Ancient Greek tragicomedy
Translated by Alexander Vasiliev
Russian version
The Icelandic volcano has been continuing to disgorge all sorts of muck throughout the past week, yet the flights in Europe were resumed since the threat appeared to be grossly exaggerated. Moreover, the accusations for the computer programme, on whose conclusions the flight-ban was enacted, began to emerge, as well as for the British Met Office allegedly abusing simulation to the prejudice of reality. It is difficult for us to say, how real these problems are, but the mere fact of the complaints of such kind could imply either the awkward attempt to cover up something more serious, or (and, as we think, more probably) another demonstration of the fabulous degradation of the European bureaucracy. Among the other news, the regular polls in Britain could be mentioned. Nick Clegg, the Liberal Democrat leader, came to the fore after the brilliant victory at the TV prime ministerial debates, yet Homer nodded at once: The Daily Telegraph has informed, that the new boy received generous contributions from the wealthy in 2006, which did not come to the party bank account, but rather to his personal one (from which he repeatedly performed private payments), – the Clegg’s glory slightly faded as a consequence. Nevertheless, the Lib Dem leader was good on the second debate too – far from giving in to the Conservatives leader David Cameron; the lag of the current PM and the Labourers’ steersman Gordon Brown is smallish, so by all appearances, for the first time in a very long time Britain will have the full-fledged competition between all the three leading parties. However, in the last days of the week, everything was moved to the periphery by the major shocks on the Greek markets, which returned an echo all over the world. The only ones who do not care of the common crisis are still the proud Hellenes, so the whole affair began to resemble the feeble tragicomedy in an Ancient Greek spirit.
Pic: Artyom Popov, ITinvest
Volcanic damages
Meanwhile, passions are seriously rising. After the emergence of the EU and IMF aid programme for Greece, the optimism lived for two days at bottom, after which investors began to scatter from the Greek treasuries as far as possible again, so the latter’s yields crawled upwards. That has two reasons: first, the non-market aid itself means the acknowledgement of virtual government’s bankruptcy, and secondly, the volume of this aid, as it turned out, is substantially bigger the original €45 billion. Various speculations are rifling in this regard – one of these was voiced by the Head of the German Bundesbank Axel Weber, who informed the public of 80 billion; former IMF Chief Economist Simon Johnson, for his own part, counted 200 billion, but for 3 years. The public took alarm, and while Weber tried to recoup (that is not my figure, as he said, but the Greek’s one, who are seemingly refused it now), it was too late: investors scattered once and for all. Though Greeks have managed to sell the bonds for almost 2 billion, yet the shortest 3-months ones: Greece is unlikely to become bankrupt soon, so money are given for such term. With regard to the longer bonds, everyone tried to pop out – as a result, by Thursday 10-years bonds were yielding almost 9% yearly, while the 2-years’ yield rocketed to more than 11%. Moreover, the percentage curve has inverted – the strongest distrust was suffered by the papers with 2 to 5 years maturity date. The Eurostat report became an another blow, it turned out that the Greece’s budget deficit in 2009, with regard to the various machinations detected, was not 12.7%, as it was stated earlier, but 13.6%, while the statisticians said that this is not the final point and the number could grow even higher. The same goes for the public debt, which in reality reached 115.1% at least by the beginning of this year. The similar fate, by the way, befell Portugal, whose deficit was revised from 8.0% of GDP to 9.4%; Irish and Spanish deficits stood still, however, they have already reached 14.3% and 11.2% of the GDP correspondingly. Euro zone’s public debt, as it turned, already counted for 78.7% of the GDP while the EU regulations allow not more than 60%. All of these at general, have unsettled the state-papers across the Euro zone: Portugal bond’s yields surpassed the German ones by the record-breaking value for that country; the Spaniards managed to place only 70% from the intended €3 billion in the 15-years bonds; at last, even the Germans suffered the weakest demand for their 30-years papers since the whole period of the emission of these bonds – bids have exceeded the supply only 1.1 times. To crown all these picturesque outrage, the Moody’s agency lowered the ratings of the Greek government and the country’s leading banks; the forecast remained to be negative, hence the new setbacks are to follow soon. At that moment, it became obvious that Greece would be unable to attract considerable assets on the market, so no one was amazed when the Greek authorities officially requested the EU and the IMF to activate the previously declared aid package at Friday. In principle, this caused a surge of optimism – just out of relief: at last, it happened! – But indeed, in the medium-term plan, the use of aid is a considerable negative factor for the markets.
