The European single currency is facing an ‘inevitable break-up’ a leading French bank claimed yesterday.

Strategists at Paris-based Société Générale said that any bailout of the stricken Greek economy would only provide ’sticking plasters’ to cover the deep- seated flaws in the eurozone bloc.

The stark warning came as the euro slipped further on the currency markets and dire growth figures raised the prospect of a ‘double-dip’ recession in the embattled zone.

In a note to investors, SocGen strategist Albert Edwards said: ‘My own view is that there is little “help” that can be offered by the other eurozone nations other than temporary, confidence-giving “sticking plasters” before the ultimate denouement: the break-up of the eurozone.’

‘The euro’s a success’: Peter Mandelson at Downing Street on Thursday

He added: ‘Any “help” given to Greece merely delays the inevitable break-up of the eurozone.’

The alarming claim came a day after European Union leaders promised ‘determined and co-ordinated’ action to shore up Greece’s tattered public finances, but disappointed traders by failing to provide specifics.

Source/Full Story: Mail Online

Gold is at a new high this morning, @ 1,165.96

Visitors to America might have noticed the television ads urging us to buy gold. One such “spokesman”, formerly in charge of managing the government’s hoard of the yellow stuff, including the ingots buried at Fort Knox, points out that the value of gold has never fallen to zero. Why investors are expected to find such a modest claim reassuring I can’t imagine. But something is persuading people to buy gold, driving the price to and past $1,100 per ounce, from about $270 at the beginning of this decade, and around $700 when the financial crisis first hit.

This is not mere panic buying by a herd of small investors trying to benefit from what is called a momentum play. John Paulson (no relation to Hank), the investor who made $20 billion for his hedge fund between 2007 and 2009 by betting on a collapse of the financial and housing markets, is betting on gold in a big way. Paulson & Co already holds $3 billion in gold-related investments (including AngloGold Ashanti and Kinross Gold), and Paulson has just seeded a new gold-related fund with some $250m of his own funds. His modest objective: appreciation at a rate higher than the increase in the price of gold itself.

All of this means that investors do not believe that President Barack Obama will respond to the enormous pressure put on him during his visit to Beijing and take steps to strengthen the dollar. The president and Treasury secretary Timothy Geithner might talk the talk of a strong dollar but they walk the walk of a declining one. A weak dollar should lift exports and cut imports, which in White House terms means jobs for American workers. And it is jobs that the president asks his aides about first thing every morning. With reason.

Should the unemployment rate remain in double digits when elections roll round a year from now, Republicans would gain congressional seats by making the plausible claim that the Democrats’ deficit spending served only to create a debt burden that will weigh down the living standards of our children and grandchildren.

Source/Full Story: Times Online
Technorati Tags: Gold

Executives do not expect the U.S. commercial real estate market to emerge from critical condition any time soon, according to a survey by The Real Estate Roundtable.

Although the three indexes tracked by the “Sentiment Survey” have risen dramatically since the near-collapse of financial markets last year, they reflect the respondents’ collective sense of relief at having survived the worst of the turmoil, according to The Real Estate Roundtable.

The U.S. commercial real estate market has been in a downward spiral for more than two years. On the whole, U.S. commercial real estate values have fallen about 40 percent from their peaks in 2007. Borrowers face shortfalls in financings when loans come due, while other borrowers are struggling to meet even monthly payments.

The delinquency rate of U.S. commercial real estate loans that had been securitized into Commercial Mortgage-Backed Securities (CMBS) hit 4.8 percent in October, up from 4.36 the prior month and dwarfing the 0.77 rate a year earlier, according to Trepp, which tracks CMBS loans.

Source/Full Story: Reuters
Technorati Tags: commercial real estate

The Big Mac, a symbol of globalization, is pulling out of Iceland – a victim of this tiny island nation’s overexposure to the world financial crisis.

All three of Iceland’s McDonald’s restaurants – all in the capital Reykjavik – will close next weekend because the collapse of the Icelandic krona has pushed up the cost of imported ingredients.

“The economic situation has just made it too expensive for us,” Magnus Ogmundsson, managing director of Lyst Hr., McDonald’s franchise holder in Iceland, said yesterday. McDonald’s requires the franchisee to import all the goods required for its restaurants – from Germany – and costs have doubled over the last year.

A Big Mac in Reykjavik retails for 650 krona ($5.29). But the 20 percent increase needed to make a decent profit would have pushed that to 780 krona ($6.36), he said. That would have made the Icelandic version of the burger the most expensive in the world.

