MasterFeeds: 2013

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December 5, 2013

Where Do You Want to be a #Billionaire? | The Financialist

Where Do You Want to be a Billionaire? | The Financialist

-- The MasterFeeds

December 4, 2013

#Ukraine: A crisis unfolds

Reserves: $20bn; Debt: $59.5bn, $35bn maturing before 2017

Franklin resources is willing to assume the risk: 

From Bloomberg, 
Franklin Boosted Ukraine Bet to $6 Billion as Selloff Began
Dec 4, 2013, 11:18:50 AM
Franklin Resources Inc.'s biggest funds ramped up their bet on Ukraine by more than $1.4 billion in the third quarter, adding to the asset manager's status as the country's largest international bondholder weeks before street protests deepened the worst rout in developing markets.
To read the entire article, go to

And more in this article on the search by Ukrainian officials for cash.

From Bloomberg, Ukraine Officials Scour Globe for Cash as Protests Build
Dec 4, 2013, 11:05:28 AM
Ukrainian officials are fanning out to Beijing, Moscow and Brussels to drum up economic backing as the largest protests in almost a decade persist back home over the failure to sign a European trade pact.
To read the entire article, go to

October 21, 2013

US #Treasuries: Lowest Foreign Demand Since ’01 @Bloomberg

The $11.6 trillion U.S. government bond market is losing some of its luster.

Foreign investors own half of all treasuries. They only own less than 9% of Japan's $8 trillion bond market. 

To read the entire article, go to

October 17, 2013

Is this for real? Not allowing international wire transfers At #JPMorgan Chase? @ZeroHedge

$JPM has decided that after November 17, 2013, it will halt the use of international wire transfers, but more importantly, limits the cash activity in business accounts to only $50,000 per statement cycle. 

Creeping Capital Controls At JPMorgan Chase?

A letter sent to a ZH reader yesterday by JPMorgan Chase, specifically its Business Banking division, reveals something disturbing. For whatever reason, JPM has decided that after November 17, 2013, it will halt the use of international wire transfers (saying it would "cancel any international wire transfers, including recurring ones"), but more importantly, limits the cash activity in associated business accounts to only $50,000 per statement cycle. "Cash activity is the combined total of cash deposits made at branches, night drops and ATMs and cash withdrawals made at branches and ATMs."
Why? "These changes will help us more effectively manage the risks involved with these types of transactions." So... JPM is now engaged in the risk-management of ATM withdrawals?
Reading between the lines, this sounds perilously close to capital controls to us.
While we have no way of knowing just how pervasive this novel proactive at Chase bank is and what extent of customers is affected, what is also left unsaid is what the Business Customer is supposed to do with the excess cash: we assume investing it all in stocks, and JPM especially, is permitted? But more importantly, how long before the $50,000 limit becomes $20,000, then $10,000, then $5,000 and so on, until Business Customers are advised that the bank will conduct an excess cash flow sweep every month and invest the proceeds in a mutual fund of the customer's choosing?
Full redacted letter below:

Creeping Capital Controls At JPMorgan Chase? | Zero Hedge

October 14, 2013

#China Commentary: U.S. fiscal failure warrants a de-Americanized world - Xinhua |

This is the begining of the end of the period of "Pax Americana" if  China has anything to say...
Commentary: U.S. fiscal failure warrants a de-Americanized world   2013-10-13 09:57:25
By Xinhua writer Liu Chang
BEIJING, Oct. 13 (Xinhua) -- As U.S. politicians of both political parties are still shuffling back and forth between the White House and the Capitol Hill without striking a viable deal to bring normality to the body politic they brag about, it is perhaps a good time for the befuddled world to start considering building a de-Americanized world.
Emerging from the bloodshed of the Second World War as the world's most powerful nation, the United States has since then been trying to build a global empire by imposing a postwar world order, fueling recovery in Europe, and encouraging regime-change in nations that it deems hardly Washington-friendly.
With its seemingly unrivaled economic and military might, the United States has declared that it has vital national interests to protect in nearly every corner of the globe, and been habituated to meddling in the business of other countries and regions far away from its shores.
Meanwhile, the U.S. government has gone to all lengths to appear before the world as the one that claims the moral high ground, yet covertly doing things that are as audacious as torturing prisoners of war, slaying civilians in drone attacks, and spying on world leaders.
Under what is known as the Pax-Americana, we fail to see a world where the United States is helping to defuse violence and conflicts, reduce poor and displaced population, and bring about real, lasting peace.
Moreover, instead of honoring its duties as a responsible leading power, a self-serving Washington has abused its superpower status and introduced even more chaos into the world by shifting financial risks overseas, instigating regional tensions amid territorial disputes, and fighting unwarranted wars under the cover of outright lies.
As a result, the world is still crawling its way out of an economic disaster thanks to the voracious Wall Street elites, while bombings and killings have become virtually daily routines in Iraq years after Washington claimed it has liberated its people from tyrannical rule.
Most recently, the cyclical stagnation in Washington for a viable bipartisan solution over a federal budget and an approval for raising debt ceiling has again left many nations' tremendous dollar assets in jeopardy and the international community highly agonized.
Such alarming days when the destinies of others are in the hands of a hypocritical nation have to be terminated, and a new world order should be put in place, according to which all nations, big or small, poor or rich, can have their key interests respected and protected on an equal footing.
To that end, several corner stones should be laid to underpin a de-Americanized world.
For starters, all nations need to hew to the basic principles of the international law, including respect for sovereignty, and keeping hands off domestic affairs of others.
Furthermore, the authority of the United Nations in handling global hotspot issues has to be recognized. That means no one has the right to wage any form of military action against others without a UN mandate.
Apart from that, the world's financial system also has to embrace some substantial reforms.
The developing and emerging market economies need to have more say in major international financial institutions including the World Bank and the International Monetary Fund, so that they could better reflect the transformations of the global economic and political landscape.
What may also be included as a key part of an effective reform is the introduction of a new international reserve currency that is to be created to replace the dominant U.S. dollar, so that the international community could permanently stay away from the spillover of the intensifying domestic political turmoil in the United States.
Of course, the purpose of promoting these changes is not to completely toss the United States aside, which is also impossible. Rather, it is to encourage Washington to play a much more constructive role in addressing global affairs.
And among all options, it is suggested that the beltway politicians first begin with ending the pernicious impasse.
Editor: Hou Qiang 

