Brazilian Companies Plan Big Global Expansions

While the 2008 financial crisis that still shakes some of the world's major economies, it has not shaken the plans for the global expansion and internationalization of Brazilian companies. In fact, the difficult global conditions of the last couple of years have led these companies to be more aggressive.
Jose Carlos Martins, Vale´s director of the  for ferrous division,  is optimistic about the international expansion for 2011. The effort will be greater in Africa. "It's where everyone is looking at mining,".


Interesting, because Africa is exactly where I intend to invest and will be having a very close look.
Mr. Martinez has been closely following the expansion of consumption in the Chinese and Indian markets and in nearby countries such as Indonesia and the Philippines. Vale is oriented to the Asian market: 70% of exports go to the mainland. He says that the Middle East is another region with great potential. To meet the increased customer base, the mining company recently invested in acquisitions and new operations, such as phosphate mine opened in the middle of the year in Peru.
Another giant in its sector, Odebrecht also has ambitious goals in 2011. The company plans to begin operations in a new country in Central America next year, says Luiz Mameri, superintendent of Odebrecht for Latin America and Angola. 


"In these markets you can feel that there is more liquidity. Some countries are easier to access  in terms of international financing for infrastructure. This has direct bearing on our business," he explains.
Our favorite Sadia, which merged with Perdigao to create Brasil Foods (BRF on the NYSE), a global food giant,  was a pioneer in the internalization in the food sector, currently with offices in over 40 countries, Brazil Foods has aggressive plans for 2011, says Wilson Melo, vice president of Corporate Affairs at BRF. "We are in several African countries, but there is potential to increase sales and open markets in the continent," he says. According to him, the other major challenge will be to sell more products with higher added value.
Metalfrio, a large manufacturer in refrigeration sector,  gives as certain the company's expansion to Asia, says President Luiz Eduardo Moreira Caio, who is studying a plant in Southeast Asia. "We are in search of emerging markets with growth potential. The phase of finding low priced assets is over, but we have a powerful cash generation to enjoy new opportunities".


Keep an eye on Africa. Brazilian - and Chinese - companies are there.

Brazil is Booming Everywhere; In Pictures

The Brazilian boom is evident anywhere you look in Sao Paulo state, particularly the highways around Sao Paulo:

Sao Paulo to the country´s biggest port, Santos (3Km tunnel shown here).

New ring road around Sao Paulo (177 Km long around the city of Sao Paulo):

Highway Campinas to Sao Paulo:

Soccer in the middle of the city and skyscrapers:

The Sky is the Limit For China´s Sinopec Investments in Brazil

Brazil Energy magazine reports that Sinopec plans to go far beyond Brazil's recently announced purchase of 40% of Repsol YPF Brazil. Besides that $ 7.1 billion investment the group is currently evaluating offers in Shell, Sonangol, Statoil, STR, OG and HRT ensuring participation in future bidding rounds for exploration areas. In addition, they play on bringing to Brazil four land drilling rigs.

Apparently there is no maximum investment; the Chinese want to strengthen their image as an oil and gas company in Brazil, either as oil, service provider or investor. Sinopec was chosen by the Chinese government as the leading state company in the country responsible for leveraging business here.

The fact is that Brazil has become the preferred market of Sinopec, and the Brazilian subsidiary is the chosen priority. This goal is guided the state´s vision aimed at ensuring new oil supplies to China and reduce the risk of supply than by business reasons.

The plans are long term, for the next 10 to 15 years. The local subsidiary will also manage the entire operation of the group in Latin America, which involves business in Colombia, Venezuela, Ecuador, Mexico and Argentina.

The strategy, says Carlos Stenders, deputy general manager of Sinopec Brazil, not only includes stakes in exploration blocks. "We do not want to be just an investor, our intention is to trade blocks, at sea or land," he predicts.

Having been in Brazil for six years, Sinopec has today in the country about 200 employees. During the peak period of the work with Gasene, the company grew to more than 2,000 employees spread across Rio de Janeiro, Vitoria and Teixeira de Freitas (BA).

 Sinopec has entered into no less than 21 projects, in 20 marine areas, and participation in an exploratory Albacora Leste, in the Campos Basin.

The portfolio includes assets in the basins of Pará-Maranhão, Campos, Santos and Espirito Santo. And the company becomes a member of the assets of Guara and Carioca, in the Santos pre-salt.

Despite considerable regional weight, the Brazilian portfolio is still small compared to the global portfolio of the group. Africa accounts today for the largest area. "We're still feeling the Brazilian market," adds Stenders.

The group also will bring to Brazil in early 2011 four land drilling rigs themselves. The devices were operating in the Middle East and at the moment, are in final stages of refurbishment to be shipped into the country.

Europe, United States, Brazil and Canada Reached Agreement On Aircraft Credit: Bombardier, Embraer to Benefit

Europe, United States, Brazil and Canada reached an agreement to reform the mechanism for supporting the sale of aircraft, called "aircraft export credits,"
"We reached an agreement yesterday [Tuesday] at the last minute. Includes Europe, United States, Brazil and Canada. Governments should ratify by until Feb. 1," sources told AFP.
Several months ago these countries were negotiating in Europe and OECD for the reform of the Revised 2007 accord to allow foreign airlines to receive a government loan guarantee to facilitate the purchase of aircraft.
The emergence of new competitors to Airbus and Boeing, as Brazil's Embraer and Canada's Bombardier, has reinforced the need for revision of export credits.
Other European and American companies that were not included in the device also called for a reform.
Formal negotiations were concluded on Friday in Paris, but since then the parties were discussing the final details of the agreement.
A European source told AFP that the new text will respond in part to the demands of major U.S. and European airlines (Air Berlin, Air France, British Airways, Delta Airlines, Lufthansa and Virgin).
Transport companies, which had no access to credits, denounce the existence of aid agencies such as Coface in France, Germany Euler, U.S. Exim Bank, which charged interest rates much lower than those in the financial markets.
Now, other companies may benefit under certain conditions from loans at preferential interest rates.
Airbus and Boeing have obtained a transition period, under the principle of "grandfathering" (grandfathered), during which for a certain amount of planes, some of them ordered in 2007, the increase will not apply.

Brazil´s Lula Government: Real Currency Appreciates 108%

The highest interest rates in the world coupled with the collapse of the U.S. dollar, contributed to Brazil's currency having had the highest appreciation in the past eight years.

