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Apr 12, 2013

Ambrose Evans-Pritchard: Cyprus goes from bad to worse by the day; so does Portugal : GATA I THE GATA DISPATCH -April 12, 2013-.

Ambrose Evans-Pritchard: Cyprus goes from bad to worse by the day; so does Portugal

By Ambrose Evans-Pritchard
The Telegraph, London
Friday, April 12, 2013

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100024025/cy...

On cue, Angela Merkel's Christian Democrat base in the Bundestag has warned that there can be no increase in the EU-IMF rescue package for Cyprus.

The Cypriot people alone must carry the extra cost of up to E5.5 billion beyond what was already agreed in the E17.5 billion deal in March.

"Should that not be possible, the assent of the German Bundestag next week is out of the question," said Christian von Stetten, a key member of the finance committee.

"The escalating gap in funding is huge and confirms my doubts in the finance framework prepared by the Troika and the Republic of Cyprus. It is going the way of Greece. Ever more funding gaps keep coming to light," he said.

So we have a standoff yet again. Cypriot president Nicos Anastasiades says the country needs "extra assistance", and indeed it does since the extra demands on Cyprus are a further 28 percent of GDP.

If the eurozone refuses to offer any further help, there must surely be a greater temptation to withdraw from the euro and default on sovereign debt in a classic restructuring deal with the IMF.

That is what the IMF is there to do. Such restructurings have been done countless times across the world over the last 50 years. It is traumatic, but countries usually recover after a couple of years.

The crucial point for the Cypriot people is that the cost-benefit calculus is moving in that direction.

Whether they have understood this is another matter. They may in due course as the ghastly reality of Troika policy hits them.

And just to clarify, the reason why the rescue costs are shooting up is because the Troika has finally recognised that its treatment of Cyprus is pushing the economy over a cliff. The depressionary spiral itself is causing the numbers to spike.

So Cyprus is very far from being solved, and so is Portugal. A fresh Troika leak, this time to the Pink Sheet, has confirmed what anybody following Portugal already suspected. The country is stuck in a debt-compound trap. The economic slump is proving much deeper than forecast. The deficit has been rising not falling, in spite of austerity cuts.

Specifically, it will need to need to borrow E14.1 billion in 2014, and E15bn in 2015. This is 30 percent more than required when the crisis blew up in 2011. The average interest rate will be higher than it was then.

The leaked report said: "Portugal has the challenge of needing to finance more than pre-crisis albeit with a sub-investment grade rating. There is substantial funding risk for Portugal given that it is still subject to substantial vulnerabilities at the end of the programme."

"The task of issuing medium and long-term debt above what is already held by market participants might be very demanding without an improvement in Portugal's sub-investment grade rating and the build-up of a stable investor base."

In other words Portugal is in a deeper hole after its E78 billion bailout than it was before. Public debt will reach 124 percent of GDP this year. The "financing burden" will keep rising until 2017.
Which raises the question, what will Germany and the northern creditor states do if/ when it becomes undeniable that Portugal needs a second rescue?

They have given a solemn pledge (another one) that there will be no repeat of the "PSI" private haircut on sovereign debt that is deemed to have been a disaster in Greece. So they have three choices:

a) They violate their pledge and impose a Greek-style debt restructuring, destroying bond market confidence and risking contagion to Spain and Italy.
b) They take the money from Portuguese bank accounts, regardless of whether the banks have done anything wrong.
c) They pay for it themselves and acknowledge to their parliaments at long last that it costs real taxpayer money to hold EMU together.


I suppose there are other possibilities. They could try to bully the ECB into buying debt, but there are obvious limits to this. Germany's Jorg Asmussen has to agree.

There is of course great sympathy in Berlin, The Hague, and Helsinki for the free-market team of premier Pedro Passos Coelho. His drive for austerity has been nothing less than heroic.
However, there is less sympathy for him at home. The austerity consensus in the Assembleia has collapsed.