Source: Bank of Greece
Greece apart, the central banks are sitting according to schedule. The Reserve Bank of India lifted the rates by 0.25% - third lifting during the last month, which is not strange: inflation in March reached 9.9%. The central banks of Canada, Australia, and Sweden left the rates where they were, but the accompanying memorandums were much tougher, than was expected, promising the close enactment of tightening; the tone of Royal Bank of England’s minutes seems aggressive too, though no details followed, for in advance of elections the central bank there always “battens down the hatches”, refusing any concrete statements or commentaries. Not without interest is the statement of the South Korea’s National Pension Service, which intends to reduce its US notes portfolio – it looks like the US papers would not avoid the lot of its European colleagues in the course of time. Downcast with the bank’s machinations, financial system roused the IMF to suggest the world-wide implementation of taxation for the lending institutions: first, it wants to create a fund, from which means to compensate the future bankruptcies would be taken; second, it is offered to impose taxes on the bankers’ bonuses and even the profits of the banks themselves. Oligarchy raged into fury, which did not take long to appear: in advance of the G20 summit, the Canadian Minister of Finance James Flaherty proudly announced that the banks in his country behaved and still behave themselves, thus to impose taxes on them would be ‘unfair’ – of course! Everything was as usual on the primary goods markets – only aluminium adjusted a little; oil virtually has not been impressed by the American report, which showed the confident growth of stocks. On the monetary markets, Canadian dollar marked out itself with reaching the parity with the US one, while euro – who would have doubts – tumbled down after all the problems described, though recouped partially at Friday. Also, the debates on yuan (in the same G20’s perspective) could be noted – besides the USA and the EU, an insistent desire for revaluation has been voiced by India and Brazil. In other words, China is in the cold, which promises a lot of interesting things to come in the nearest future. Asian stock exchanges limped, but the American do not care – their optimism is inexhaustible.
Matters in the economy follow without significant changes. New cars’ sales in Australia in March declined by 2.7% versus February, but grew by 19.2% versus the last year’s March. Government in China allowed the local authorities to introduce additional restrictions on buying the houses – particularly, they could touch upon the mortgages for purchasing third house or flat, substantially cutting back the possibilities for such. Activity indexes in Japan in February felt both in industry (by 2.3% m/m) and in services (by 0.2%); although, consumers’ sentiments in March reached their peak since October, 2007. Trade balance in March was made up with a surplus of almost trillion yens: the major contribution here was made by the surge of export to the Asian countries – in the first place to China, the export to which rocketed by 52.9% y/y. Sales in Japanese supermarkets in March came out to be 6.6% weaker than a year ago, though in the previous month the decrease was of only 2.4%. Rating agencies do not like the developments in the Land of the Rising Sun: Moody’s already cut the Toyota’s rating, while Fitch warned of the decrease in the sovereign debt ratings, in case if the economic growth would not recommence soon and the government would not set the tax collection going.