According to research from consultancy firm Economática, until yesterday, the Brazilian Real gained 108.16% during the Lula government until December 21, 2010, almost double the value recorded for the Chilean peso (53.14%) and the Colombian peso ( 48.5%) in the same period, and nearly four times the appreciation of the Peruvian sol (25.2%).

The strengthening of the real against the dollar also was more intense in comparison with the European currency, which appreciated 24.9% during this period, yet according to the consultancy.

In three countries, local currencies depreciated against the dollar, considering the last eight years: Argentina (-15.2%), Mexico (-16%) and Venezuela (-67.3%). Jointly, the three countries have faced or are facing severe economic crises.

Economática noted that over the past eight years, in only one year (2008) the Real devalued against the dollar, a decline of 24.2%. It was precisely during 2008 that the world financial crisis broke out, which triggered a rush by investors to the U.S. currency, seeking protection.

We track all currency ETFs live here. BZF is the Brazilian currency ETF. Note that BZF had a quarterly distribution yesterday.

The Petrobras Effect: Brazilian Stock Exchange Has Worst Performance of all Americas in 2010

While Brazil is the most often talked about emerging country, Brazil´s Bovespa had the worst performance of all stock exchanges in the Americas in 2010. In percentages:

Peru	11,82
Venezuela	11,33
Nasdaq (USA)	8,46
Chile	7,93
Colômbia	7,85
S&P 500 (USA)	6,42
Dow Jones (USA)	5,57
Argentina	3,26
México	1,76
Brasil	-1,54

The analysis is by Brazil´s Economatica. Bovespa´s return was heavily influenced by Petrobras, PBR, which declined after its IPO. Without the PBR effect, Bovespa would have returned 6%.

Brazil: Industry and Unions Team Up Against Imports

An interesting case of odd marriage. Brazilian news report today that industries and unions will be teaming up asking for barriers to imports.

The reason are that Brazilian imports have skyrocketed this year, in great part due to the excessive appreciation of the Brazilian currency, and the drop of the US dollar.

In the meantime, I took these pictures in Brazil:

Live Impressions From Brazil: Ethanol, Gasoline, Embraer, U.S. Tax Sausage

The Shocked investor is in Brazil, where he will stay for 3 weeks. Here are some first impressions:

Lots of news cars on the roads. In spite of the completion of a massive new road (ring road) in Sao Paulo, traffic is back to what it was 2 years ago. The reason is that a lot of people have new cars. With the boom and easy access to credit, lots of people bought new cars (as we reported actually!).

Also, gasoline is a lot more expensive here. We thought gas was expensive in Canada at $1.13 a liter. Here in Sao Paulo the price is $1.75 a liter.

What is on the news here is that the U.S. has managed to add an extension to the Ethanol subsidies into its tax package (the one that extends the Bush tax cuts). What a sausage that tax package must be now. I wonder if they proposed lowering the taxes on wooden arrows too.

Embraer (ERJ) has confimed creation of a new military unit (Embraer Defense) that is expected to earn about $1.0B in 2011.

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The temperature today was +33C

Does the U.S. Want or Not a Weak Dollar: Triggers Surge in Exports

Although Bernanke and Geithner repeatedly point out that the U.S. does not want a weaker dollar and are not orinting money, the reality is that that weak U.S. dollar does wonders for the U.S. exports.

Bloomberg reports that the trade deficit in the U.S. narrowed 13% to $38.7 billion, and exports were the strongest since August 2008, with Mexico and... China (!) buying record amounts of U.S. products.
"The trade gap was projected to be little-changed at $43.8 billion from an initially reported $44 billion in September, according to the median forecast of economists surveyed. Estimates ranged from deficits of $39.5 billion to $46.6 billion. The Commerce Department revised the September shortfall up to $44.6 billion.

After eliminating the influence of prices, which are the numbers used to calculate gross domestic product, the trade deficit fell to $45.2 billion, the lowest since April, from $50.3 billion. The figure was smaller than the third-quarter average, indicating trade will contribute to growth this quarter.

Exports increased 3.2 percent to $158.7 billion, boosted by sales of foods, automobiles, engines and industrial supplies like fuel oil and natural gas".

IMF: Europe Remains in Trouble; Worsening Problems Can Degenerate into Wars and Undermine Democracy

Dominique Strauss-Kahn, the IMF's Managing Director, said today in Geneva that Europe remains in a troubling situation and that the effects of the global financial turmoil are far from over.

“The situation in Europe remains troubling and the future is more uncertain than ever.”

According to Bloomberg, he says Europe “needs a coordinated economic policy and we have not reached that level yet,”
[...] the situation of the U.S. “is less certain” than other regions, indicating it will be necessary to see how the fourth quarter pans out".

Strauss-Kahn called for a supervision of the financial sector “that is not afraid of saying no to powerful interests.”

Won't that be the banks? Is that going to happen?

"The financial sector has to shoulder a substantial yet fair share of the costs that risk-taking imposes on the economy". He alludexd to the tax on financial activities proposed by the IMF that has so far been without success.

“There is no certainty whatsoever that if a similar crisis occurred, that parliaments would be prepared to cough up billions to save the financial system [...] Are taxpayers going to be ready to finance such a thing? It’s uncertain.”

Troubles undermining democracy and can degenerate into wars

“Today, as in the past, when economic and financial problems worsen, they upset the social balance, undermine democracy, weaken trust in institutions, and can degenerate into war, civil or foreign, Making global economic governance more legitimate means policy makers “are working for peace.”

NO MORE SHOUTING: Google Kills the Caps Lock

The new Google laptop, which runs ChromeOS for course, is being released for testing this week. It is a laptop (more like a cloud-based netbook) that can boot in 10 seconds (joy!).

Among its other features, it has no movable parts, storage is flash based, and has a full size keyboard.

Reportedly, its keyboard does not have a CAPS LOCK key!

The Case for RIM: No iPhone in India

While the press and many bloggers are pounding on RIM, the company derives most of its revenue from overseas and is growing by leaps and bounds in places like India, where few can afford an iPhone.

Here are straddles for December, which will become profitable as long as the company moves the necessary amount, currently about 3%. Computed with the free  StraddlesCalc Tool.

Please do your own due diligence. This is not advice. Options are very dangerous and may cause 100% loss.

