Thursday, January 24, 2013

Dis and Dat


How Big Was It?

By far and away, the worst financial crack-up in history was Fannie and Freddie. That disaster has cost $142 billion. The knock-on effects of the collapse of these two were devastating. F/F went out of biz on September 7, 2008. The next weekend Lehman blew up. F/F put the nail in the coffin at the “Brothers”, and after that, all the dominoes were falling.

With that in mind, I’m amazed that AAPL has blown off nearly twice the F/F losses in six-months, and there is not even a ripple in the water. Last night, in a few seconds of after-market trading, the stock got pasted for more than all of the losses for LEH. By the opening, the overnight losses exceeded more than LEH, AIG, GM, and Chrysler combined.

The market gets smoked for 1/4 Trillion in a single name, and we’re trading at the highs. Go figure.



UK to Say “Goodbye” to EU?

The UK will have a referendum in 2017 to determine if it want’s to stay in the EU. That’s so far away that it has no consequence today. I do think this sets up as a “big deal” at one point in the future.

Looking at the calendar, there is something that will be emerging at the same time the UK referendum is due. The big economies in the EU have all agreed to a transaction tax.





This tax will come to only .01% on turnover of stocks, bonds and derivatives, but it will devastate the domestic markets in France, Germany, Netherlands and Italy. As a result, London will get another boost as the financial capital in Europe.

The folks in the UK will be well aware of the influx of foreign traders, the capital they bring in, and the office space they use. No doubt, the Brits will be laughing at the EU for creating their success.

It just might prove that the EU’s transaction tax becomes the reason why the UK votes to opt out. The TT will prove that the EU has no clue how to run an economy. If that is how it plays out, I will get a laugh.


Who’s Getting DI?

Social Security pays benefits to non-residents who have lived and worked (and paid payroll taxes) in the US. The info is available for 24 countries. All in, nothing mind blowing, some details:

- 192,000 people, now living in their home countries, get SS benefits. The total benefits paid in 2012 was $500m.

- Canada has the most number of citizens getting SS benefits (53K). Japan has 38k, Germany 22k and UK 18k. The full list (Link).

-Canada has the most number on Disability, number two on the DI list is Germany. (Possibly the layoffs at Deutsche Bank led to back injuries?)


Anyway, what’s missing are the numbers for Mexico. My guess is that the bucks SS heads South is larger then that headed North. I think it is larger than the total for all the 24 countries where data is available. I have asked for the #’s, if I get them I’ll let you know. Don’t hold your breathe for that article.



Hollande To Go After French ExPats?

There is a silly story going on between France and Switzerland. This one has potential to spin out of control.

There are tens of thousands of French citizens who live in neighboring Switzerland. There was a tax treaty set in 1966 between the two countries that established who would pay what – for 47 years there was no problem. On January 1, 2013 the French government published a new rule that completely abrogated the 1966 treaty. There was no prior warning or discussion by Paris. They sneaked it in on New Year’s Eve.

The Swiss were insulted. Forget the merits of what was done, it was the tactics that were used. From one Swiss official:







This is about a small group of people (most of whom are well-off) who are getting muscled. It’s also about a small country that is also getting muscled. Nobody ever likes to get muscled around; how might “they” push back?

The obvious answer is that a number of those who are affected will take up Swiss citizenship (many have lived in Switzerland for years). Given the circumstances, I think the Swiss would be happy to oblige.

This sets up for more of those embarrassing “Depardieu” moments for Paris. French citizens willing to renounce their passports to get out from under oppressive French taxes.

There is another angle to this that is a potential game changer. The new French tax rules are, in the end, a tax on ExPats. What the French did to their citizens living in Switzerland, could also be done to the French people who live in Belgium. There is the bigger question of what would happen to the income of a French citizen who resides in London or New York. A huge door has been opened, it’s not clear what’s behind the door.

This could snowball into broader opposition for Hollande. He’s running a socialist state, while taxing like a dictator.


Pay Back??

My sense is that EURYEN 120 is the new normal, and it will prove to be the bottom end of the range, not the top.

This sets up for a crisis in the EU. There has already been “noise” from some of the talkers. The question is, “Can they do anything but talk?” I say “no”.

Over the past decade Japan has imported deflation with a stronger and stronger currency. They tried repeated to intervene in the FX markets, but they failed. The reason they failed is that the other Central Banks (US Fed and EU ECB) did not want to give the Japanese any support. There was no coordinated intervention. The BOJ had to stand in front of the whole market, and got overwhelmed every time.

Now the tables have turned and we have a run-away weak Yen. The Fed and the ECB can’t intervene without the blessings and support of the BOJ, so they can only talk. This sets up as an asymmetric risk profile, it favors a weaker Yen, – at least for the next 10%.

