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Kiron Sarkar
February 13, 2012
Hi there,
Japanese 4th Q GDP declined by -0.6% Q/Q or -2.3% on an annualised basis
(-3.1% on a Q/Q basis in nominal terms), much more than the decline of
just -1.3% expected - net exports reduced GDP by a massive -2.6%. Growth
was impacted by floods in Thailand (supply chain issues) and by weaker
Global demand. The GDP deflator came in at a negative -1.6%. The only
good news was that capital spending was up by +7.9% and consumer
spending rose by +1.2%.However, the overall data is yet more bad news
from Japan. GDP should pick up in coming Q's as a result of spending
related to the earthquake/tsunami reconstruction spending, though I
remain of the view that the Japanese economy, with the Yen at current
levels, is going to suffer significantly;
Premier Wen states that China should "fine tune" economic policies as
early as the 1st Q. He added that economic conditions in the 1st Q
deserved attention and that quick action was necessary. Clearly, the
Chinese economy is suffering (sounds like materially), the authorities
are pretty concerned and are considering a mixture of policy actions
(including stimulus measures/monetary easing?), with the announcement of
the appropriate policy action imminently. (Source Bloomberg);
The Chinese authorities have told the country's banks to roll over loans
to local Governments, thought to amount to US$1.7tr - essentially
China's version of "kicking the can down the road" policy, which
numerous countries have utilised. The obvious problem is that the vast
majority of these loans can never be repaid, as the underlying projects
are uneconomic. The local Governments are implicitly guaranteed by the
Central authorities. Oops.
(Source FT);
The Pakistani PM has been charged with contempt of Court for not
pursuing a corruption charge against the President Mr Zardari. There
have been widespread allegations of corruption by Mr Zardari - indeed,
his nickname is "Mr 10%". However, the current problems reflect growing
tensions between the civilian Government and the military.
Pakistan has, since independence, rarely had a civilian Government and,
if the current issues escalate, may not have one again for some time;
The Greeks passed the austerity measures in their Parliament necessary
to secure the 2nd bail out - by 199 to 74 votes - not a ringing
endorsement. However, all leaders of the main political parties have to
sign up to the measures - something that is going to be difficult.
All very, very boring stuff and Greece will both default and have to
exit the Euro Zone. The likely next PM, following impending elections,
Mr Antonis Samaras talks about renegotiating the deal following the
elections - yeah really. I think Mr Samaras is in cloud cuckoo land -
does he not understand that the Euro Zone, in particular, is totally fed
up of the Greeks and would love to get shot of them. The German's keep
talking about the "Greeks needing to do their homework". Well, they wont
and does that mean that they get to wear the dunce cap.
Greece exiting the Euro Zone - getting more and more convinced that it
is not a major problem (ex an initial knee jerk sell off) for the Euro
Zone;
Portuguese 10 year bond yields are down to around 12.4% - some 20bps
lower. Spanish and Italian bong yields are also lower - Italian by more.
Looks as if Spanish and Italian yields will converge. Will Spanish
yields be higher than Italian - I certainly think that they should.
Spain's largest unions are calling for a mass protest on the 19th of
this month;
Want to buy a cheap Ferrari. Well go to Italy. Early this year, an
Italian friend of mine advised me that Italian tax authorities had
raided a fashionable skiing resort in Italy and had checked out owners
of expensive car, restaurants, luxury shops etc. A week thereafter one
shop reported an increase in sales of 400% - yep that's 400%. Italian
authorities continue to target owners of expensive cars according to
Bloomberg, who are dumping them asap. May well, go back to London via
Milan or Turin. Joking aside, an increase in tax collection will make a
significant dent - possibly even result in a balanced budget in Italy.
The IMF believe that the "black economy" is about 30% of Italy's GDP -
who knows - however, its a big number;
Rupert Murdoch is facing additional problems in the UK. A number of
journalists, including the deputy editor, have been arrested as have
people at the Ministry of Defence and the police. Allegations of
widespread phone hacking, combined with paying off the police and other
Government departments continue to surface. The Sun newspaper is
Murdoch's most profitable and indeed, influential newspaper. The
problem, however, could worsen much further, in particular if its
extends to the US, as the authorities could charge News Court under the
US Foreign Corrupt Practices Act. Bad news for Murdoch, as if this does
indeed happen and News Cort is found in violation of this Act, his
licences for various parts of his US media empire could be threatened
and/or cancelled. This is going to be extremely difficult for Murdoch
and, I for one, would be particularly cautious;
The UK's Confederation of British Industry ("CBI") sees signs that the
UK economy is improving and, indeed, they expect GDP to be positive in
the current Q, thereby avoiding a technical recession. Interestingly,
they suggest that the BoE need not increase the size of the QE programme
current Sterling 325bn, following last Thursday's increase.
It does appear that the UK economy is improving faster than anticipated,
though GDP for the current year is forecast at a lack luster +0.9%. The
BoE has, in the past stated that they would wish any recovery to become
embedded and QE, off the table following this round, well lets see.
Having said that the BoE owns so many gilts - over 30% when the current
programme ends that it might actually be difficult to buy any more. I
suppose they could buy corporate bonds and or mortgages etc. In any
event, its too early and the BoE is one of the most transparent of
Central Banks - they will signal their intentions nearer the time;
Asian markets are higher, though China closed flat to slightly lower.
European markets are around 1.0% higher. The miners and the A$ are
higher on the likelihood of stimulus in China - hope they climb a bit
more, as I want to add to my shorts. If the Chinese markets dont rally
on the prospect of stimulus measures........
The Euro is strengthening on the better? Greek news - currently
US$1.3270 - still remain of the view its a great short against the US$,
especially above US$1.33. Gold is at US$1734 and spot Brent at
US$118.50 - really hate oil at these levels.
The beach is beckoning, as are the mojitos.
Best
Kiron
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