Brazilian Inflation Jumps in November, Highest in 5 Years; Food Rises 37% in 3 Years

While the U.S. deals with potential deflation, the opposite happens in China and Brazil. The Brazilian institute of statistics has just released the inflation numbers for November, showing the highest in 5 years: 0.83% for the month, bringing the cumulative value to 5.63%.

Monthly numbers:

Food in partcular has the highest rise in 8 years. An interesting figure is that since 2007 until the current month food has risen 38%.

Can Ireland Cut Budget Like Canada? No, Why Canada Did Not Fall Through The Cracks

In light of the deep budget cuts being proposed for Ireland, Rob Brown, Senior Lecturer in Journalism at Independent College Dublin, comments on the similarities and differences between Ireland's cuts and Canada's cuts: "Fiscal consolidation worked for the Ottawa government in the 2000s – but it won't be the same for Ireland now"

From the Irish Tribune: "Canada has become the prime bolthole for traumatised Celtic tiger cubs piling out of this banjaxed republic in planeload after planeload. The twinkling skyscrapers of downtown Toronto are the new Ellis Island for yet another generation of Irish emigrants, while Vancouver has become a snow-capped sanctuary where no one mentions the 'R' word".

Mr. Brown quotes Canada's finance minister, Flaherty, as having hailed Ireland as Europe's leader in fiscal reform: "Ireland certainly has led the European Union in taking the necessary decisions towards fiscal consolidation."

"Visit Canada, however, and you soon discover that Flaherty is flattering our finance minister. Deep down, he knows that draconian budgets cuts are the last thing any country, far less the world economy, needs as it teeters perilously on the brink of a double-dip recession or even another Great Depression".

Although a fiscal conservative to his fingertips, Flaherty can no longer walk the talk. He is so spooked by a downward spiral he has ceased to practise in Ottawa the creed he has preached throughout his political career – although he still preaches it in Dublin.

Flaherty's chief strategy for keeping Canada sheltered from the global financial storm has been to adopt a strikingly Keynesian approach. Even though he knew he would be demonised by dyed-in-the-wool conservatives, he swiftly decided "to stimulate the economy with government money, with taxpayers' money, to replace the absence of private demand".

Banks were different

Canadian banks are far better placed to weather a storm as they are much more regulated.

By the mid-1990s, Canada's national debt had rised to almost 80% of GDP. By 2007, after over a decade of fiscal responsibility, Canada's debt burden had been slashed to just 15% of GDP.

It was Paul Martin, however, the Liberal government's finance minister at the time, who designed the austerity plan and dragged the country back from the brink of bankruptcy in 1995. He implemented what he called "the largest set of actions in any Canadian budget since demobilisation after the second world war".

Relying on U.S.'s credit bubble, not so now

However, asgues Mr. Brown, Canada's "redemptive decade" "coincided with a credit-fuelled boom in the US. With the US accounting for almost 80% of Canada's trade, American prosperity contributed enormously to an expansion of the Canadian private sector. Without that, Canada's savage cutbacks could have been as catastrophic as Ireland's are currently proving to be".

"There is a time and a place for fiscal consolidation. Canada from 1995 to 2007 was one such place. Ireland in 2010 is anything but."

Watch Bernanke's Interview With 60 Minutes; Says Housing Can't Get Any Weaker

Bernanke's full interview with 60 Minutes is below.

He says the chances of a double dip recession are very low because housing is very weak and can't get any weaker. He also says the fed is not printing: money and that they are only lowering rates by buying bonds and not increasing the amount of money in circulation.

So does this assume then thar the Fed can buy bonds forever and that would not be negative? I wish the interviewer would have asked: "this money being used to buy bonds, where did it come from? Did it exist already or was it created"  (not printed of course).

When asked how confident he was that the Fed could contain inflation if it materializes, he answered "100%". I think he has lost credibility on that one. If it is 100% certain for the Fed to fix things, why are things not fixed, in fact far from it?

The Top Dividend ETFs For The End of 2010 (and 2011?)

The relative strengh index (RSI) of a stock price gives a good indication of overbought and overbought conditions. We computed the RSI of all dividend ETFs and then ordered the by short and long timeframes. Short timeframes are measured in days, long timeframes are measured in months.

Here they are ordered from most oversold to overbought.

Short timeframe

There are no oversold ETFs in the short timefranme. The "cheapest" in this sense is DOO, the Wisdomtree International Fund, which tracks and index that measures the performance of high dividend-yielding international stocks outside the financial sector.

The worst are VIG and DON, Vanguard Appreciation dividend ETF, and WisdomTree midcap dividend ETF.
Long timeframe

Again in the longer timeframe, there are no oversold ETFs, with the best value represented by DXJ, Wisdomtree's Japan's dividend ETF. The worst (most overbought) are DON, DTN and the Canadian CDZ, Claymore TSX dividend ETF. It's buyer beware with these.

Overall

This is the average of all three timeframe indicators, daily, weekly, and monthly.

DOO figurs again as the bets value, with VIG, CDZ, and VIG the worst values, all figures consistent with the short and long timeframes as discussed above.

RBS Recommends Buying CDS Insurance Against Possible Chinese Debt Default That Will Have Ramifications Across Asia

Well, this is new. RBS, Royal Bank of Scotland has advised its clients to take out protection against the risk of a sovereign default by China. That is as one of its top trade trades for 2011.

Tim Ash, the bank’s emerging markets chief says that "Many see China’s monetary tightening as a pre-emptive tap on the brakes, a warning shot across the proverbial economic bows. We see it as a potentially more malevolent reactive day of reckoning,"

"Inflation is a redistributive mechanism in favour of the few that can protect living standards, against the large majority who cannot. The political leadership cannot, will not, take risks in that regard,"

It warns that the Communist Party will have to puncture the credit bubble before inflation reaches levels that threaten social stability. According to The Telegraph, this in turn may open a can of worms.
"Officially, inflation was 4.4pc in October, and may reach 5pc in November, but it is to hard find anybody in China who believes it is that low. Vegetables have risen 20pc in a month.

RBS recommends credit default swaps on China’s five-year debt. This is not a forecast that China will default. It is insurance against the "fat tail risk" of a hard landing, with ramifications across Asia.

China is trying to keep the game going as if nothing has changed, but cannot do so. It dares not raise rates fast enough to let air out of the bubble because this would expose the bad debts of the banking system. The regime is stymied".

[...]

