Thursday, December 10, 2009

Global News: Australia Employment Jumps, Brazil GDP Growth Muted, Ireland Takes Responsible Budget Steps, Spain Next to Worry About, UK Bank Bonus Tax of 50%

A bevy of interesting news from across the globe in the past 24 hours.... all below via Bloomberg.

1) Australia has taken the lead in raising rates among the G20 nations, already doing so 3 times, as its tightening relationship with China buoys the economy.  Employment figures jump for the 3rd straight month, besting economists expectations by a factor of 6:
  • Australian employment soared for a third straight month as companies added six times more jobs than economists estimated. The nation’s currency rose as traders bet the central bank will keep raising interest rates next year.
  • The number of people employed gained 31,200 in November from October and the jobless rate fell to 5.7 percent from 5.8 percent, the statistics bureau said in Sydney today.   The median estimate of 22 economists surveyed by Bloomberg was for an increase of 5,000 jobs in November.
  • Reserve Bank Governor Glenn Stevens raised the benchmark interest rate Dec. 1 for an unprecedented third straight month and said this week the economy is stronger than he previously forecast. Mining companies including BHP Billiton Ltd. are taking on more workers as they increase iron-ore production to satisfy China’s demand for steel.   The government is also stoking demand for workers as it spends A$22 billion on roads, ports, schools and hospitals.
  • “It looks increasingly like the unemployment rate’s going to top out a little bit below 6 percent,” said David Forrester, a currency economist at Barclays Capital in Singapore. “That may pressure the RBA to move a little bit faster on rates.”
  • The local currency has risen 40 percent in the past 12 months, the most among the 16 major currencies tracked by Bloomberg. The Australian dollar carry trade, in which investors borrow yen, Swiss francs and U.S. dollars to invest in higher yielding assets, is helping stoke the nation’s currency, central bank official Guy Debelle said.
  • “Australia has lived up to its reputation as the ‘wonder from Down Under,’” Craig James, chief economist at CommSec, said in a note after the report was released. “The economy may not yet be going gangbusters, but Australia clearly has the strongest economy in the developed world.”
[Oct 14, 2009: Finacial Post - Australia Still Hopping]
[Jun 13, 2009: Australia in Perfect Position Aside China, but at a Cost?]