Commentary: U.S. fiscal failure warrants a de-Americanized world - Xinhua |

September 6, 2013

Sell Rosh Hashanah, Buy Yom Kippur

Sell Rosh Hashanah, Buy Yom Kippur

Bespoke Investment Group 
There's a common market axiom on Wall Street that says that investors should sell on Rosh Hashanah and buy on Yom Kippur.  In other words, the ten day stretch between the Jewish New Year and the Day of Atonement is a period of time where bulls should go into hibernation.  According to Art Cashin, the reason for the historical weakness in equities during this period is that people of the Jewish religion "wished to be free (as much as possible) of the distraction of worldly goods during a period of reflection and self-appraisal."
Whatever the explanation for the market's weakness, as with all market axioms, there is some truth to the phrase.  The table below shows the historical performance of the S&P 500 from the close before Rosh Hashanah to the close on Yom Kippur going back to 2000.  As shown in the table, the S&P 500 has averaged a decline of 1.43% during the period with positive returns in only five out of thirteen years (38%).
While the overall average change is -1.43%, we would note that the 18% decline in 2008 does skew the results a bit.  Looking at the median return instead shows that the S&P 500 declines a more modest 0.50% during the period, but it's still negative nonetheless.  For the sake of reference, this year, Rosh Hashanah begins at sundown tonight (9/4) and Yom Kippur ends on 9/14.

Bespoke Investment Group - Think BIG - Sell Rosh Hashanah, Buy Yom Kippur

September 4, 2013

The End of the #EmergingMarket Party by Ricardo Hausmann

For most emerging-market countries...nominal GDP growth in the 2003-2011 period was caused by terms-of-trade improvements, capital inflows, and real appreciation. These mean-reverting processes are, well, reverting,

The End of the Emerging-Market Party

Project Syndicate
Ricardo Hausmann 
CAMBRIDGE – Enthusiasm for emerging markets has been evaporating this year, and not just because of the US Federal Reserve’s planned cuts in its large-scale asset purchases. Emerging-market stocks and bonds are down for the year and their economic growth is slowing. To see why, it is useful to understand how we got here.

This illustration is by Paul Lachine and comes from <a href=""></a>, and is the property of the NewsArt organization and of its artist. Reproducing this image is a violation of copyright law.
Illustration by Paul Lachine

Between 2003 and 2011, GDP in current prices grew by a cumulative 35% in the United States, and by 32%, 36%, and 49% in Great Britain, Japan, and Germany, respectively, all measured in US dollars. In the same period, nominal GDP soared by 348% in Brazil, 346% in China, 331% in Russia, and 203% in India, also in US dollars.
And it was not just these so-called BRIC countries that boomed. Kazakhstan’s output expanded by more than 500%, while Indonesia, Nigeria, Ethiopia, Rwanda, Ukraine, Chile, Colombia, Romania, and Vietnam grew by more than 200% each. This means that average sales, measured in US dollars, by supermarkets, beverage companies, department stores, telecoms, computer shops, and Chinese motorcycle vendors grew at comparable rates in these countries. It makes sense for companies to move to where dollar sales are booming, and for asset managers to put money where GDP growth measured in dollars is fastest.
One might be inclined to interpret this amazing emerging-market performance as a consequence of the growth in the amount of real stuff that these economies produced. But that would be mostly wrong. Consider Brazil. Only 11% of its China-beating nominal GDP growth between 2003 and 2011 was due to growth in real (inflation-adjusted) output. The other 89% resulted from 222% growth in dollar prices in that period, as local-currency prices rose faster than prices in the US and the exchange rate appreciated.
CommentsSome of the prices that increased were those of commodities that Brazil exports. This was reflected in a 40% gain in the country’s terms of trade (the price of exports relative to imports), which meant that the same export volumes translated into more dollars.
Russia went through a somewhat similar experience. Real output growth explains only 12.5% of the increase in the US dollar value of nominal GDP in 2003-2011, with the rest attributable to the rise in oil prices, which improved Russia’s terms of trade by 125%, and to a 56% real appreciation of the ruble against the dollar.
By contrast, China’s real growth was three times that of Brazil and Russia, but its terms of trade actually deteriorated by 26%, because its manufactured exports became cheaper while its commodity imports became more expensive. The share of real growth in the main emerging countries’ nominal US dollar GDP growth was 20%.
The three phenomena that boost nominal GDP – increases in real output, a rise in the relative price of exports, and real exchange-rate appreciation – do not operate independently of one another. Countries that grow faster tend to experience real exchange-rate appreciation, a phenomenon known as the Balassa-Samuelson effect. Countries whose terms of trade improve also tend to grow faster and undergo real exchange-rate appreciation as domestic spending of their increased export earnings expands the economy and makes dollars relatively more abundant (and thus cheaper).
Real exchange rates may also appreciate because of increases in capital inflows, which reflect foreign investors’ enthusiasm for the prospects of the country in question. For example, from 2003 to 2011, Turkey’s inflows increased by almost 8% of GDP, which partly explains the 70% increase in prices measured in dollars. Real appreciation could also be caused by inconsistent macroeconomic policies that put the country in a perilous position, as in Argentina and Venezuela.
Distinguishing between these disparate and inter-related phenomena is important, because some are clearly unsustainable. In general, terms-of-trade improvements and capital inflows do not continue permanently: they either stabilize or eventually reverse direction.
Indeed, terms of trade do not have much of a long-term trend and show very pronounced reversion to the mean. While prices of oil, metals, and food rose very significantly after 2003, reaching historic highs sometime between 2008 and 2011, nobody expects similar price increases in the future. The debate is whether prices will remain more or less where they are or decline, as food, metals, and coal prices have already done.
The same can be said of capital inflows and the upward pressure that they place on the real exchange rate. After all, foreign investors are putting their money in the country because they expect to be able to take even more money out in the future; when this occurs, growth tends to slow, if not collapse, as happened in Spain, Portugal, Greece, and Ireland.
In some countries, such as China, Thailand, South Korea, and Vietnam, nominal GDP growth was driven to a large extent by real growth. Moreover, according to the soon-to-be-published Atlas of Economic Complexity, these economies began producing more complex products, a harbinger of sustainable growth. Angola, Ethiopia, Ghana, and Nigeria also had very significant real growth, but nominal GDP was boosted by very large terms-of-trade effects and real appreciation.
For most emerging-market countries, however, nominal GDP growth in the 2003-2011 period was caused by terms-of-trade improvements, capital inflows, and real appreciation. These mean-reverting processes are, well, reverting, implying that the buoyant performance of the recent past is unlikely to return any time soon.
In most countries, the US dollar value of GDP growth handsomely exceeded what would be expected from real growth and a reasonable allowance for the accompanying Balassa-Samuelson effect. The same dynamics that inflated the dollar value of GDP growth in the good years for these countries will now work in the opposite direction: stable or lower export prices will reduce real growth and cause their currencies to stop appreciating or even weaken in real terms. No wonder the party is over.