"The sons of Mao insist that they have studied the Japanese debacle closely and will not repeat the error. And I can sell you an ocean-front property in Chengdu."

Groupon Walks Away From $6B Acquisition by Google

The Chicago Tribune reported today that Groupin has walked away fron a $6B acquisition by Google.

Groupon has  over 35M users and offers coupons for local markets, which you can see on the left side of this screen.

This would have been the biggest acquisition by Google, twice as expensive as DoubleClick.

It appears that Groupe has decided on an IPO instead.

Groupon's founder was reportedly concerned about the strategic direction the company would take, about what could happen to merchant relationships and his employees.

Should you accept a $5B cheque or walk away? "Chicagoans Eric Lefkofsky and Andrew Mason of the Internet sensation Groupon Inc. have decided to turn down a multibillion-dollar acquisition offer from Google, two sources with direct knowledge of the situation said Friday night. They have decided they would prefer to keep Groupon independent" (Chicago Tribune).

What's a Billion these days...

Twitter: The $3B Company

Bloomberg reports today that Twitter Inc., with 175M users,  is considering obtaining new funding that would value the company at more than $3B.

The possible new investors named are capital firm Kleiner Perkins Caufield & Byers and Russian investment company Digital Sky Technologies.

Follow us on Twitter!

Bill Gross: Fed Will Not Raise Rates For Years

Speaking of bond bubbles popping, in an interview with Bloomberg radio today, Bill Gross, said the Federal Reserve is not likely to raise interest rates for several years as employment continues to grow less than forecast (see unemployment report for today).
"The front end of the yield curve is the best segment for investors with the Fed on hold, Gross, said today in a radio interview on “Bloomberg Surveillance” with Tom Keene".

Dreadful Jobs Report: 39,000 vs Expected 159,000, Unemployment Now 9.8%; Census Workers Not Being Hired

When the stock amrket was popping on supposedly good news, here comes the non-farm payroll report showing a gain of 39,000 jobs versus the expected 159,000.

The census workers are not being hired by private companies.

Unemployment actually rose to 9.8%, the highest level since the spring.

Private payrolls excluding government agencies rose by 50,000 in November. versus economists projections of 160,000.

Stiglitz on the Economist: The U.S. Is Entering A Japanese Malaise; New Normal is Very Inadequate

The Economist interviewed Joseph Stiglitz yesterday.

He says we are a long way from being normal, and a new normal that is very inadequate. It is unlikely that unemployment will come down, it is an astronomical level. Growth will not be strong enough to create jobs. It is  a version of Japanese style malaise.

Banks are not working, they are awash in excess reserves. Giving them more reserves will not cause them to lend (Q: so is the Fed's policy just to make the bank more profits?). The violations have been massive and they are undermining the rule of law in America, bad mortgages still fester.

Is the Bond Bubble Finally Popping?

On the supposedly good economic news of the recent weeks, in thepast 3 weeks the yield of the 1-year note has gone from 2.63% to 3%, and from 2.40% since October, huge moves and poential indications that the bond bubble was bursting - until the dreadful jobs report this morning!

Note that we track all bond ETFs live here.

Overheated Brazil Raises Bank Reserve Requirements to 20% to Prevent Bubbles

Brazil's hot, or overheated, economy has prompted the Central bank to raise bank reserve requirements from 15% to 20%.

The requirement is on cash and time deposits in an attempt to slow consumer lending whihc has been growing 20 percent annually and also to prevent a credit bubble.
Additional requirement for cash deposits will also raise  to 12% from 8%.
The CB says that reserve requirements are now at a level that is slightly tighter than before the 2008 global credit crunch.

We track all Brazilian ETFs live here. Should be very interesting today.

The measures taken today could cause interest rates charged to consumers to rise.

Money, Money, Money: Russia and Qatar Win 2018 and 2022 World Cups

Russia will invest $17.5B. And you can arrive by water taxi at the stadiums in Qatar. They will be luxurious air-conditioned buildings of course.

They will build 9 stadiums, apparently within a 30Km radius (one with a giels all around TV screens, 420,000 sq. ft of TV area). One wonders what will they use the stadiums for after the WC ends.

Qatar's presentation:

European Crisis: Portugal Should Seek Loans from Brazil

Brazilian newspaper O Estado de Sao Paulo reports today that Portuguese authorities consider it more advantageous to negotiate loans with Brazil to solve its debt crisis than to seek financial help from the International Monetary Fund (IMF) or the European Union (EU).

A source close to Dom Duarte, Duke of Braganza and head of the Portuguese Royal House, noted in conversation with the Associated Press that "there is a tendency within and outside government (Portuguese) to request the support of Brazil." Also according to this source, "the purchase of Portuguese titles would at present highly advantageous" for both Portugal and to Brazil.

Volcker: U.S. Dollar Is In Danger, U.S. Example No Longer Inspires Trust From Other Countries

Paul Volcker, chairman of President Barack Obama’s Economic Recovery Advisory Board and former Federal Reserve Chairman says the U.S. dollar is in danger of losing its role as a global benchmark currency.

Bloomberg reports him saying: “The growing question is whether the exceptional role of the dollar can be maintained,”
He says that the reasons are the decline of the U.S. economy, political gridlock, the two wars the U.S. is in, and geopolitical issues in the Middle East and Asia, all "have undermined the ability of the U.S. to influence global events",

“This is a troubling time for America, a troubling time for the world,” "the U.S. is facing its most difficult economic crisis since World War II." “If ever there were a need for clear-headed, confident leadership, nationally and internationally, that time is now.”

The U.S. example no longer inspires other countries to trust U.S. leadership and the U.S. is "hobbled by lobbyists and an unwillingness to pass realistic budgets". In addition, its civil service has lost its ability to attract America’s best and brightest to public service.

“The time is gone when the U.S. could lay claim as the putative superpower with both unchallenged economic and military might,”

“The growing sense around much of the world is that we have lost both relative economic strength and more important, we have lost a coherent successful governing model to be emulated by the rest of the world,” “Instead, we’re faced with broken financial markets, underperformance of our economy and a fractious political climate.”

Fed To Name Today Who Received $3.3T During Crisis

Noon today will be very interesting to watch as the Fed will release the names of the recipients of $3.3T emergency aid. The Fed is not doing so willingly, it is following order of congress (and this had nothing to do wit Wikileaks).