2) Brazilian third quarter GDP, while positive, was a bit under expectations; hence the central bank is expected to keep rates low.  Second quarter GDP was also revised downward.
  • Brazil’s economy grew at a slower pace than previously expected in the third quarter, cementing expectations that the central bank will leave the benchmark interest rate at a record low in the coming months. Interest-rate futures fell after the National Statistics Agency said gross domestic product expanded 1.3 percent in the third quarter from the previous three months, surprising all 39 analysts in a Bloomberg survey. Second-quarter growth was revised to 1.1 percent, down from 1.9 percent.
  • Policy makers signaled yesterday they will keep the benchmark rate at 8.75 percent during the first quarter of next year to bolster growth. Finance Minister Guido Mantega yesterday extended tax breaks that were expected to expire in December for at least another six months to ensure GDP expands 5 percent next year. He also announced an additional 80 billion reais ($45 billion) for the National Development Bank.
  • “The economy is expanding at more moderate pace than the market was forecasting, therefore, it will ease inflation concerns.”
  • Latin America’s biggest economy this year emerged from its first recession since 2003 after the government slashed taxes and pumped cash into the nation’s money markets while policy makers cut rates at five straight meetings.
3) Unlike Greece, Ireland appears to be taking quite drastic measures as it looks at its debt laden self - and that includes asking its public workers to make sacrifices.  Can you imagine?  Pain now for gain in the long run.... the "anti kick the can" policy.
  • Ireland faces “more pain” after the government pledged to continue cuts to help calm investor concern that the country will struggle to pay its bills.  Finance Minister Brian Lenihan, who announced pay cuts for teachers, nurses and police in his 2010 budget late yesterday, will reduce current spending by a combined 6 billion euros ($8.8 billion) over the next two years. He’s aiming to narrow the deficit to 2.9 percent of gross domestic product by 2014 from 11.7 percent this year.
  • Prime Minister Brian Cowen will take a 20 percent pay cut and other ministers will have their salaries reduced by 15 percent, so “those at the top lead by example,” he said.
  • “The budget distributes an awful lot of pain,” said Simon Barry, an economist at Ulster Bank Ltd. in Dublin, a unit of Royal Bank of Scotland Group Plc. “But the reality is there is more to come.” 
  • Lenihan’s 2014 deficit target would bring the country into line with European Union rules, which set a shortfall limit of 3 percent of GDP. Ireland will still have a debt-to-GDP ratio of about 80 percent, almost double the level at the end of 2008.
  • This is only the beginning,” said Eoin Fahy, an economist at KBC Asset Management in Dublin, which manages the equivalent of 8.3 billion euros. “We are faced with the prospect of another four or more budgets as tough as this one before we get even close to budgetary balance.”
  • Ireland is suffering from the worst recession in its modern history as it grapples with the fallout of a property- market crash and the near collapse of its banking system.
4) Meanwhile, if you have not heard of the acronym PIIGS (Portugal, Ireland, Italy, Greece, Spain) yet - it should be on your radar.  Outside of Eastern Europe these are the countries which all face potential as canaries in the coal mine for what faces the UK, and US in the decades to come.  While not as far along the trail as some of its smaller peers, Spain was just hit with a downgrade from S&P....keep in mind this country (like Ireland, and the UK) took part in American style "financial innovation" in its housing market; which it is now enjoying the fallout from.  Plus unemployment is fast approaching 20%.
  • Spain’s debt burden may more than double to as much as 90 percent of gross domestic product amid wider deficits and slower economic growth than in other European countries, Standard & Poor’s credit analyst Trevor Cullinan said.  
  • “The debt burden is going rise towards about 80 percent of GDP, maybe even 90 percent by the middle of the next decade,” he said in an interview with Bloomberg Television today. Spain’s debt last year was 39.7 percent of GDP.
  • National debt will amount to 66 percent of GDP next year AND 74 percent in 2011, according to the European Commission. That compares with a forecast for 2010 of 84 percent for the euro area and 125 percent for Greece, which will overtake Italy to become the region’s most-indebted nation.
  • The outlook on Spain’s AA+ credit rating was lowered by S&P yesterday, pushing borrowing costs higher amid concern from Dubai to Greece about governments’ ability to pay off debt. While Spain’s debt burden is lower than the European average, its budget deficit is forecast to be one of the highest in the region this year, at 11 percent of economic output.
  • Cullinan said he expected unemployment to rise “towards 20 percent,” from a 19.3 percent in October, and that there are “significant” deflationary pressures in Spain. Consumer prices fell from March to October in Spain and even after prices rose in November, inflation remains below the euro-region average.
  • The Spanish government plans to raise value-added tax next year and will rein in some stimulus spending, even as the economy is projected to continue to shrink.  The government has a 2013 deadline to bring it in line with the European Union’s 3 percent limit.
5) Last, but not least, if you believe the dogma that you dare limit compensation (or tax it) of the financial oligarchs they will all move to another country, it appears the United States is the last destination on Earth for them to move to.  [Sep 22, 2009: Royal Bank of Canada Set to Lose Almost all Employees to USA]  Even our Anglo Saxon peers across the pond are extracting a punishing tax on bank bonuses as populism reigns.  Again, if the dogma we have heard for years (in NYC: if you tax or restrict us, we'll move to London; in London; if you tax or restrict us, we'll move to NYC) then tens of thousands of English bankers should be on our shores by next spring.  As I've asked before - if the US followed this path where exactly would these bankers move to?  Dubai? China (where banking wages are a fraction of the West).  Dogma baby... dogma.
  • Finance-industry criticism was directed at a one-time levy of 50 percent on discretionary bonuses of more than 25,000 pounds ($40,800). Darling said banks around the globe needed to change their pay practices and that he’s committed to reducing the deficit when the economy recovers.  
  • “It’s something that the banks are probably going to have to pay up on this year and hope it doesn’t happen again,” said Daniel Naftalin, a partner at Mishcon de Reya in London. “This isn’t really a tax on individual bankers, so the government is a lot less open to legal challenges than it could have been.”
  • The tax on bonuses will be paid by all banks that operate in the U.K., including units of U.S. firms such as Goldman Sachs Group Inc. and JPMorgan Chase & Co. Darling is trying to mollify voter anger after committing more than 1 trillion pounds to prop up lenders including Royal Bank of Scotland Group Plc.
  • The finance minister estimated the deficit will total 611 billion pounds in the four years through March 2013, more than the 606 billion pounds he expected in April. The Treasury’s shortfall of about 12 percent of gross domestic product this year is the most in the Group of 20 nations.
Bring us your tired, your rich, your bankers.....

Bonus) Rhetorical question - how much richer would future generations of Americans be if we had driven the bankers away with "excessive" taxes about a decade ago rather than "enjoying" their financial innovations?  Paul Volcker says the only innovation the US / UK banksters have brought that has helped in the past 25 years is the ATM.  Thankfully, Larry Summers has successfully stuffed Mr. Volcker in a box, so he is no threat to our financial oligarchy.
  • One of the most senior figures in the financial world surprised a conference of high-level bankers yesterday when he criticised them for failing to grasp the magnitude of the financial crisis and belittled their suggested reforms.
  • Paul Volcker, a former chairman of the US Federal Reserve, berated the bankers for their failure to acknowledge a problem with personal rewards and questioned their claims for financial innovation.
  • On the subject of pay, he said: “Has there been one financial leader to say this is really excessive? Wake up, gentlemen. Your response, I can only say, has been inadequate.”
  • The former US Federal Reserve chairman told an audience that included some of the world's most senior financiers that their industry's "single most important" contribution in the last 25 years has been automatic telling machines, which he said had at least proved "useful".
  • As bankers demanded that new regulation should not stifle innovation, a clearly irritated Mr Volcker said that the biggest innovation in the industry over the past 20 years had been the cash machine. He went on to attack the rise of complex products such as credit default swaps (CDS).
  • “I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth — one shred of evidence,” said Mr Volcker, who ran the Fed from 1979 to 1987.
  • He said riskier financial activities should be limited to hedge funds to whom society could say: "If you fail, fail. I'm not going to help you. Your stock is gone, creditors are at risk, but no one else is affected."
  • He said that financial services in the United States had increased its share of value added from 2 per cent to 6.5 per cent, but he asked: “Is that a reflection of your financial innovation, or just a reflection of what you’re paid?”   (oh dear, with talk like that is it no wonder Larry must spend half his time trying to find new closets to stuff Paul inCan you imagine Greenanke talking like that?)
Tall Paul obviously does not drink the Kool Aid of dogma.

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