Source/Full Story: Philadelphia Inquirer

During that long summer between the collapse of Bear Stearns and the collapse of Lehman Brothers, Hank Paulson held a secret meeting with the board of Goldman Sachs in Moscow.
…
Felix Salmon has the appropriate reaction:

How on earth did Paulson think this was OK? Goldman Sachs was a hugely powerful for-profit investment bank, and there he is, giving private chapter and verse on his opinions about the US and global economy, talking about internal Treasury matters, and previewing an upcoming (and surely market-moving) speech. All in secret, at a “social event” which somehow got kept off his official calendar. Oh, yes, and one other thing — the whole shebang took place in the Moscow Marriott Grand Hotel, in the context of Goldman directors joking about how all the Moscow hotels were surely bugged.

This is sleazy in the extreme, and will only serve to heighten suspicions that Paulson’s Treasury was rigging the game in favor of Goldman all along.

Source/Full Story: businessinsider.com
Technorati Tags: Hank Paulson, Goldman Sachs

A new report on global wealth says that Europe has overtaken the United States to become the richest region in the world. But the Americans still have more millionaires then the EU — and should you want to marry one, you might be better off in Singapore or the Middle East.

From dishwasher to millionaire. If that’s the sort of career you want, then there’s no place like the USA. It is the land of unlimited opportunity. But over the last 12 months many Americans have also come to learn about opportunities that lead in the opposite direction: from millionaire to dishwasher, for instance.

The worst global recession in decades has left its mark on the world’s economic powers, but no nation has been affected quite as badly as the US, wealth dropped by 22 percent — almost double the worldwide average. The “Global Wealth Report” released by the Boston Consulting Group (BCG) on the anniversary of the Lehman Brother’s bank collapse indicates that Europe has overtaken North America to become the world’s wealthiest region.

Source/Full Story:: SPIEGEL ONLINE

The US economy is recovering from the shock of last year’s banking collapse, but could continue to need financial assistance for an indefinite period into the future, the Treasury Department stated in a report released Monday.

The report (PDF), entitled “The Next Phase of Government Financial Stabilization and Rehabilitation Policies,” states that “although we are rolling back emergency support programs that are no longer needed, significant parts of the financial system remain impaired. Unanticipated events could intensify pressure on the financial system. In this context, it is prudent to maintain capacity to address unforeseen developments.”

The report said, as quoted by The Hill: “In those markets where conditions have improved, it is unclear whether the improvements achieved to date will persist without a period of continued government support.”

Given the usually subdued and diplomatic language used in government reports on the economy, such a declaration will likely be read by many economists as an indication that there could be trouble ahead for the economy.

Source/Full Story:: Raw Story

Regulators have shut down Colonial BancGroup Inc. CNB-N , a big lender in real estate development that buckled under the collapse of the market. It was the biggest U.S. bank to fail this year, with about $25-billion in assets.

The Federal Deposit Insurance Corp. was appointed receiver of Montgomery, Ala.-based Colonial. The agency approved the sale of Colonial’s $20-billion in deposits and about $22-billion of its assets to BB&T Corp. The failed bank’s 346 branches in Alabama, Florida, Georgia, Nevada and Texas will reopen at the normal times starting on Saturday as offices of BB&T, the FDIC said.

BB&T, based in Winston-Salem, N.C., operates throughout the Southeast and is considered among the nation’s stronger regional banks.

The failure of Colonial is expected to cost the deposit insurance fund an estimated $2.8-billion.

The bank was a major lender to developers in Florida and Nevada and was hit hard by the collapse of the real estate market in those states.

Colonial BancGroup shut by regulators – The Globe and Mail

Economic output shrank by 5.6pc in the 12 months to the middle of the year, according to official figures which shattered hopes that the recovery has already begun.

The Office for National Statistics said that Britain’s gross domestic product (GDP) contracted by 0.8pc in the second quarter, following the unprecedented 2.4pc fall in the first three months of the year. Economists had expected GDP – the broadest measure of the country’s economic performance – to shrink by 0.3pc.

According to calculations by Martin Weale of the National Institute for Economic and Social Research the profile of the current recession is now almost identical to the decline in Britain’s output between 1929 and 1931. The 5.6pc contraction over the past year almost matches the 5.8pc fall in the year preceding the second quarter of 1931, during which Credit Anstalt in Austria collapsed, triggering a second wave of economic seizure across Europe.

Source/Full Story:: Telegraph
Technorati Tags: Great Depression

Two of America’s biggest banks, Morgan Stanley and Wells Fargo, on Wednesday threw into sharp relief the mounting woes of the US commercial property market when they reported large losses and surging bad loans.

The disappointing second-quarter results for two of the largest lenders and investors in office, retail and industrial property across the US confirmed investors’ fears that commercial real estate would be the next front in the financial crisis after the collapse of the housing market.

The failing health of the $6,700bn commercial property market, which accounts for more than 10 per cent of US gross domestic product, could be a significant hurdle on the road to recovery.

Source/Full Story:: FT.com
Technorati Tags: Morgan Stanley, Wells Fargo, commercial property market

Executives at Goldman Sachs sold almost $700m worth of stock following the collapse of Lehman Brothers last September, according to filings with the Securities and Exchange Commission.