The data will include most emergency programs but will exclude the discount window, this is the well publicized one that Bloomberg sued for access, and won, but is in limbo as group of banks is appealing to the Supreme Court.


Bloomberg: " The information spans six loan programs as well as currency swaps with other central banks, purchases of mortgage-backed securities and the rescues of Bear Stearns Cos. and American International Group Inc.

The data will probably show the magnitude of central bank support to companies including Bank of America Corp. and General Electric Co. after the collapse of Lehman Brothers Holdings Inc. spurred a surge in private borrowing costs. Lawmakers demanded disclosure after the Fed approved aid dwarfing the federal government’s $700 billion Troubled Asset Relief Program".

"Today’s information relates to aid from Dec. 1, 2007, through July 21, 2010, when President Barack Obama signed Dodd- Frank into law. The act requires the Fed, after a two-year delay, to identify firms that, following the law’s passage, borrow through its discount window and participate in its purchases or sales of assets such as mortgage-backed securities and Treasuries".

Citigroup: Portugal is Insolvent

Willem Buiter, Citigroup Inc.’s chief economist, said today that Portugal is insolvent and "will probably need soon to join the emergency-loan program from the European Union and the International Monetary Fund".
He added: “The market’s attention is likely to turn to Portugal’s sovereign, which at current levels of interest rates and growth rates is less dramatically but quietly insolvent,”

“We consider it likely that it will need to access the European Financial Stability Facility soon.”
According to Bloomberg, this was in a note dated yesterday.
“Despite the recent drama, we believe we have only seen the opening act, with the rest of the plot still evolving,”  “Accessing external sources of funds will not mark the end of Ireland’s troubles. The reason is that, in our view, the consolidated Irish sovereign and Irish domestic financial system is de facto insolvent.”

Spain's Yields Jump As Its Banks Will Struggle To Refinance 85B Euros in 2011

So now the fun has started with Spain, which is really as Roubini says, "the big elephant in the room (there is not enough money to bailout Spain)".

Bloomberg reports today that Spain’s banks will have to refinance about 85B euros next year, and that will be  struggle as costs are surging.
They report analysts saying there is "universal dumping of Spain going on,”

The average yield investors demand to hold euro-denominated Spanish bank bonds jumped by the biggest monthly jump on record, rising 141 basis points to 385 basis points in November.
"Spanish lenders are paying the highest premium ever on their debt relative to other banks in Europe.
Spain says the government’s finances and the country’s banks are sound".

So said Ireland, and all the banks passed their "stress tests" too.

"Spanish banks had loans from the ECB of 67.9 billion euros in October, a 30 percent drop from the previous month. Spanish ECB loans as a proportion of banking assets stand at about 2 percent, compared with about 7.8 percent for Ireland".

Roubini: There is Not Enough Money To Save Spain

Nouriel Roubini said today that there may not be enough money to bail out Spain. He qualifies Spain as the “big elephant in the room” in the European debt crisis. However, he predicts that next in line is Portugal.
“It is quite likely that Portugal” “The big elephant in the room is not Portugal but, of course, it’s Spain. There is not enough official money to bailout Spain if trouble occurs.”

Bloomberg: "The cost of insuring the debt of Spain and Portugal soared to record-high levels today, according to CMA prices for credit- default swaps. Contracts on Spain climbed 14 basis points to 336 while Portugal rose 23 basis points to 524".

"As the number of countries needing bailouts or financing help grows, Roubini said sovereign debt, and in turn “supranational debt,” will increase as well".

He says that at some point debt restructuring could occur become inevitable for the sovereigns and also those financial institutions, adding that the IMF may be one such institution.

“Even the QE2 is not sufficient to restore growth to the trend level,” “The problems of the economy are not problems of liquidity, but problems of credit insolvency, and therefore monetary policy cannot resolve this.”

50,000 March in Dublin Against Irish Budgets Plans and Banks Bailouts

From the Irish Times today:

They estimate over 50,000 peope protesting. Ireland's population is about 4.3M.

"Addressing the crowd on a podium at the GPO Irish Times columnist Fintan O’Toole said the Government is doing a deal with people who were never elected.


He said the country was paying billions to bail out the banks and that the Government had declared war on the poor. He said Irish people were not subjects, but citizens, and wanted their republic back."

Tensions Escalate in the Koreas and Europe, Spain Targetted

The world's tensions have signficantly escalated today, with North and South Korea at each other's throats, and the situation in Europe getting dire.

The Wall Street Journal reports that  things in Europe got worse as the "market homed in on Spain as another potential weak spot, leaving officials scrambling to quell investors' fears".


Of course, the Spanish Prime Minister dimissed the rumours and sadi there was absolutely no chance for a Spain bailout. But Ireland did the same just days before one was forced down their throats to save the foreign banks investments..

The WSJ says that his attempts to calm the markets had little effect, the euro is tumbling and the selloff in Spanish and Portuguese sovereign bonds is continuing.

"Sparking Friday's markets turmoil was a report in Friday's Financial Times Deutschland, which quoted unnamed German finance ministry officials as saying an aid package for Portugal would reduce the chances that Spain would also need a bailout.

The Portuguese and Spanish governments, the European Commission and Germany's finance ministry all denied the report, saying pressure wasn't being placed on Portugal to seek help. "It's absolutely, completely false—every reference for an aid plan for this country. It has neither been asked for and neither have we suggested it. It is absolutely false," said European Commission President Jose Manuel Barroso, a former Portuguese prime minister.

But the report still caused the euro to tumble against the dollar to $1.3252 from $1.3355 late in New York Thursday".

Brazil Raises Minimum Credi-Card Payments to 20% To Avoid Consumer Super-Debts

Brazil announced today new measures aimed straight at credit-card companies. They want to avoid consumer "super debts".

Mimimum credit-card payments have been raised to 15% starting in June 2011, and to 20% in December.

They also limited the num,ber of possible charges that credit-card companies can charge to 5, from 80:

- annual fees
- 2nd card issuance
- emergency credit-limit extensions
- cash withdrawals
- bill payment

Irish Unions: Government Has No Mandate to Sign Recovery Plan; 90,000 Jobs to be Lost

The ICTU, Irish Congress of Trade Unions, says it is "abundantly clear that the Government doesn’t have a mandate to sign off on its national recovery plan".


David Begg, Ictu's general secretary, said that that the four-year plan could cost 90,000 jobs.