Ex-premier and elder statesman Mario Soares said this morning that all opposition parties on the left -- socialists, Bloco, communists -- should get together to "bring down" the government.
"In its eagerness to do the bidding of Senhora Merkel, they have sold everything and ruined this country. In two years this government has destroyed Portugal. We absolutely have to end this austerity," he said.

He also said to Antena 1 that Portugal will "never be able to pay its debts however much it impoverishes itself. If you can't pay, the only solution is not to pay."

"When Argentina was in crisis it didn't pay. Did anything happen? No, nothing happened," he said.
Raoul Ruparel from Open Europe said Portugal has now exhausted its "internal devaluation" policy. "Portugal's austerity programme is coming up against huge political and constitutional limits. The previous political consensus in parliament has evaporated. Fundamentally, as so often in this crisis, the eurozone is now coming up against the full force of national democracy."

The top court ruled a week ago that pay and pension cuts for public workers in Mr Passos Coelho's budget are illegal, driving a coach and horses through the government's whole strategy.

Exports are doing well but the country's trade gearing is too low (30 percent of GDP) to offset the violent contraction in internal demand. External debt is 300 percent of GDP. The International Investment Position is 105 percent of GDP in the red.

And let me close with this chart that Raoul has put together. It shows that the gap in unit labour costs with Germany is no longer closing. It is widening again:

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100024025/cy...

As predicted by so many, the attempt to drive down wages in modern democracy is not only brutal but often impossible. What you gain from wage compression you lose from lagging productivity as investment collapses.

Did nobody ever explain this to them?

MarketWatch º Wall Street at Close Report -April 12, 2013-: U.S. stock win streak ends; consumer weighs; by Wallace Witkowski and Laura Mandaro



By Wallace Witkowski and Laura Mandaro, MarketWatch 

SAN FRANCISCO (MarketWatch)U.S. stocks on Friday pared sharp losses following weak March retail sales and consumer sentiment data, but the rebound wasn’t enough to extend the week’s winning streak by another day. 

The Dow Jones Industrial Average DJIA -0.0005% slipped 0.08 point to close at 14,865.06, breaking a three-day streak of all-time closing highs, with 17 out of 30 components trading lower. Earlier, the index touched an intraday low of 14,790.57. Alcoa Inc. AA -1.20% and DuPont DD -0.93% led the index lower with 1.2% and 0.9% declines, respectively. 

The S&P 500 SPX -0.28% lost 4.52 points, or 0.3%, to close at 1,588.85, snapping a two-day streak of record closing highs, with energy and materials stocks weighing most on the index. Earlier, the S&P 500 touched an intraday low of 1,579.97. Consumer-driven stocks, utilities, and telecoms were positive on the day, backing the year’s trend where defensive sectors have outperformed cyclical stocks. 

The Nasdaq Composite COMP -0.16% slid 5.21 points, or 0.2%, to close at 3,294.95, after trading as low as 3,271.02 on the session. 

On the other hand, all three gained on the week with the Dow industrials up 2.1%, the S&P 500 rising 2.3%, and the Nasdaq advancing 2.8%.


LinkedIn among stocks to watch
Brendan Conway profiles key stocks to watch, including LinkedIn, which acquired news reader Pulse for $90 million. Photo: AP 

Stocks came under pressure following the release of consumer data.
March retail sales fell 0.4%, against expectations sales would decline just 0.1% and following a 1.1% surge in February. Even as stocks rallied more than 12% this year, a lingering concern has been consumer spending, which risks faltering in the wake of higher payroll taxes and unpaid furloughs for government workers. 

Also, consumer sentiment dropped to its lowest reading in nine months as the University of Michigan-Thomson Reuters gauge dropped to a preliminary April reading of 72.3, well below the expected 79.3, compared with March’s 78.6. 

Until now, investors have been dazzled by record levels in the Dow industrials and S&P 500, but weaker economic data may be taking some of the luster off the rally. 