GDP of Great Britain in the first quarter grew by 0.2% q/q and fell by 0.3% y/y; experts were expecting the rise of 0.4%, Bank of England – of 0.7%; significant growth was registered in the industrial production, which does not play any substantial role in the British economy for the very long time now (then, by the results of the Confederation of British Industry, the orders here are in the red); agriculture and construction fell. Building sector is bad in the Euro zone too – in February, it reported the monthly decrease by 3.3%, the worst since December, 2008; especially grievous are the matters in Spain, where the decline of 6.0% m/m and 20.5% y/y was registered – and yet the Spaniards were the locomotives of the European building for the last 10 years. Mortgage lending in Britain in March grew by 24% versus February, but fell by the same number versus March, 2009. New industrial orders in the Euro zone in February increased by 1.5% m/m and 12.2% y/y, but the February’s addition only compensated the January’s 1.6% m/m decline. Producer prices in Spain grew in March by 0.8% versus February, and by 0.7% in Germany; British consumer prices swelled by 0.6% bringing the annual growth to 3.4% - inflation is coming. Retail sales in Britain rose in March by 0.4% versus February, in Italy – by 0.1%; in the latter, the micro-surge followed the 0.5% fall in the previous month – in addition, statistics are given without the inflationary adjustment, considering which the Italian retail sagged substantially. French consumers’ expenditure for the manufactories’ goods in March grew by 1.2% m/m, but that has only partially compensated the falls of the last months. In general, during January-March the expenditures decreased by 1.9% q/q. British unemployment is obscure: the number of unemployed decreased by 40.1 thousand in February (long-term high), but, by the ILO’s methodology, the increase of 43.0 thousand comes out in December-February (the worst figure since 1994). Sentiments indexes are amusing – German indicators from ZEW and IFO in April committed a vertical take-off, and all the optimism at that is caused by the growth of the stock exchange and the devaluation of euro, stimulating the exports; the PMI indexes’ surge is also not adequate to the reality. Government matters are tough: the federal budget income in Germany in the first quarter was 11.1% lower than in the disastrous beginning of 2009, while the expenditures grew by 4.9%. British deficit in March reached the record-breaking (for this month) £14.8 billion; net public debt grew to the historic maximum of 62.0% of the GDP. Among the corporate reports, we would note Nokia and Ericsson, who disappointed the market – their profits and especially sales did not haul up to the expectations; Philips brought some happiness, exceeding twice the expectations for profits; also better of forecast was the Swiss pharmacist Novartis, who was helped by the anti-swine flu vaccines’ sales (9% of revenue). Economists have been calculating the losses from the eruption of the Icelandic volcano: 63 thousand flights were cancelled, $200 million daily losses for the airlines, disruptions in the delivery of goods as well as in the major events anywhere from African flowers to IMF’s mission to Greece (which delayed its arrival for several days). Even if everything would come to normal fast, the Euro zone’s GDP in the second quarter would be 0.1% lower than it would have been if the volcano remained dormant. The losses of the US economy are estimated at $130 million daily: 80% of flights were cancelled; more than 6 thousand people lost their job.
Pic: Artyom Popov, ITinvest
Barefaced Goldman
It is far from OK in America even without the volcano. Wholesale sales in Canada in February unexpectedly fell by 1.2% m/m, while the stocks grew by 0.1%; nevertheless, compared with the previous year, sales run a surplus of 8.5%, while the stocks are in the 10.4% minus – here lies the one half of the solution to the mystery of production growth in the developed countries: surge of the government-stimulated demand caused the partial sale of stocks, for which renewal the production is ought to be increased; the second half of the solution is the Chinese emission, which increased export orders in Europe and America – apparently, both these factors are temporary, and not signifying the sustainable growth of the economy. Exports factor helped the durable goods’ orders in the USA in March – the collapse of demand for planes let the indicator fall in general, but, excluding the transportation sector, the growth is sizeable (by 2.8% m/m). Index of leading indicators gladdened with another 1.4% m/m surge – thanks to the stock exchange, the Chinese demand and the useless spread in the various-terms bonds. On the other hand, the key components – consumers’ expectations, capital orders, and broad monetary aggregates – fell. The dive of the latter reflects the collapse of the lending market, but to estimate its scale is now a hard enterprise – the Federal Reserve changed the methodology for banks’ report – the volume of lends increased, but the Fed did not care to review the previous numbers according to the new algorithm. Emission continues to push the prices, especially the ones for raw materials: the prices for primary goods, even excluding the crude oil and food, were 44.5% higher, than a year ago – that did not happen since 1974, while the peaks of 2006 and 2008 (around 35%) were left far behind. Of course, such explosion could not help spreading on everything else, even if at the lesser scale: ex-factory prices increased during the last year by 9.0%, and if the defacements of ‘hedonic indexes’ were excluded – by 10.5%; even the final goods alone rose up in price by 6.1% (7.5% really) – these are all maximums since September, 2008. House sales in the USA grew in March (especially on the starts’ market, where the growth of more than a quarter occurred – a record since 1963!) – Firstly, the governmental stimulus programmes are finishing in the sector; secondly, winter frosts and snowfalls have ended. Weekly statistics for the application for unemployment benefits improved a bit; consumers’ sentiments, according to the ABC News/Washington Post, on the contrary, deteriorated again – the key component for the purchases, estimation of the private finances, sank a lot especially.