Irish Times: "Congress president Jack O’Connor said the trade union movement was always reluctant to call on a democratically elected government to vacate office.

However he said it was the view of congress that it would be better if people were given the opportunity to have their say in “these far-reaching matters”.

“It is abundantly clear that this Government doesn’t have a mandate to sign off on a plan as controversial as this.”

The Ictu is organising a big demonstration and rally in Dublin this Saturday, in protest against the Government’s economic policies.

Chaos In Irish 10-Year Bonds: At Highest Ever Since Euro Created in 1999

At 10.28am, the yield was at 8.996%, up 0.132%, near the highest since before the euro was introduced in 1999.

The spread to the bund was 629.2 points.

10-year bonds:

Ireland's jobless rate:

Update 10:30AM: New high reached at 3.07pm local time: the yield was at 9.053%, up 0.189%. The spread to the bund was 634.7 points.

ECB: "It Is Inconceivable That The Euro Fails"

Klaus Regling, chief of the European Financial Stability Facility (EFSF), said there is "zero danger of the euro zone breaking up", but added that the situation in the euro area was indeed serious.

""It is inconceivable that the euro fails".

"No country will give up the euro of its own will: for weaker countries that would be economic suicide, likewise for the stronger countries. And politically Europe would only have half the value without the euro."

"Of course the situation is serious," but he said there was no way France and Italy were in danger.

"Italy has come through the crisis well and has its state deficit in hand. And France has the same credit standing as Germany,".

Of course they would never say the opposite: "The Currency will fail", just like Ireland said that they would nor need a baliout, same thing Spain is saying now.

There were reports earlier this week that Ewald Nowotny, European Central Bank policymaker, was quite irritated at Ms Merkel for not "differentiating between the euro as a currency and the problems of individual (euro zone) states", when Ms. Merkel voiced her concerns and said the situation was serious.

Ireland In Chaos, Massive Cuts, Massive Strikes Planned

Whether the government will last much longer is an open question. The Irish government, or rather, what is left of it, tabled today their plan to cut the deficit to 3% of GDP. The plan itself will vut GDP signficnatly, so that target  is actually a moving target, and ne that will get increasingly more diffiocult as time goes by.

The measures are draconian and spare no one, from students, to healthcare, to pensions, to the VAT. Massive strikes are already planned for thor weekend.

* €15bn in measures aim to bring deficit under 3% GDP by 2014

* €6bn of adjustments to be front-loaded in 2011
* An extra €1.9bn sought via income tax changes
* Standard VAT rate to rise from 21% to 23% in 2014
* Entry point for income tax to fall to €15,300 – from €18,300 currently – by 2014
* Minimum wage to be reduced by €1 to €7.65
* Reduction of social welfare spending of €2.8bn targeted
* Domestic water charges to be introduced by 2014
* Introduction of a site value tax in 2012
* Students' contribution charge to rise from €1,500 to €2,000
* Reform of capital acquisitions, capital gains tax
* Pension-related tax changes to yield €700m
* Tax savings of €240m on public sector pension deductions
* Site valuation tax to be introduced
* Cut in public service staff by 24,750 from end-2008 levels to 2005 levels
* Overall pay adjustments of €1.2bn by 2014
* 10% pay cut, new pension scheme for new public sector entrants

Ouch.

Interesting to see that they don't pay for water overthere, and new water charges are pending the installation of water meters! We wonder what their per capita average water consumption is.

The Farce: Irish Banks Passed European Bank Stress Tests in July 2010

Back on July 23 2010, these were the enws:

EXTRA EXTRA!

"Regulators announced Friday that seven of 91 European banks failed stress tests meant to reassure investors about the stability of the continent's banking system.

Five Spanish banks, one German bank and one Greek bank were the only institutions to fail."

The banks failing were:

• German bank Hypo Real Estate Holding
• ATEBank of Greece
• Diada,
• Unnim,
• Espiga,
• Banca Civica
• Cajasur.

  Ireland's AIB and IRE passed.

Canadian Inflation Jumps, Much Higher Than Expected

Canadian inflation was much higher than expected in October. Consumer prices rose 2.4%, a sharp increase from September’s 1.9-per-cent rise. Half of it due to higher gasoline prices.
Core prices also jumped, rising to 1.8% in October.

Tha Bank of Canada will take note of this.

Chaos in Ireland: ECB Says "The Euro Will Survive"

In light, and in spite of, the current chaos in Ireland, the ECB came out and said that "the euro will survive the current crisis in Europe" ... "but spreading of Ireland's problems must be prevented.

Tha was from European Central bank Governing Council member Erkki Liikanen.

Would they ever say the opposite: "The Euro will not survive"? ;-)


"Euro will survive and euro's position is not at all in question,"  He added that he found it impossible that the euro zone would split into two different groups.
Luxembourg's finance minister Luc Frieden said "no alternative exists to the euro and those who seek to speculate against it will lose" "Investors must understand there is no alternative to the euro, who speculates and bets (against it) is making a mistake,"

Irish Government Agrees on Bank Bailout Then Collapses: Condoms After the Fact

After Ireland agreed to a bank bailout, its government will dissolve. The coalition government collapsed on accusations that the Irish sovereignty has been lost and that in the end foreign banks banks will be bailed out by Irish taxpayers.

The dissolution after agreeing to the bailout, which indeed raises many questions. How can they agree to something for the long term and then collapse the government? The situation in Ireland is very volatile.

From the Irish Times comes htis commentary today:

HAVING AN election after agreeing a four-year deal that will shape all key decisions is like debating which brand of condom to buy after you’ve become pregnant. It is a parody of democratic choice. Popular sovereignty has almost no meaning in Ireland right now. Its restoration is the precondition for a meaningful election.

We need a non-party technical administration to hold the fort while the people have their say on the four-year plan and on radical reform of our political system. Within that space, we need to make a collective decision on the International Monetary Fund-European Union deal.


The primary goal of the IMF-EU package to which any new government will be committed is not to stop Ireland spiralling downwards into economic depression. It is to ensure that Irish citizens cough up yet more money for the banks.

The process of converting bank debt into national debt is to be completed. Instead of the banks borrowing money from the European Central Bank at one per cent interest to fund their operations, the State (you and me) will borrow it for them at perhaps five per cent.

To pay for this, the poor and the vulnerable will be further hammered.