“Earlier it was the ISM and nonfarm payrolls, this morning is was retail sales, now it’s consumer sentiment,” said Dan Greenhaus, chief global strategist at BTIG LLC in New York, in emailed comments. “U.S. investors have utterly ignored these developments, at least with respect to the headline S&P 500. But the evidence continues to mount that all the optimism regarding the economy, the consumer and investments may be a bit premature.” 

Then again, investor attitudes now are more geared to shaking off bad news, unlike 2008 and 2009 when investors were seeing the bad in even good news, said John Canally, investment strategist and economist for LPL Financial. 

“Now, it’s almost the exact opposite,” Canally said, likening today’s paring of losses to last Friday’s when March added fewer jobs than expected. 

Also early Friday, the Labor Department said producer prices for March fell a sharper-than-expected 0.6% in March after seasonal adjustments, with energy prices dropping 3.4%. 


Reuters
J.P. Morgan Chase CEO Jamie Dimon
Stock futures Friday had been heading lower before the open after Dow-component J.P. Morgan Chase & Co. JPM -0.61% quarterly results beat Wall Street estimates but not by enough for investors. Shares fell 0.5%. 

Index futures had moderated some losses after Boston Fed President Eric Rosengren — a big proponent of the Fed’s bond-buying program and a voting member with the Federal Open Market Committee — made the case for not hitting the brakes on the central bank’s current policy.
In a speech at a Boston Fed economics conference, Rosengren said “we are well above our unemployment target and well below our inflation target, so highly accommodative policy is both appropriate and necessary.” 

For each two advancing stock on the New York Stock Exchange, three declined, with volume topping 700 million shares. On the Nasdaq, it was about the same, with volume just over 390 million. Composite volume topped 3.2 billion shares for the NYSE, and 1.4 billion shares for the Nasdaq at the close.

Results roll in from banks

J.P. Morgan Chase posted a first-quarter profit of $1.59 per share versus estimates for $1.39, while revenue fell to $25.8 billion, off 3%. 

Wells Fargo WFC -0.80% posted earnings per share of 92 cents versus estimates of 89 cents per share for the first quarter; shares fell 2%. See: 10 things to watch for in bank earnings (slide show)
Global market sentiment was also dented on reports that Cyprus was seeking more money from the European Union. That was denied by the country’s finance ministry, reports said. 

Gold futures GCM3 -5.67% sank more than 4% to a low not seen since July 2011, while crude oil futures fell 2%. Europe stocks XX:SXXP -0.87% also fell 0.9%. 

South Korea stocks fell after a U.S. intelligence assessment said North Korea may have for the first time developed a nuclear device small enough to mount on a ballistic missile. Tokyo stocks retreated after Bank of Japan Gov. Haruhiko Kuroda said the central bank’s inflation target is “flexible”.
That means the central bank could adjust policy or delay hitting the target depending on how other indicators behave. 

Wallace Witkowski is a MarketWatch news editor in San Francisco. Follow him on Twitter @wmwitkowski. Laura Mandaro is MarketWatch's Markets editor, based in San Francisco. Follow her on Twitter @lauramandaro. Barbara Kollmeyer in Madrid contributed to this report.

DealBook P.M. Edition -April 12, 23013-: Week in Review: From Banes of Zuckerberg to Bitcoin Moguls


NYTimes.com Home |Business Day| Video The New York Times


Friday, April 12, 2013
TOP STORY
Week in Review: From Banes of Zuckerberg to Bitcoin Moguls Never mind Facebook; the Winklevoss twins rule in digital money. | An ex-KPMG partner is charged in insider case. | Seeking relief, banks are shift risk to murkier corners. | Ex-regulators are finding a home with a powerful firm. | A solution for Penney may be to sell itself, or some of its assets. | A battle is heating up over the fate of a troubled energy buyout.
For the latest updates, go to dealbook.nytimes.com »
ADVERTISEMENT