The End of the Emerging-Market Party by Ricardo Hausmann - Project Syndicate

August 23, 2013

No trades busting: If the code is bad then you pay the price. No Mulligan.

traders should bear the full cost of their mistakes. 
If the code is bad then you pay the price. No Mulligan. Article: Guess who just called for ending trades busting?
Myron Scholes, one of the founders of modern option pricing, says the exchanges shouldn't cancel clearly erroneous trades. The traders should bear the full cost of their mistakes.
Full Story:

August 9, 2013

#Corruption in #Venezuela: The billion-dollar fraud | The Economist

The billion-dollar fraud

The Americas

Corruption in Venezuela

Evidence of huge rip-offs at the heart of the “Bolivarian revolution” has unleashed political infighting


WHEN it comes to corruption, Venezuela has long languished near the bottom of the international league table. According to the latest index of perceptions of corruption compiled each year by Transparency International, a Berlin-based watchdog, only eight out of the list of 176 countries were seen as more graft-ridden. Even places like Haiti and Zimbabwe ranked higher. The organisation’s Venezuela chapter found that 65% of respondents in a recent survey thought corruption had worsened in the previous two years. Well over half thought government measures to tackle it were ineffective.
Enter Nicolás Maduro, elected as president in April after Hugo Chávez died of cancer before he could be sworn in for a third six-year term. Mr Maduro, a former bus driver who was Chávez’s foreign minister, has said that fighting corruption is a priority for his government. Several mid-level officials have been arrested.

One of the biggest cases concerns Ferrominera, a state-owned iron-ore miner and processor in the south-eastern state of Bolívar. After years of protests by its workers, some of whom were prosecuted for their pains, Ferrominera’s chairman, Radwan Sabbagh, was arrested in June and accused by Mr Maduro of “bleeding the company dry”. More arrests followed, including that of Yamal Mustafá, a businessman with close ties to Bolivar’s state governor, Francisco Rangel Gómez.
Documents from a military-intelligence investigation, leaked to federal legislators and a local newspaper, revealed scams worth an astonishing $1.2 billion, including sales of ore to intermediaries at a fraction of its real value in exchange for huge kickbacks. It may be even worse. Ricardo Menéndez, the industry minister, recently admitted that there was “much more corruption in Ferrominera than has been made public”. The army colonel sent to investigate the case in 2011 is alleged to have made tens of millions of dollars blackmailing Ferrominera’s managers and Mr Mustafá. He, too, is now awaiting trial.
Even the Ferrominera case pales beside the mountains of cash that may have been swindled from the government’s foreign-exchange regulator, Cadivi. With the black-market rate for the dollar currently more than five times the official rate of 6.3 bolívars, the amount of money that can be made from fraudulent import schemes is colossal. Last year Cadivi handed over $59 billion in all. But Jorge Giordani, the planning minister, and Edmée Betancourt, the Central Bank governor, say up to a third of that could have been funnelled to fake companies. Ms Betancourt put “artificial demand” at $15 billion-20 billion.
Claims of corruption involve some of the most senior figures in Mr Chávez’s “Bolivarian revolution” (named for Simón Bolívar, Venezuela’s independence hero). In an audio tape leaked in May, Mario Silva, a presenter on state television and (it now appears) a Cuban agent, enumerated to his handler the sources of illicit finance he said were available to Diosdado Cabello, speaker of parliament and leader of the ruling socialist party, who is a potential rival to Mr Maduro. They included the tax authority, headed by Mr Cabello’s brother, and Cadivi. Mr Cabello dismissed the audio tape as a fake, the public prosecutor has yet to investigate and Mr Silva lost his job.
Instead, Mr Cabello has gone after the opposition. Claiming that Richard Mardo, an opposition legislator, was guilty of tax evasion and money laundering, he arranged for him to be stripped of his parliamentary immunity. When the opposition protested against political persecution, President Maduro organised a countermarch. He used the government’s power to force all television channels to carry his speeches to brand the opposition as corrupt—without any sense of irony.
Mr Mardo’s case involves a paltry $400,000 or so in what he says were campaign contributions from business. No public money was embezzled: in fact the legislator did not hold public office at the time. Nor has evidence been presented that he evaded tax or that the funds were of illicit origin, despite attempts by the government to compare Mr Mardo to Pablo Escobar, a late drug baron. On the other hand, Mr Cabello has refused to allow any parliamentary debate on several recent multi-million-dollar corruption scandals. One involved managers of PDVAL, a state company which allowed hundreds of thousands of tonnes of food to rot in shipping containers. Three were arrested, but they were later quietly released and given other jobs.
It has been left to the American courts to air several claims of corruption involving Venezuelans. Otto Reich, a former State-Department official, last month sued Derwick Associates, a firm whose partners are Venezuelans. Mr Reich alleges defamation; he also claims that the company paid large bribes to Venezuelan officials to obtain contracts to build power stations. Derwick and its partners deny the allegations. Details of the contracts appeared in the Venezuelan press months ago, but failed to spark an investigation. “There are no untouchables,” declares President Maduro. So far few have been touched.

Corruption in Venezuela: The billion-dollar fraud | The Economist

-- The MasterFeeds

#Ghana #eurobond: the end of cheap #African #debt? - This is Africa

Ghana sold a $750m 10-year eurobond but paid a premium to investors in its second entry into international bond markets, sparking debate about the end of cheap frontier market borrowing costs.

West Africa’s second biggest economy issued the note at a yield of 8 percent, significantly above the 6.6 percent Nigeria paid for its 10-year sovereign bonds earlier this month, or the 6.9 percent paid by the tiny east African state of Rwanda for its first $400m issue in April.

At the height of the emerging market debt rush, Zambia paid only 5.6 percent for its maiden dollar-denominated bond - a lower rate than that on Spain’s 10-year bond at the time, despite the fact that the European country’s credit rating is four times higher.

Read the rest of the story online here: Ghana eurobond: the end of cheap African debt? - News - This is Africa

August 5, 2013

Everyone In #Venezuela Is Into #Arbitrage | The Devil's Excrement

This is how the cookie crumbles in Venezuela. 