Welfare will be slashed, public health services will deteriorate, children, the disabled and the elderly will lose the already inadequate services that afford them some hope and dignity. But the €100 billion that is owed by the Irish to German banks and the €109 billion owed to British banks will be secured.

The consequences are entirely predictable. Mass unemployment and mass emigration will be locked in to an economy that, beyond the multinational sector, will not grow.

Irish Government Loses All Remaining Credibility: Asks for Bailout, Coalition Crumbles

The Irish Government officially asked for the bank bailout, and the goverment coaltion has crumbled, as we suspected last week.

The government has lost all remaining credibility, says the Irish Times:

"THE GOVERNMENT’S decision to request a financial aid package from the emergency fund established by the European Union and the International Monetary Fund (IMF) yesterday brought one of the most dramatic and traumatic weeks in Irish political history to its inevitable conclusion.


For all the ignominy the move represented, it has given a confused and fearful electorate a measure of certainty. The publication of the four-year fiscal plan tomorrow and the budget on December 7th will bring further clarity to the position the country now finds itself in.

Of course a lot of people will not like the things they find in the plan and the budget, but those measures will, hopefully, bring a sense of realism in public debate about how we get out of our grave difficulties.

After more than two years of talking about drastic measures, it seems that decisive action is finally about to take place. The real danger is not that the Government will act too harshly but that the axe will fall in the wrong place.

Why, for instance, is the Croke Park agreement sacrosanct when welfare payments are about to be cut?

Why are pensions untouchable but the minimum wage can be slashed?

As Brian Lenihan sought the approval of his Cabinet colleagues to apply for the fund yesterday, it was clear the immediate priority is to ensure that the banks don’t collapse.

The threat that such a disaster might happen and threaten the survival of the euro was the catalyst for the EU/IMF intervention, but patience with the Government’s ability to handle the economy was already beginning to wear thin among our EU partners.

Whether an alternative banking policy at the beginning would have averted the disaster we will never know, but the policy that was adopted has simply not worked.

On the public finances, the Government’s main failing is that it has acted so erratically since the storm broke in the autumn of 2008, making some courageous decisions like cutting public service pay, but shirking the recommendations of the McCarthy report and the need for a property tax. The failure to do all that was needed to get the public finances properly back on track quickly fed into a lack of confidence in the banks and the two combined simply overwhelmed the Coalition.

The handling of events over the past 10 days destroyed whatever remaining credibility the Government had left. The failure of the Taoiseach and his Ministers to tell the public what was happening did not arise from any deliberate attempt to mislead; it was that they just didn’t seem to appreciate what was happening around them.

When it finally dawned on them, they engaged in nitpicking distinctions between talks involving officials and those involving political contact.

In the bubble world in which Ministers and senior civil servants operate, this may even have made sense but the Government ended up looking foolish and incompetent in front of the world. That is something from which it will never recover.

One way or another, the Coalition’s days are numbered. It simply cannot continue to govern much longer, having lost every last vestige of authority and the sooner it is taken out of its agony, the better for everybody.

Precisely how an election will happen is not at all clear but it has to take place as early as practicable in the new year.

It is now taken as a given in the political world that the four-year plan and the budget will have to be ratified by the Dáil. After what now looks like the inevitable victory of Pearse Doherty of Sinn Féin in the Donegal South West byelection, the Government’s majority will shrink to three. That will leave the fate of the budget in the hands of Michael Lowry and Jackie Healy Rae but they are likely to vote for it, as not to do so would plunge the country into fresh turmoil.

Even if the two Independents decided to try and block the budget, it is likely that Fine Gael would find a way of letting it pass, although only on the condition that an election is held in January or February.

Given the way he has acted up to now, Brian Cowen may well try and continue on until he simply runs out of support in the Dáil. That will inevitably happen next spring when the three outstanding byelections in Dublin South, Waterford and Donegal North East take place and the Government’s majority of three is wiped out.

However, the Coalition is unlikely to last until then. If the two Independents do back the budget, they may not be in the mood to flout popular opinion for much longer. Lowry and Healy Rae may decide that the best option is to vote against the Government on the Finance Bill when the Dáil comes back at the end of January.

The Greens will also have to make a decision on whether they want to continue in office any longer. While they will face a huge challenge to retain any seats in the Dáil, they will have one last chance to point up their separate identity as a party by precipitating the election as soon as possible.

Whether Brian Cowen will lead Fianna Fáil into that election – or whether he even wants to, as he insisted he does last night – is a moot question. At this stage it is doubtful if a new leader would do any better, but that is something Fianna Fáil TDs will have to ponder in the coming days.

Whatever way it comes about, an early election is required to mark an end to a dreadful phase in Irish political and economic affairs. Hopefully it may also mark the first step on the road to recovery of national well being and self-esteem."

The U.S. Is Following Japan Right On

From the New York Times comes this chart:

The QE2 Purchase Schedule

This is the schedule of QE2 operations, as per the BY Fed:

Roubini and The Elephant in The Room; Will Need Mars To Bailout the IMF; Bond Vigilantes Asleep in The U.S.

TV personality Roubini was on CNBC today, commenting on Ireland, Europe, and the elephant in the room.

"We have too much private debt in the case of Ireland," "We have decided to socialize the private losses of the banking system. Son now you have a huge increase in public debt—going from 7% to 100% of GDP. Soon it will be 120%.Greece is already at 120 percent. So now you have a bunch of super sovereigns— the IMF, the EU, the eurozone—bailing out these sovereigns. There's not going to be anyone coming from Mars or the moon to bail out the IMF or the Eurozone."  So at some point you need restructuring. At some point you need the creditors of the banks to take a hit - otherwise you put all this debt on the balance sheet of government. And then you break the back of government—and then government is insolvent."

The above was all in breath!

"The next one in line is going to be Portugal. [...] Spanish debt problems are the elephant in the room. You can try to ring fence Spain. And you can essentially try to provide financing officially to Ireland, Portugal, and Greece for three years. Leave them out of the market. Maybe restructure their debt down the line. But if Spain falls off the cliff, there is not enough official money in this envelope of European resources to bail out Spain".


"Spain is too big to fail on one side—and also too big to be bailed out."

Spain has $1T in public debt.

"Italy is not bad. France's deficit 8% of GDP" "Sarkozy came to power saying 'I'm going to do lots of reform.' He has not done it. Right now, he is weak. He might lose the election. And, therefore, they are going to delay fiscal austerity and reforms."