A look back on our reporting of the past week's highs and lows in finance.
Mergers & Acquisitions
Benckiser to Buy D.E Master Blenders for $9.8 Billion The German consumer products conglomerate Joh. A. Benckiser has agreed to buy D.E. Master Blenders 1753, a European coffee company, for $9.8 billion.
Penney Enlists Blackstone to Help It Raise Money J.C. Penney has hired the Blackstone Group to help it raise much-needed cash, a person briefed on the matter said on Thursday, as the embattled retailer tries a turnaround after replacing its chief executive.
A Solution for Penney May Be to Sell Itself, or Some of Its Assets With Ron Johnson's ouster this week, J.C. Penney, a 111-year-old retail chain, is scrambling to ensure that it has a future at all. And the solution may be a sale of some or all of the company.
Investment Banking
A vote is planned on whether Jamie Dimon should keep the chief and chairman titles.
JPMorgan Shows Strength in Quarter JPMorgan Chase, the largest bank in the United States, reported gains in the investment banking business and a surge in mortgage lending.
In Push for Gender Equality, Breaking Down the Boardroom Door Concluding that "there was no demand for women" on corporate boards, Beth Stewart decided to start a business called Trewstar whose goal is to find them.
The container port in Pusan, South Korea. Citigroup cut a deal with Blackstone, which insured the bank against some losses on a roughly $1 billion pool of shipping loans.
Seeking Relief, Banks Shift Risk to Murkier Corners Banks are shedding risky assets to show that they are not as vulnerable as they once were, but in some cases that just means shifting the risk to a less regulated area of Wall Street.
Deal Professor: In the Markets, at Least, Fannie and Freddie Still Astound The mortgage finance companies Fannie Mae and Freddie Mac are in conservatorship and the government wants to wind them down. Yet their share prices have jumped this year.
Exchanges Are Moving to Curb Private Trades As more trading takes place away from the public exchanges, regulators have been examining whether so-called dark pools create an uneven investment playing field.
Private Equity
The Big Brown power plant in Texas run by Luminant, the power generation business of Energy Future Holdings.
Battle Heats Up Over Fate of Troubled Energy Buyout Energy Future Holdings may want to tie a restructuring into a neat bow, but some creditors are certain to make this a fight of junkyard dogs.
Venture Capital
Never Mind Facebook; Winklevoss Twins Rule in Digital Money Cameron and Tyler Winklevoss, known as nemeses of the Facebook founder Mark Zuckerberg, have amassed what seems to be one of the largest portfolios of the bitcoin.
Legal/Regulatory
Scott London, left, of KPMG, accepting payment from Bryan Shaw.
Former Partner at KPMG Charged With Insider Trading Federal prosecutors filed charges against Scott London, who spent nearly 29 years at the accounting giant KPMG, laying bare a brazen two-year scheme.
Tips Traded on Golf Course Led to KPMG Executive's Downfall A person briefed on the case said a former executive at KPMG gave insider tips to a golfing buddy in exchange for cash and gifts.
After KPMG, Audit Firms Reconsider Procedures The fresh look at internal practices came after news that a senior partner at KPMG gave confidential information about two clients.
A distributor of Herbalife, the seller of nutritional supplements, mixes a drink in Queens, New York.
Ex-Partner at KPMG Under Scrutiny in Insider Trading Federal prosecutors and regulators in Los Angeles are said to be investigating a former senior partner at the auditing firm on suspicion that he leaked information to a trader.
Herbalife Ties to 'Work From Home' Promoters May Draw New Scrutiny The Federal Trade Commission has received hundreds of complaints from consumers who said they were unwittingly recruited to sell for the nutritional products company.
Consultants to Banks Are Sharply Questioned on Independence The use of consultants, who are paid by the same banks they are expected to help reform, is being examined at a Senate Banking Committee hearing.
Elijah Cummings recently opened an inquiry into the consultants' flawed review of foreclosure abuses.
U.S. Efforts to Regulate Consultants Face Big Obstacles Efforts to rein in the consulting industry may be stymied by the regulators' cozy ties to the consultants and their limited legal authority to penalize them.
Eugene Ludwig, second from left, founded Promontory Financial after serving as President Bill Clinton's Comptroller of the Currency.
Former Regulators Find a Home With a Powerful Firm Promontory Financial is a consulting firm stocked with former government officials and is paid billions by banks to help them navigate an onslaught of new regulations.
First Checks to Be Issued in Mortgage Settlement Months after brokering a settlement with banks over mortgage foreclosure abuses, the Federal Reserve and the Office of the Comptroller of the Currency are set to dole out roughly $1.2 billion in cash relief.
For the latest updates, go to dealbook.nytimes.com »