Source: US Bureau of the labour statistics
A wall of corporate reports for January-March has been coming. Households sector is not bad, but just that: Coca-Cola and PepsiCo showed the revenues slightly better of expectations, while the profits disappointed a little; Johnson & Johnson is quite well, but the forecast for 2010 has been marked down, Altria tobacco group and the fast-food giant McDonald’s generally corresponded to the forecasts. Boeing has disappointed – revenues and profits fell, the next year’s forecast is lowered; the decrease in earnings was also suffered by Honeywell, Verizon, and AT&T – but everything else is better for them. IBM, Apple and Microsoft are looking solid, but the market does not seem to believe them and finds the dubious points in their reports. Internet companies EBay, Yahoo and Amazon disappointed with revenues, profits and forecasts. Even the financiers are ambiguous: Wells Fargo’s matters are not good – write-offs and losses are rising; they are decreasing of Citigroup; American Express indicates the improvement on all sides; while the best numbers are the ones of Goldman Sachs and Morgan Stanley – who would have doubted! However, the scandal around Goldman is widening – and the fact that both Republican board members of the Securities and Exchange Commission voted against the institution of action is rather conspicuous. In the meantime, Goldman Sachs is preparing for the suits – one of those will apparently come from the AIG insurance company, which lost $2 billion in the Goldman’s fraudulent transactions. The SEC has examined whether such practices had been spreading and found the same deals of Deutsche Bank, UBS, and Merrill Lynch at once, as well as the further amusements of the same Goldman Sachs, who drowned the Lehman Brothers with its speculations in 2008. The swindlers began to stir: John Paulson, whose hedge fund was holding the ring of the Goldman’s speculation, phoned one hundred investors and explained that the law has not been abused at any case, and the moralist should make themselves scarce; Lloyd Blankfein, Head of the Goldman Sachs, tried to lay the blame onto the Head of the London’s office, Fabrice Tourre, crying pathetically that “if we had known, we would have suppressed these outrage at once”, but he was mocked, for no one has believed that 27-years old Tourre was not controlled. Realizing that he cut a poor figure, Blankfein became impudent and phoned the major clients complaining about the “politically motivated accusations”, which would in the end “harm America” – no less than! Nobelist Paul Krugman called the Goldman’s practices “a financial looting”, which is difficult to quarrel with; however, oligarchy does not give a damn about that. The SEC, in the meantime, has a number of other issues, for the banks are masking the problems, improving the figures for a short time before the quarterly report’s publication, and Commission decide to forbid such practice: if the violators would now revise the previous data, according to the new requirements, the lustre of their profits would wane. Senate Committee on Banking prepared a reform of the financial system, while President Barack Obama attacked the Wall Street, who is actively opposing the reform. Such are the banks passions – the latter, by the way, are drying out beneath our eyes: since the beginning of the year, fifty credit institutions have been ruined – the last year’s schedule is left behind almost twice. Among the other news, we could note the beginning of public money’s refund by the General Motors - $4.7 billion are already given back to the USA and $1.1 billion to Canada.