FYI the official rate is Bs./USD  6.30; the black market rate is Bs./USD 32+.

Everyone In Venezuela Is Into Arbitrage

arbiWhen Adam Smith suggested or showed that economic self-interest maximizes economic welfare, I don’t think he had in mind the economic self-interest that is promoted by the arbitrages available under the so called Bolivarian revolution.
These pages have recorded billion dollar arbitrages, some with bonds, others with CADIVI; there was SITME, travel dollars, airline tickets, now Sicad and many more without going into much detail today.
What Chavismo/Madurismo has failed to learn throughout these fourteen years, is that the longer these possibilities of arbitrage become available, the more widespread their exploitation becomes. That is what made SITME eventually so inefficient that it had to be scrapped, what makes CADIVI such a nest of corruption and what is making SICAD unworkable in such a short time. People learn fast and exploit the weaknesses of systems to promote their self interest via arbitrage. Every time the Government announces something, people get ready to see how they an make some money off it.
Whenever I visit Caracas, I talk to people trying to find out more about what their reality is like. I mean, with inflation soaring and noticing how everything has gone up every time I come back, I have to wonder how people, particularly the less well to do, can make ends meet.
This week, it was a parking lot attendant I know. We started talking, he complained about the Government and I started asking questions.
For him, let’s call him Profito, things are ok. They are better, because the parallel dollar is very high. He said he makes a little more than minimum salary in his job, which must mean around Bs. 3,000. He sends his mother in Colombia a US$ 300 a month in a “remesa”, which costs him Bs. 1,890, but he sells half in the black market, which gives him Bs. 4,950, for a net of Bs. 3,060, which doubles his salary just like that.
Things are tough, so he decided to send his son to Colombia, it’s too dangerous here, plus the kid could become a malandro (hoodlum), with the neighbors he has. The advantage is that his expenses went down and he can send the kid another US$ 300, give his mother half and net another Bs. 3,090 in the process.
To round it all off, Profito, has also now entered the export business. When he discovered that “perfumeria” items are so much expensive in Colombia, he started shipping about Bs. 5,000 a month in supplies via MRW (a courier) and he makes “casi” (almost) 100% profit a month from this venture.
Oh yeah, he said, I do go once a year to Colombia and ask for the $2,000 dollars for travel, this year he will get less, there will be no money for the kid, but the black market has increased so much that he will make about the same. (Not quite, he will make more, as the parallel rate has doubled since December, but he will only pay once).
Totaling it all up, Profito makes his Bs. 3,000 from his job and from his arbitrage activities he will make this year an additional Bs. 6,180 a month from “remesas” to the family, about Bs. 5,000 (he claims) from his import/arbitrage and an additional Bs. 2,000 or so from his travel allowance, for a grand total of Bs. 16,180 a month, or at least five times the minimum salary. Not a bad monthly income in Venezuela and he has health care. Except only one of those minimun salaries comes from his job. The rest is all thanks to the promotion of self-interest arbitrage by the distortions of the revolution.
And the Government? Fixing the price of SICAD very low to promote arbitrage even more…
This entry was posted on August 4, 2013 at 5:52 pm and is filed under Venezuela

Everyone In Venezuela Is Into Arbitrage | The Devil's Excrement

July 11, 2013

#China's #Trade Surplus Is Not All That It's Cracked Up To Be

From Pinetree Capital's Macrobits by Marshall Auerback:
it is questionable how many more benefits can accrue to the Chinese people by foregoing the benefits that using their own resources might bring and shipping more to the rest of the world in return for bits of paper than they are getting back in terms of real goods and services.
Reflecting this perspective, there is an interesting interview with former German Chancellor Helmut Schmidt in a recent Monthly Bulletin of the Official Monetary and Financial Institutions Forum (OMFIF).  The interview was conducted by Dave Marsh (co-chairman of OMFIF) on behalf of the Handelsblatt.  Although it deals specifically with Germany, it does have implications for China as well:
Handelsblatt: I remember you saying many times, if the Germans keep the D-Mark we will make ourselves unpopular with the rest of the world; our banks and our currency would be the Number 1, all the other countries would be against us and that was why we should have the euro to embed us in a larger European undertaking. It’s all rather ironic, because people are saying that Germany has profited a great deal from the euro because the D-Mark has been kept down and this helps German exports …
Schmidt: I ask myself whether this profit really is a profit? I wonder whether running perpetual current account surpluses really amounts to a profit. In the long run it is not a profit.
Handelsblatt: Because in the long run these assets will have to be written down because people won’t pay them back …
Schmidt: Yes – it means that you sell goods and what you get back is just paper money and later on it will be devalued and you will have to write it off. So you are withholding from your own nation goods that otherwise they would like to consume.
Schmidt’s insight is key:  production of goods for export reduces the portion of output available for domestic consumption – generating incomes that raise demand but without satisfying this demand through increased supply available for consumption. Additionally, competition in export markets often leads to domestic policy to keep wages and other costs low – both to fight the domestic inflation pressures (fuelled in part by the processes just outlined) but, more importantly, to compete with other low wage developing nations.

Read the whole article here: China's Trade Surplus Is Not All That It's Cracked Up To Be - Macrobits by Marshall Auerback

July 8, 2013

#Egypt: #Salafist Party To Withdraw From Talks With Government - Sitrep

It was bound to happen: 

Egypt: Salafist Party To Withdraw From Talks With Government - STRATFOR

July 8, 2013 | 0949 GMT

The Salafist Nour Party announced July 8 that it will withdraw from the political process after early-morning clashes between the army and protesters reportedly killed 42 people, Ahram reported, citing a Nour Party spokesman's Facebook page. The party wanted to avoid bloodshed, but because blood has been spilled, it will end negotiations with the new authorities, the spokesman said.