After years of suffering, there must be a number of guys at the BOJ who are laughing at how things are turning out.  It’s amazing how quickly perceptions change.










  1. I can understand inflation = good for stocks in the short run, but I do not understand why/how a 2% inflation target can be good for JGBs (or any Japanese investment) in the medium term, let alone the long run.

    I’d think once the BOJ can no longer feasibly pay the interest on debt guys like you and Stan D. would have your picture on the front page of the WSJ wiping your rear end with Y1 quadrillion bills (that Y is the best I can do for a yen sign)

  2. BK: “The TT will prove that the EU has no clue how to run an economy.”

    THAT was your first clue / evidence? Not that the majority of member countries had monopoly money for currencies; not the anti-business attitude of Paris; not the fact that each country had a different electrical grid and amp/cycle rating despite sharing a continent (and they all had to restart post WW2); not that they failed to have monetary unions in the past; not that different members had (and still have) widely differing priorities on what industries to subsidize / tax …

    It is the decision to impose a silly tax, based on an academic’s LSD trip, that will clearly impact one anchor member (UK) more than the countries that “want” the tax. Tax the crap out of one area (with a minority vote) and give the proceeds to the populist bureaucrats in other areas.

    Because based on that ONE CLUE, it could be argued that the current US regime shares the same poor understanding of how to run an economy.

    PS — the idea of stealing from those who have, and giving to those who whine a lot (aka “need”) was my idea first. I wrote a whole book about it. Actually wrote it while the previous monetary union was collapsing.

    I helped bring about hatred and war that dragged on for decades — without the economic suffering my idea caused, lunatics like Hitler never would have come to be.

    That Serb guy who shot the arch duke did so based on the economic pain caused by my idea of subsidizing the inept with the hard work of others (while skimming quite a bit off the top for the government of course)

  3. “only .01%”

    Seriously? “Only”? Do the math. That is ultra-massive, not to mention the idea itself is utterly prejudicial and unconscionable.

  4. Hey BK,you ever get rid of those turky buzzurds.Try a cheap electric fence for livestock.String the wire where you want.Think,each time you look at them its goverment looking at you for another free meal.

  5. RE: Dis and Dat
    Easy to figure – it’s all fiat, and electronic at that, I mean it isn’t even paper you can burn if you get cold. There is no real substance here.

  6. RE: Pay Back
    EURYEN at 1.20 as the new low. Is that because the Yen is toast, the Euros problems are solved, or is it just
    like -459.47 Fahrenheit – a random looking number but significant just the same, and, hey, you just can’t go any lower. But I’ll call your bluff and lower you .01 to 1.19. Because the problem with the BOJ laughing is that all Asia hates the Japanese, so their road will not be any easy one to travel, and physical conflict (don’t say war) is not out of the question, in which case all bets are off.

  7. Bruce,
    Your details on the Financial Transaction Tax (FTT) are slightly incorrect:
    – The tax will be a minimum of 0.1% on equities & fixed income
    – The tax will be a minimum of 0.01% on ALL derivatives
    (France proposes increasing this to: 0.2% and 0.02% respectively.)
    Please note that 11 EU member states have signed up to this, and that whilst the UK under a current Conservative govt rejects the FTT, the UK already pays a 0.5% tax on equities and the Labour Govt (which will likely win the 2015 election) fully supports the FTT.

    Please also note that parts of the US govt (mainly Democrat) are in favour of a FTT of 0.25% and 0.025% respectively (info from EU document).

    You are fully correct that a FTT will be counter-productive and destroy those economies that implement it (this is why Sweden rejects it having tried a failed implementation some years back). As you know in FX, swaps make up a large part of the mkt volume, and recent analysis implies an 18-fold increase in transaction costs !!!!

    I wish everyone considering an FTT would be taken outside and shot, however I believe a large proportion of Western govts are in favour and may look to implement this tax, whilst our financial mkts move East.

  8. Didn’t Europe already pass a treaty about deficits? And one about member state debts?

    When push came to shove, none of the member states obeyed — even Germany and France violated the Maastrict treaty for a year or two. Most member states, especially the ones leading to the dissolution of the EU today, said “yeah whatever”.

    Is there any reason to believe this group of fools is going to enforce a financial transactions tax? And really, who gives a shit about most EU stock markets? Frankfurt and London matter, the rest just think they are still relevant.

    Going to war without the French is like going to war without an accordion. Operating financial markets without the French and Italians (and Brussels, Greeks, Spain, etc) is like operating heavy machinery without a color coordinated floral bouquet. Who really gives a shit?

  9. For the high numbers of SS recipients in Germany perhaps that is related to large numbers of military servicemembers retiring there.

  10. Wow, this article is pleasant, my sister is analyzing such
    things, therefore I am going to tell her.