"But France does not look much better than the periphery."

"Politically they are constrained from making reforms." "You had massive riots in the streets."

"What's going to happen when you do more radical reform? That's an open question in the case of France."

"The Bond Vigilantes have woken up in Europe, but are sleep at the wheel in the U.S."

Meredith Whitney: Municipals Will Default, There Will Be Indiscriminate Selling

Meredith Whitney was on FT discussing banks, housing, and the munis.

She says that once the first muni defaults people will sell indiscriminately, and that there will be many more layoffs.

Watch video.

Bernanke: U.S. Risks Having Millions of Unemployed For Many Years

Bernnake in Frankfurt: “Globally, both growth and trade are unbalanced,” “Because a strong expansion in the emerging-market economies will ultimately depend on a recovery in the more advanced economies, this pattern of two-speed growth might very well be resolved in favor of slow growth for everyone if the recovery in the advanced economies falls short.”

He commented on “large, systemically important countries with persistent current-account surpluses.”

"Countries that undervalue their currencies may eventually inhibit growth around the world and risk financial instability at home"

But isn't that what the U.S is doing with QEs?

Bernanke added  that “sense of common purpose has waned” “Tensions among nations over economic policies have emerged and intensified, potentially threatening our ability to find global solutions to global problems,”.

“further disinflation could hinder the recovery,”

“Insufficiently supportive policies in the advanced economies could undermine the recovery not only in those economies, but for the world as a whole,”.

“On its current economic trajectory the United States runs the risk of seeing millions of workers unemployed or underemployed for many years,”“As a society, we should find that outcome unacceptable.”

Bloomberg: "Bernanke, a scholar of the Great Depression, drew a comparison between the current period and events leading to the 1930s economic disaster. The U.S. and France maintained “persistently undervalued” exchange rates by preventing inflows of gold from feeding into money supplies, which created deflationary pressures in other countries and helped bring on the Depression, Bernanke said".

"preventing inflows of gold from feeding into money supplies"? We have to think about this one.

“Although the parallels are certainly far from perfect, and I am certainly not predicting a new Depression, some of the lessons from that grim period are applicable today,” “In particular, for large, systemically important countries with persistent current-account surpluses, the pursuit of export-led growth cannot ultimately succeed if the implications of that strategy for global growth and stability are not taken into account.”

"We Serve Neither King Nor Kaiser But Ireland"

Here's the latest comentary from the Irish Times. There are many very difficult questions to be answered and difficult choices. Will Ireland be forced to change its own laws due to a forced bailout?

The Irish Times - Friday, November 19, 2010

IN THE days ahead potentially enormous decisions will be taken. The effects on this State and its citizens will be felt far into the future. Outsiders will be making the running. Although it is an abomination that this sorry point has been reached, it may give some small comfort to know that Ireland’s position is not as powerless as is usually the case when governments have mismanaged their affairs so badly that they require rescue. Normally, governments receiving external aid in bailout situations face empty coffers and are desperate for funding sources of any kind. The Irish State is not in that position because €20 billion is on hand owing to earlier borrowings. This provides more leverage than rescued countries can usually deploy.

Chief among the matters on which this leverage must be focused is the preservation of Ireland’s decades-old low corporation tax rate. Although it is far from certain that a higher rate will even be sought, if it is, it must be resisted at all costs. An increase would hinder recovery, threaten an outflow of jobs and undermine the economy’s long-term growth potential. Nobody’s interests would be served. It should also be stated loudly that the intellectual case for tax harmonisation in a currency union is weak or non-existent, demonstrated not least by the freedom of states and cantons in the US and Switzerland respectively to set their own corporation tax rates.

Far less contentious is the size of the budget adjustment for 2011. Given that this had already been agreed with the European Commission, it is difficult to envisage any push for a significantly larger adjustment. However, its composition may be another matter. The Croke Park deal guarantees no further cuts in public sector pay and no involuntary lay-offs. Its abandonment would signal very clearly who calls the shots.

It is also important that the State’s (weak) hand not be overplayed. That Ireland is in a precarious position is well known. It may be even more precarious than the Government either understands or is prepared to admit. The astonishing speed with which outside forces moved in over the past week suggests that those at the helm may still be behind the curve in dealing with the economic policy-making challenges they face, or they are in denial about them.

How the institutions of the State play that hand also requires consideration of the shared European interest in maintaining monetary and financial stability. Any threat to the existence of the euro is a grave threat to all those who use it. The containing of the contagion which threatens the single currency is not just a concern for the EU-IMF personnel, but for Ireland too. There is no better demonstration of the extraordinary nature of this crisis than the fact that Ireland’s weakness poses a greater threat to Portugal in the short term than it does to this State itself owing to the latter’s urgent need to continue tapping the bond market. If obduracy in Dublin is blamed for triggering a Portuguese bailout, then precious goodwill will be lost and ill-will generated.

Resolve, fortitude, intelligent prioritisation and sharp focus are needed by those representing the State.

Ireland Mourns Bailout Forced Down Their Throats

More from Ireland's newspapers:

After close to 90 years of independence, it is a sad day for the country that it has squandered its sovereignty through sheer economic mismanagement. What makes it even worse is that this has happened at a time when we are still, on paper at least, one of the wealthiest nations in the world.

The immediate trigger for the decision of our European Union partners to force Ireland into the EU/International Monetary Fund (IMF) bailout is the state of our banks, but the impact on the country is likely to be felt across all aspects of Government policy and at every level of society. On one level, intervention by the EU and the IMF is no bad thing. It means that rational decisions on how we can live within our means will now be forced down the throats of the competing interests who have stymied any genuine national response to the crisis.

The real danger is that some other EU states will try to tamper with major national policy issues like the 12.5 per cent corporate tax rate, so the sooner we get through the pain of the four-year plan and out the other side, the better. On a party political level, the events of recent days are a disaster for Fianna Fáil. The party, which always thought of itself as being a national movement rather than a mere political party, has presided over the surrender of Irish sovereignty as a direct result of its own mismanagement.
In the longer run, that is likely to be devastating for the party that has never spent more than one term out of office. The voters who rewarded it for being so irresponsible in the good times are likely to be merciless now that everything has gone so badly wrong.

So I am wondering, what if the situation in Ireland unravels beyond the point of no return? Why would the population accept being tied to the Euro? Will the government survive?

I have bought msyelf some insurance, December puts.