Most of the sales occurred during the period in which the investment bank enjoyed the support of $10bn from the troubled asset relief programme.

The surge in selling among Goldman partners, at a time when the US government had thrown a lifeline to Wall Street, is likely to draw criticism from lawmakers on Capitol Hill. Having survived the crisis, the bank is expected to report strong second-quarter earnings on Tuesday on rebounding trading profits.

For the eight-month period for which figures are available, Goldman partners sold more than $691m in company stock, even as the firm expanded its public float from 395m to 503m shares in several capital raises.

For the comparable period between September 2007 and April 2008, when the average share price was substantially higher, Goldman partners sold about $438m in stock.

Source/Full Story: FT.com

The head of the IMF questioned on Monday any debate about when to roll back stimulus spending, saying the world economy had yet to weather the worst of a recession that claimed a record number of European jobs.

The 16-country euro zone lost a record 1.22 million jobs in the first quarter, official data showed. Employment during the first quarter fell 1.2 percent year-on-year, the deepest annual drop since measurements started in 1995.

Even if some form of economic recovery is not far off, analysts say unemployment will climb for many months to come.

Underlining the fragile state of the global economy, an influential economist said China would not see a rapid rebound and South Korea’s finance minister said its economy was still sliding, although the pace had slowed.

But in southern Italy, Group of Eight finance ministers meeting at the weekend described their economies in the most positive terms since the collapse of U.S. bank Lehman Brothers nine months ago heightened the world’s worst financial crisis since the Great Depression of the 1930s.

“Their (G8) stance is that we are beginning to see some green shoots but nevertheless we have to be cautious,” International Monetary Fund chief Dominique Strauss-Kahn said during a visit to Kazakhstan. “The large part of the worst is not yet behind us.”

Source/Full Story: Reuters

Talks between the Treasury Department and lenders aimed at keeping Chrysler LLC out of bankruptcy broke down Wednesday, making it all but certain the car maker will file for Chapter 11 protection Thursday, The Wall Street Journal reported late Wednesday, citing people familiar with the discussions. Administration officials, who have been braced for a Chrysler bankruptcy filing for weeks, say all the pieces are in place to get the country’s third-largest employer through the court quickly, perhaps in a matter of weeks, the report said.

Source/Full Story::  MarketWatch

The Obama administration is considering asking Congress to give the Treasury secretary unprecedented powers to initiate the seizure of non-bank financial companies, such as large insurers, investment firms and hedge funds, whose collapse would damage the broader economy, according to an administration document.

The government at present has the authority to seize only banks.

Giving the Treasury secretary authority over a broader range of companies would mark a significant shift from the existing model of financial regulation, which relies on independent agencies that are shielded from the political process. The Treasury secretary, a member of the president’s Cabinet, would exercise the new powers in consultation with the White House, the Federal Reserve and other regulators, according to the document.

…

The administration’s proposal contains two pieces. First, it would empower a government agency to take on the new role of systemic risk regulator with broad oversight of any and all financial firms whose failure could disrupt the broader economy. The Federal Reserve is widely considered to be the leading candidate for this assignment. But some critics warn that this could conflict with the Fed’s other responsibilities, particularly its control over monetary policy.

The government also would assume the authority to seize such firms if they totter toward failure.

Besides seizing a company outright, the document states, the Treasury Secretary could use a range of tools to prevent its collapse, such as guaranteeing losses, buying assets or taking a partial ownership stake. Such authority also would allow the government to break contracts, such as the agreements to pay $165 million in bonuses to employees of AIG’s most troubled unit.

The Treasury secretary could act only after consulting with the president and getting a recommendation from two-thirds of the Federal Reserve Board, according to the plan.

Source: washingtonpost.com

The world economy is likely to shrink to “below zero” this year, in what many are now referring to as the “Great Recession,” the head of the International Monetary Fund said on Tuesday.

“The IMF expects global growth to slow below zero this year, the worst performance in most of our lifetimes,” IMF Managing Director Dominique Strauss-Kahn told African political and financial leaders in the Tanzanian capital.

“Continued de-leveraging by world financial institutions, combined with a collapse in consumer and business confidence is depressing domestic demand across the globe, while world trade is falling at an alarming rate and commodity prices have tumbled” Strauss-Kahn added.

As advanced countries focus on problems in their own economies, Strauss-Kahn called on the international community not to forget Africa, where regional growth is expected to slow sharply to 3 percent this year, half the rate of the past five years.

Strauss-Kahn warned the projection for 3 percent “may be too optimistic.”

“Even though the crisis has been slow in reaching Africa’s shores, we all know it is coming and its impact will be severe,” he said. “We must ensure that the voices of the poor are heard. We must ensure that Africa is not left out,” he added.

Source: Reuters