade malaise.
The monetary shift was crystallised on Tuesday when the BoJ set a target of 2 per cent inflation, but has alarmed some of Japan's trading partners. Germany, the UK and China have warned that efforts to weaken the yen could lead to a spiral of competitive devaluations among major economies – a so-called currency war.
On Thursday Mr Abe said the government would continue to consider a possible revision to the Bank of Japan law to ensure the central bank keeps easing monetary policy.
"Given the need for continued bold monetary easing, I want to keep in mind" the potential legal revision, Mr Abe said in an interview with Kyodo News.
Thursday's trade data highlighted just how sharply the country's global trade position has deteriorated. In December, exports were down 5.8 per cent compared with the same month a year earlier, while imports rose 1.9 per cent.
Exports to China, where some consumers have been shunning Japanese products amid an international dispute over control of islands in the East China Sea, fell 15.8 per cent, but shipments to Europe and the US were also down. Currency Wars Without a doubt, currency wars have ramped up to a new high. It's hard to say when or where this stops, but those who thought Shinzo Abe was bluffing, need think again. However, and as I have said repeatedly, a weaker yen will not do Japan any good. There is every potential for the decline in the Yen to quickly get out of control, and I suspect it will. When it does, Abe may not be able to stop a devastating slide that is likely to harm consumers more than it helps Japanese manufacturers. Be careful of what you wish. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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