July 2, 2013

Bail-in fears grow for big depositors in #euro periphery

Efforts to prevent damaging capital flight from banks in the eurozone periphery could backfire and lead to a renewed search for safety by depositors

Read the full article at:

Financial Times,
Bail-in fears grow for big depositors in euro periphery
By Christopher Thompson and Ralph Atkins

June 28, 2013

June 11, 2013

Social Security: The New Deal’s Fiscal #Ponzi

Via Zero Hedge

Guest Post: Social Security: The New Deal’s Fiscal Ponzi

Submitted by David Stockman via the Ludwig von Mises Institute,
The Social Security Act of 1935 had virtually nothing to do with ending the depression, and if anything it had a contractionary impact. Payroll taxes began in 1937 while regular benefit payments did not commence until 1940.
Yet its fiscal legacy threatens disaster in the present era because its core principle of “social insurance” inexorably gives rise to a fiscal doomsday machine. When in the context of modern political democracy the state offers universal transfer payments to its citizens without proof of need, it offers thereby to bankrupt itself—eventually.
By contrast, a minor portion of the 1935 legislation embodied the opposite principle—namely, the means-tested safety net offered through categorical aid for the low-income elderly, blind, disabled and dependent families. These programs were inherently self-contained because beneficiaries of means-tested transfers simply do not have the wherewithal—that is, PACs and organized lobbying machinery—to “capture” policy-making and thereby imperil the public purse.
To the extent that means-tested social welfare is strictly cash-based, as was cogently advocated by Milton Friedman in his negative income tax plan, it is even more fiscally stable. Such purely cash based transfers do not enlist and mobilize the lobbying power of providers and vendors of in-kind assistance, such as housing and medical services.
Social insurance, on the other hand, suffers the twin disability of being regressive as a distributional matter and explosively expansionary as a fiscal matter. The source of both ills is the principle of “income replacement” provided through mandatory socialization of huge population pools.
On the financing side, the heavy taxation needed to fund the scheme has been made politically feasible by the mythology that participants are paying a “premium” for an “earned” annuity, not a tax. Consequently, payroll tax financing is deeply regressive because all participants pay a uniform rate regardless of income.
At the same time, benefits are also regressive because those with the highest life-time wages get the greatest replacement. This regressive outcome is only partially ameliorated by the so-called “bend points” which provide higher replacement on the first dollar of covered wages than on the last.
The New Deal social insurance philosophers thus struck a Faustian bargain. To get government funded pensions and unemployment benefits for the most needy, they eschewed a means test and, instead, agreed to generous wage replacement on a universal basis. To fund the massive cost of these universal benefits they agreed to a regressive payroll tax by disguising it as an insurance premium. Yet the long run results could not have been more perverse.
The payroll tax has become an anti-jobs monster, but under the banner of a universal entitlement organized labor tenaciously defends what should be its nemesis. At the same time, the prosperous classes have gotten a big slice of these transfer payments, and now claim they have earned them—when affluent citizens should have no proper claim on the public purse at all.
Accordingly, social insurance co-opts all potential sources of political opposition, making it inherently a fiscal doomsday machine. It was only a matter of time, for example, before its giant recipient populations would capture control of benefit policy in both parties, and most especially co-opt the conservative fiscal opposition.
Within a few decades, in fact, Republican fiscal scruples had vanished entirely. This was more than evident when Richard Nixon did not veto but, instead, signed a 20 percent Social Security benefit increase on the eve of the 1972 election. Worse still, the bill also contained the infamous “double-indexing” provision which since then has generated massive hidden benefit increases by over-indexing every worker’s payroll history. The fiscal cost of relentless universal benefit expansion has driven an epic increase in the payroll tax. The initial 1937 payroll tax rate was about 2 percent of wages, but after numerous legislated benefit increases, the addition of Medicare in 1965, the Nixon benefit explosion and the Carter and Reagan era payroll tax increases, the combined employer/employee rate is now pushing 16 percent (including the unemployment tax).
Accordingly, Federal and state payroll taxes for social insurance generate $1.2 trillion per year in revenue—four times more than the corporate income tax. So with the highest labor costs in the world, the U.S now imposes punishing levies on payrolls. It thus remains hostage to a political happen-stance—that is, the destructive bargain struck eight decades ago when high tariff walls, not containerships loaded with cheap goods made from cheap foreign labor, surrounded it harbors.
Yet there is more and it is worse. The current punishing payroll tax is actually way too low—that is, it drastically underfunds future benefits owing to positively fictional rates of economic growth assumed in the 75-year actuarial projections. As a result, the benefit structure grinds forward on automatic pilot facing no political opposition whatsoever. In the meanwhile, the fast approaching day or reckoning is thinly disguised by trust fund accounting fictions.
In truth the trust funds are both meaningless and broke. Annual benefit payouts already exceed tax receipts by upward of $50 billion annually, while the so-called trust funds reserves—$3 trillion of fictional treasury bonds accumulated in earlier decades—are mere promises to use the general taxing powers of the US government to make good on the rising tide of benefits.
The New Deal social insurance mythology of “earned” annuities on “paid-in” premiums that have been accumulated as trust fund “reserves” is thus an unadulterated fiscal scam. In reality, Social Security is really just an intergenerational transfer payment system.
Moreover, the latter is predicated on the erroneous belief that new workers and wages can be forever drafted into the system faster than the growth of benefits. During the heady days of 1967, for example, Paul Samuelson and his Keynesian acolytes in the Johnson administration still believed that the American economy was capable of sustained growth at a 5 percent annual rate. The Nobel Prize winner thus assured his Newsweek column readers that paying unearned windfalls to current social security beneficiaries was no sweat: “The beauty of social insurance is that it is actuarially unsound. Everyone ... is given benefit privileges that far exceed anything he has paid in ...”
Samuelson rhetorically inquired as to how was this possible and succinctly answered his own question: “National product is growing at a compound interest rate and can be expected to do so as far as the eye can see. ... Social security is squarely based on compound interest ... the greatest Ponzi game ever invented.”
When 5 percent real growth turned out to be a Keynesian illusion and output growth decayed to 1–2 percent annual rate after the turn of the century, the actuarial foundation of Samuelson’s Ponzi game came crashing down. It is now evident that Washington cannot shrink, or even brake, the fiscal doomsday machine that lies underneath.
The fiscal catastrophe embedded in the New Deal social insurance scheme was not inevitable. A means-tested retirement program funded with general revenues was explicitly recommended by the analytically proficient experts commissioned by the Roosevelt White House in 1935. But FDR’s cabal of social work reformers led by Labor Secretary Frances Perkins thought a means-test was demeaning, having no clue that a means-test is the only real defense available to the public purse in a welfare state democracy.
When the American economy was riding high in 1960, Paul Samuelson’s Ponzi was extracting payroll tax revenue amounting to about 2.8 percent of GDP. A half century later, after a devastating flight of jobs to East Asia and other emerging economies, the payroll tax extracts two-and-one half times more, taking in nearly 6.5 percent of GDP. So the remarkable thing is not that wooly-eyed idealists who drafted the 1935 act succumbed to social insurance’s Faustian bargain at the time. The puzzling thing is that 75 years later—with all the terrible facts fully known—the doctrinaire conviction abides on the Left that social insurance is the New Deal’s crowning achievement. In fact, it is its costliest mistake.