Pic: Artyom Popov, ITinvest
Rosstat’s report for March has been issued. The picture in general is not bad, but it is ought to be remembered that in this year’s March there were 22 working days versus 21 a year ago: this alone gives an addition of around 4% to the industrial output, 3.5% to the manufacturing, 2.5% to GDP; moreover, the economy’s collapse in the first half-year of 2009 created an effect of a very low base, comparing to which even the humble figures are looking spectacular. Capital investments grew in March by 0.7% y/y, though fell by 4.7% during the first quarter. Growth of the industrial output in general and manufacturing specifically, adjusted to the above-mentioned calendar factor, was about 1.5% y/y in March. Annual increase in the agriculture was 4.1% - here the calendar adjustments are hard to make. Positive dynamics in lumbering is clearly visible – the decline of the last year decelerated in January to 2.8% y/y, while in February there was a 3.9% growth, which accelerated to 12.2% in March. Contrary picture is presented in construction: the stabilization goes on the low levels, so the decrease was 5.1% y/y in March and 8.1% in the first quarter; even gloomier things occur in the building commissioning, where the collapse by 20.8% y/y was registered in March – it was worse only in the last December (-22.5%). Freight turnover rose in March by 12.4%: in the rail transport – by 10.6%, in the motor– by 5.6%, in the pipeline – by 13.6% Retail sales were 2.9% higher than a year ago, and in non-foods the first growth since January, 2009 was registered. Volume of paid services to the population has decreased by 0.8% - worse than in February (-0.1%). Real disposable income of the households in March was 4.2% higher than a year ago, but Rosstat understates consumers’ inflation, so indeed the addition does not exceed 1.5% and falls almost completely on the increase of pensions. Though there’s something shady about it too: Rosstat deflates all the incomes en masse with the consumer price index, while the pensioners have a totally different structure of consumption, within which boundaries the pace of the prices’ growth almost twice higher than the official one. Natural population loss in January-February was 69.6 thousand people versus 72.4 thousand a year ago; by the absolute value, for some reason, all indicators have fell – births and deaths, marriages and divorces; crying numbers of the migratory increase of the last year suggested the statisticians an unpretentious idea to tolerantly refuse of publishing this figure.
Consumers prices grew by 6.5% during the year, yet the Rosstat’s fixed (not to confuse with the minimal!) bundle of products and services, for the same period, rose in price by 9.3%; ex-factory prices added 19.2%, tariffs for cargo transportation – 18.3%. Ministry of Economical Development has not yet issued its report for March, but the department’s Head Elvira Nabiullina informed as early as Wednesday that GDP in the first quarter supposedly grew by 0.6% versus October-December; March’s figure increased by 0.2% m/m and 4.9% y/y. We do not know what about the month and quarter (the procedure of seasonal adjustment is too intricate), but the year’s dynamic is doubtful: by out estimations, the real growth was around 2.5%, exactly this number was brought by the additional working day in this year’s March; in other words, adjusted by the calendar factors, the growth of GDP is zero. In the first quarter in general, according to our estimates, GDP fell by 1.0-1.5% y/y, the dynamics in April-May should humbly go into a green, but that’s all. But it is not enough for the authorities – Premier Vladimir Putin announced the end of recession and mentioned “a strong possibility” that by the results of this year the economy’s growth would exceed the planned 3.1%; well, if Rosstat will bring inflation to 5-6% yearly, as was entrusted by the bosses, we could show more! Expensive oil and the inexhaustible inflow of speculative money from abroad have allowed the gold and foreign currency reserves to reach the level of the end of 2008, accounting for $456.3 billion. But the budget hole is still there, and the Ministry of Finance attracted external assets for its reimbursement. Russia placed $5.5 billion bonds, from which $2 billion fell on the 5-years notes and $3.5 billion – on the 10-years. The operation is carried out on a very high level – Russian authorities resisted the temptation to take advantage of high demand and attract more money, such a tough attitude allowed to limit the 3.7% yield for 5-years papers and 5.1% for 10-years – only 1.25% and 1.35% higher than the yields of American treasuries, which should be admitted as a great result. For a comparison, it is interesting to mention that Lithuania, a country with the same credit rating as Russia (and the EU member, by the way), placed its 5-years bonds with an appreciably higher yield of 4.5%. The only discomforting thing is that the sum attracted equals the 20 days’ budget deficit, while the increase of placement’s volume would apparently be negatively reflected in the interest rates...
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