DEALBOOK HIGHLIGHTS
Start-Up Looks to Make Law Firm Billing More Transparent Amid questions about industry practices, a business offers law firms an app that can show their clients in real time what they are being charged for.
Breakingviews: A Coffee Deal for the Long Haul Joh. A Benckiser of Germany is paying a rich price for its latest coffee acquisition, but rivals may be in for a jolt.
HD Supply, Backed by Carlyle and Bain, Files for I.P.O. HD Supply Holdings, an industrial distribution company owned by a group of private equity firms, has filed to go public. It plans to use the proceeds to pay down debt.
Regulatory Concerns to Delay Bank Merger M&T Bank said on Friday that a review by the Federal Reserve of its anti-money-laundering procedures and systems would delay the closing of its $3.7 billion acquisition of Hudson City Bancorp.
Goldman Invests in Upstart Online Broker Motif Investing, a firm based in a San Mateo, Calif., announced on Friday that it had raised a $25 million round of financing from investors including Goldman Sachs.
A Wells Fargo branch in Daly City, Calif.
Wells Fargo Profit Rises 22% Wells Fargo posted earnings of $5.2 billion for its 13th consecutive rise in quarterly earnings. Its revenue dipped slightly.
Nasdaq Cuts Chief's Bonus Over Facebook I.P.O. The chief executive, Robert Greifeld, earned a bonus of $1.35 million last year, down from a 2011 bonus of $3.59 million. But his total compensation rose to $8.9 million from $7.6 million.
DealBook Video
Week in Verse: 'Upgrade' Yes, "bitcoin moguls" is a nice title, but "hip hop moguls" is an upgrade.

Strategy behind BC govt blog revealed; BC groups rail against RBC outsourcing; $200m LNG funding for northern municipality: BIV Today's Business News -April 12, 2013-:



Media and Marketing

FOI documents reveal strategy and costs behind B.C. government blog

Documents obtained via Freedom of Information show the B.C. government’s blog BC B-sides – launched in time to promote Family Day – aims to ... READ MORE

Human Resources

 

B.C. organizations
take stand against outsourcing by banks

The CEO of Surrey’s Community Savings Credit Union is weighing in on what he calls an “alarming” trend of banks like RBC outsourcing Canadian jobs, and a group B.C. union pension funds is threatening to ... READ MORE

Mining and Energy

 

B.C. commits $200m
to help northern municipality deal with gas boom

The B.C. government has announced a funding agreement worth $200 million over 20 years with Northern Rockies Regional Municipality to help it build public infrastructure needed for ... READ MORE

More News...

   

Feds award $225m defence contract to Cascade Aerospace

Williams Lake First Nations to get share of taxes from Mount Polley mine

Troubled Baja mine gets $30m cash injection from Korean controllers

New survey could save rental property owners money

This Week's Issue

 

E-commerce shrinking department store prospects

Rumours are swirling that upscale U.S. retailer Bloomingdale’s and Japanese cheap-chic fashion house Uniqlo are negotiating with ... READ MORE


Video on BIV.com

BIV on Global BC: Tax hikes for high-income earners

BIV has launched its video platform with clips of the team's daily appearances on Global BC Morning News. Here, Paul Harris discusses how how income tax hikes may not pay off for B.C. ... READ MORE



Peter Ladner

 

Helping sow the seeds of social enterprise in B.C. business

When I got a call from Joel Solomon suggesting I write ... READ MORE

Ask the Experts

Ask the experts: How can I make the most of appearing at a trade show?

Tara Landes, Arjan Stephens and Janet Thompson discuss making the most of ... READ MORE