Guest Post: Social Security: The New Deal’s Fiscal Ponzi | Zero Hedge

June 10, 2013

#Uruguay's Exposure to #Argentina's Economic Malaise

some people are taking advantage of arbitrage opportunities by bringing dollars from Uruguay into Argentina, selling them on the black market for pesos, and either spending the pesos in Argentina or converting the pesos back into dollars in Uruguay at the official rate and pocketing the difference


As Argentina's economic situation deteriorated over the past several years, Argentines flocked across the border to Uruguay to bank and invest. This has presented Uruguay with economic opportunities but also has exposed the small nation to considerable collateral risk and economic distortions that have compelled Buenos Aires and Montevideo to take corrective action. To prevent Argentines from pouring dollars into Uruguay and then pulling dollars out of the country en masse, potentially triggering a repeat of Uruguay's last crisis, the Uruguayan government has implemented capital controls and is considering adding more.

June 7, 2013

#Paulson: All That Glitters Isn’t #Gold

Paulson: All That Glitters Isn’t Gold

Gregory Zuckerman, Juliet Chung

John Paulson has a message for investors: Stop paying so much attention to my gold bets.
Mr. Paulson, the billionaire hedge-fund manager who has been one of the most bullish investors in the precious metal and suffered deep losses as a result, is eager to focus attention on his better-performing investments, which also dwarf his firm’s gold fund in size.
Now, his $18 billion firm, Paulson & Co. will stop including the performance of the gold fund when it shares monthly updates with investors in its healthier funds, according to a letter sent to his investors Thursday. From now on, investors in the gold fund, which manages about $360 million, will receive separate word of the fund’s returns, the letter says.
Mr. Paulson, the firm’s founder, has grown frustrated that his firm’s gold troubles have obscured much-better returns from his other funds. Paulson Gold was down 47% for the year through April, including a 26.5% decline in April. The firm hasn’t told investors about May’s returns for the gold fund yet.
“At the request of clients and consultants, we will be reporting the performance of our Gold Funds separately to investors in those funds and interested parties,” the letter says, noting that those funds represent only 2% of assets under management. The funds “have received a disproportionate amount of attention over recent months and have detracted attention from the performance and positive developments of our other funds.”
The firm will begin conducting separate conference calls for the gold fund. It also plans to stop broadly reporting the performance of the gold share class of its various funds in its regular investor updates, though it will share those figures with clients who are invested in the gold-share class or with people who specifically ask for it. The gold share classes were introduced by Mr. Paulson to give all of his investors access to the metal.
One of Mr. Paulson’s other funds has been on a tear, while others have held up better than gold, spurring the move. The Paulson Recovery fund, for example, which manages about $2 billion and invests in companies that benefit from a broad economic upturn, jumped 4.9% in May and is up 27% on the year, according to the letter to investors. The fund has made money on “insurance, banking, and defaulted securities,” it said.
Paulson & Co.’s two credit funds, his biggest, rose 3.6% in May and are up 16.2% for the year through May. They have profited from bets on defaulted and convertible securities, the investor letter says.
Meanwhile, his merger funds are up between 8.2% and 17.4% through May, profiting from bets on various deals.
Still, Paulson Advantage and Paulson Advantage Plus funds, which bet on anticipated corporate events and manage about $3.6 billion, also have been hit by the decline in gold because of positions in gold stocks. Those funds are up 2.4% and 3.3%, respectively, in May. The Paulson Advantage fund is up 4.4% for the year, while Paulson Advantage Plus is up 6.1% in 2013.
“Lots of people are beating up on him because he’s been wrong on gold for some time, but he has many different strategies, and those have been performing pretty well,” said Vidak Radonjic of Beryl Consulting Group LLC, who advises on hedge-fund investing. Mr. Radonjic, who recommends his clients invest with smaller managers because he believes they are more nimble, nonetheless said he found the gains of Mr. Paulson’s larger funds impressive.
Mr. Paulson made his name scoring $20 billion of profits over 2007 and 2008 by betting against subprime mortgages and financial companies ahead of the financial collapse.
Gold prices have fallen 15.5% in 2013, despite a rise of 1.2% on Thursday. As stocks have climbed and inflation has remained tame, investors have dumped gold-tied investments.
The shift in reporting doesn’t mean Mr. Paulson has reduced his commitment to gold. He isn’t selling gold investments, according to people close to the matter, citing what he considers to be an attractive valuation for many gold-mining companies, which have slumped for several years.
Heavy losses from gold and other investments in Mr. Paulson’s Advantage funds made them much smaller, putting more of a focus on the Recovery fund and other better performers.
He also remains bullish on real estate, believing the current turnaround will continue for as many as four or five years, people familiar with the matter said. He has noted that new home building remains well under peak levels and also under the level needed to satisfy the nation’s population growth.
Write to Gregory Zuckerman at and Juliet Chung at

June 6, 2013

More on #Japonica Partners: The Mysterious Bidder for #Greek #Bonds - MoneyBeat - WSJ

Meet Japonica Partners: The Mysterious Bidder for Greek Bonds

3:43 pm
Jun 3, 2013

By Charles ForelleEuropean bond markets were perplexed Monday by an unusual tender offer: An investment firm in Rhode Island is offering to buy up to €2.9 billion in Greek government bonds.
Just as unusual: The putative buyer, Japonica Partners.
Japonica was founded in 1988. Its chief, Paul B. Kazarian, fought rough-and-tumble takeover battles at Allegheny International Inc., which made toasters and blenders, and Borden Inc., maker of milk and Elmer’s glue. (It won Allegheny but lost Borden to KKR KKR -2.50%.) In 1999, Kazarian agitated as an activist shareholder of pen maker A.T. Cross.
Then, he got much quieter, only to emerge Monday as a bidder for Greek bonds — a volatile and risky corner of the European market.
A spokesman for Japonica, Xander Heijnen, said Kazarian wouldn’t be available for an interview. The phone at Japonica’s Providence, R.I. offices rang directly to voicemail. No one returned a message. Japonica’s Web site offers scant information about the firm or Kazarian, other than to detail his philanthropic interests and list venues where Kazarian has delivered speeches.
But a perusal through The Wall Street Journal’s archive paints a picture of a corporate raider of an old-school mold, and a whiz-kid investor whose smarts came coupled with a temper.
In a 1989 article about Japonica’s hostile bid for CNW Corp., a railroad holding company, Japonica is described as a “mystery New York investment group.” Kazarian, then 33, was dubbed part of a “brassy new generation of corporate raiders, called ‘kid raiders’ or ‘brat packs.’” On its Web site, Japonica said CNW was “suffering from a loss of passion for innovation and performance.” Blackstone eventually took CNW private, but Kazarian “made a bundle” for him and his partners, according to a later article.
The next year, Japonica ended up on top in a bruising fight for Allegheny International, whose major brands included Sunbeam toasters and Oster blenders. Kazarian became chairman. The company became Sunbeam-Oster Co. It turned into a lucrative deal. But things got rocky. In 1993, Kazarian was ousted from Sunbeam in an internal revolt. A Page One story detailed the turmoil.
Top executives and board members of the Providence, R.I., company tell a story of a man whose mastery as a crisis manager turned vicious as Sunbeam’s success diminished the need for his furious management style. Mr. Kazarian’s main management tactic, executives claim, was to create crisis. Top managers, speaking not for attribution, say they were pitted against one another, publicly hazed, humiliated and even physically intimidated.
In the article, Kazarian said he received no complaints about his management style before his ouster. His style appeared to be colorful:
Thus, there was tension with Mr. Kazarian, whose 1991 compensation was $1.84 million (10 times that of either of his Japonica partners) and who had become frustrated at his loss of control. In one incident, he took a BB gun — a sample the company was examining as a possible product — and shot it at the vacant chairs of executives, shouting “Die! Die!” according to a witness. Mr. Kazarian says he shot the BBs at targets in the office to test the gun, but doesn’t recall where he put the targets. He adds that no one was in the office at the time, and denies saying, “Die! Die!”
Kazarian’s firing spawned a furious legal fight with Sunbeam investors and some of Kazarian’s former colleagues. He won a $160 million settlement. He took a run at Borden the next year, but KKR ultimately won out. A 1994 Journal article said it wasn’t clear where Kazarian would get the $1.27 billion needed for the Borden bid.
A major weakness in his approach at this stage is that he hasn’t given details of how he could finance such a purchase. Mr. Kazarian’s Providence, R.I., Japonica Partners has about $180 million in gains from Sunbeam and other investments.
But he should be able to gain the ear of some major Borden shareholders, who have complained openly about the terms of the KKR offer. Mr. Kazarian noted in his letter that he has assembled financing for past takeover bids, including Sunbeam.
It also isn’t clear today precisely how Kazarian would finance the purchase of Greek bonds. Japonica has offered to buy as much as €2.9 billion of bonds for a minimum price of 45 cents on the euro. That means Japonica would need at least €1.31 billion to acquire all it wants. The procedure outlined in Japonica’s Monday press release doesn’t oblige Japonica to buy all €2.9 billion, and existing bondholders are free to offer to sell at prices higher than 45 cents. Japonica can choose whether to accept them.
A Japonica spokesman said in written response to questions that Japonica had made “several billion-dollar-plus investments” and that they’ve “performed extraordinarily well.” The response said Japonica’s “profits are the source of its capital.”
Greek government bonds have been a stellar investment over the past year. In March 2012, Greece defaulted on its huge debt load and exchanged nearly all of its outstanding bonds for new ones. They performed poorly in the months after the default, but a year ago most Greek bonds stood at below 15 cents on the euro. Today, depending on maturity, they trade at between about 45 and 60 cents.
The benchmark 10-year bond closed Monday at just over 60 cents, equivalent to a yield of 9.25%. That was unchanged from Friday. Longer-dated bonds, which have lower prices that are closer to Japonica’s 45-cent minimum bid, were better performers, but there were no jarring moves.
– Katie Martin contributed to this post.

Meet Japonica Partners: The Mysterious Bidder for Greek Bonds - MoneyBeat - WSJ

June 4, 2013

Wall Street Is Transfixed by #SAC Capital Deadline

Yesterday's Bloomberg article has got a lot of brokerage firms nervous about their trading volumes if #SAC downsizes. Article: Wall Street Is Transfixed by SAC Capital Deadline

A quarterly deadline for investors to withdraw money from the troubled hedge fund SAC Capital Advisors was the talk of Wall Street. The New York Times reports.

Full Story:

#Whale of a Trade Revealed at JP Morgan Chase $JPM

"We are dead I tell you," Bruno Iksil, a London-based trader at JPMorgan Chase & Co. (JPM), messaged an associate on March 23, 2012. "It is hopeless now."

To read the entire article On Bloomberg, go to

June 3, 2013

#Japonica Partners Bid For #Greek #Debt

Why does this sound like a #scam?

Rhode Island-Based Firm Announces Bid For Massive Amount Of Outstanding Greek Debt

A firm called Japonica Partners has announced a tender offer for 10% of all Greek government bonds.
FT Alphaville reports that the firm, which is based in Rhode Island, was founded in the late '80s by former Goldman banker Paul Kazarian.
Here's the full statement:

FRANKFURT, Germany, June 3, 2013 /CNW/ -
  • First-ever tender offer by private investor for European government bonds
  • First-ever unmodified Dutch auction for sovereign bonds
  • Significant premium to price in December 2012 government buy-back
  • Japonica to align its long-term investment interests with Greece
Japonica Partners & Co. announces an invitation by its indirect wholly-owned subsidiary Yerusalem Hesed, Ltd. (the "Acquirer") for eligible holders of certain series of bonds issued by Greece in 2012 to sell the bonds for cash. The amount to be purchased will be up to €2.9 billion in face value which represents less than 9.9% of the total outstanding €29.6 billion of Greece government bonds. The purchase of the bonds by the acquirer would permit existing holders to monetize their Greece government bonds.
This offer marks the first time ever that a private investor tenders for European government bonds. Also for the first time ever, purchase prices for a sovereign bond tender will be determined by an unmodified Dutch auction. The rationale for this highly innovative tender procedure is to apply an effective method to purchase institutional blocks of these bonds in an orderly and price-efficient manner.
The invitation provides maximum flexibility by enabling the acquirer to make immediate purchases and by giving investors a right to withdraw prior to acceptance or the tender deadline. The expected tender deadline is 5:00pm Central European Time on 1 July 2013, unless otherwise revised in accordance with the Tender Offer Memorandum.
The minimum purchase price for each of the series of bonds is 45.0% of their principal amount, a 26.5% premium to their average price in the December 2012 Greece government bond buyback, and a 15.2% premium to the average closing price on 27 March 2013.
Japonica believes that the market for Greece government bonds is volatile, highly illiquid, and at any time not necessarily reflective of their intrinsic value. During a 42 trading day period in the first quarter of 2013, historical price volatility included a 27.8% decline in average price. The minimum purchase price is a discount to the most recent average price.
A Japonica spokesperson said: "This tender offer reflects Japonica's long-term perspective on Greece and the progress that the country has made to date. It is Japonica's goal to align its investment interests with those of Greece."
Japonica Partners is an entrepreneurial investment firm that makes concentrated investments in underperforming global special situations. Founded in 1988, Japonica Partners has developed and builds "perfectly aligned" relationships that both cultivate entrepreneurial returns and are the foundation of low risk. With its high value creation core competencies, Japonica invests to significantly raise the bar for the best investments globally. Japonica Partners is not a fund, nor does it provide investment advice.
The invitation is restricted to certain eligible institutional investors and bonds may only be tendered for purchase in a minimum principal amount of €1,000,000 and multiple integrals of €1 in excess thereof. The invitation is being made on the terms described in the Tender Offer Memorandum to be issued on or about 5 June 2013. Further details, including the relevant series of bonds, will also be contained in an announcement to be promulgated together with or shortly before the Tender Offer Memorandum.

Japonica Partners Bid For Greek Debt - Business Insider

May 27, 2013

These 2 Things Are Missing on #Spain's Route to Recovery: #jobs and #growth

These 2 Things Are Missing on Spain's Route to Recovery

Reuters | Monday, 27 May 2013 | 3:06 AM ET
Spanish officials tell a dramatic turnaround story: from near-bankruptcy a year ago to model of budget austerity and reform now.
There are just two things missing: jobs and growth. And only one potential salvation: exports.
Ministers reel off a litany of statistics to show how much has been achieved: the budget deficit has been cut from 11.2 percent of GDP in 2009 to 6.98 percent last year. Some 375,000 public sector jobs have gone, labour costs are down to 2005 levels and competitiveness has improved.
Senior executives boast of how they have trimmed the bloated debts of their multinational conglomerates, hastily bolted together with abundant cheap money during the boom years.
They have used new employer-friendly labour laws to shed jobs and costs; infrastructure group FCC uses five teams of managers to run seven Spanish cement plants, for example, with managers travelling hundreds of kilometres between different sites.
"Spain's adjustment is a work in progress," says Fernando Fernandez, Professor of Economics at the Instituto de Empresas business school. "There is institutional stability and a willingness to reform ... but growth and employment remain elusive."
Spain has a strong governing party with an absolute majority in parliament which need not face voters until late 2015. That's a sharp contrast to the uneasy coalitions constructed in Italy and Greece.
The complaints voiced loudly across southern Europe are not echoed in Madrid: Spain's conservative government has no time for moans about unfeeling German domination of the euro zone or complaints about Berlin's supposed lack of understanding for the social problems austerity policies have unleashed.
Prime Minister Mariano Rajoy's Popular Party, which has ties to the Catholic Church, also enjoys close ideological and personal links with Chancellor Angela Merkel's Christian Democrat coalition in Berlin.
German Finance Minister Wolfgang Schaeuble has agreed to guarantee jointly with Spain a new fund to lure in $5 billion of investment into Spain's capital-starved smaller companies.
Despite nearly a year and a half of unbending austerity, Rajoy's party is still more popular than any other in Spain - if a poll rating of 28-29 percent can be called popular. That result partly reflects the fracturing of the left, where the long-time governing Socialist Party PSOE has bled support to the United Left of communists, ecologists and republicans.
Now for the Bad News
But two clouds hang over the bright horizon seen by the Spanish ruling class.
Record unemployment blights the government's record. The collapse of Spain's construction boom and the cuts to its public sector lie behind the alarming jobless numbers, equal to 27 percent of the workforce.
Ministers argue the figures are not the threat to social stability they seem. They point out that in the first quarter of this year, the total number employed was similar to 2001.
What changed was the population. Spain experienced massive immigration as millions of largely unskilled workers arrived to seek work in the construction sector, pushing the population up by nearly seven million in only nine years.
When the property boom ended, some eight million jobs disappeared with it. But many immigrants and some Spaniards are now leaving - Spain lost one percent of its entire population last year.
"The Spanish population will probably fall by two million in the next four to five years," Fernandez said. "Of the six million unemployed, two million are probably foreigners and they are likely to go."
Inventive Spaniards have adapted. One senior official tells of how his architect brother-in-law found new opportunities in Qatar. "He has grown professionally more in the past six months than he did in his whole previous career," the official said.
At the other end of the spectrum, a chief executive tells of how cleaners at his company's premises agreed to take a 25 percent pay cut to keep their jobs - something unimaginable in the company's German or Austrian operations.
But even if one accepts the government argument that the jobless figures are not as awful as they look, and that Spain's traditionally close-knit society will not unravel under the pressure of a generation of unemployed youngsters, there is a second problem.
Debt Still Hangs Heavy
Spain remains heavily in debt. It may have a current and capital account surplus for the first time since 1998 but the country still ran a deficit of nearly 7 percent of GDP last year and Rajoy decided to trim the budget cuts planned for this year by 7.2 billion euros to 18.9 billion to lessen the pain.
In order to pay back its debts and reduce borrowing to a more manageable level, as well as to create jobs, Spain desperately needs growth. Instead it is mired in recession, its economy having shrunk for seven consecutive quarters.
Ministers and CEOs alike have only one answer: exports. With public spending being cut, private companies too busy paying back debt to invest and consumers pruning their purchases to compensate for wage cuts, the only way for the economy to recover is by selling abroad.
Officials trumpet the country's sharply improved competitiveness. Since peaking in early 2009, according to government figures, Spain's unit labour costs have fallen sharply while those of France, Italy and Germany have risen.
Prices are rising in Spain more slowly than in other euro zone countries, which helps further.
Carmakers - traditionally among the quickest to react to changes in relative labour costs - have done so. Six of the 11 foreign carmakers present in Spain plan new investments, including France's Renault and Volkswagen.
Spain's exports have risen from a trough of 23 percent of GDP in 2009 to 33 percent this year. Traditional export staples such as fruit and vegetables and cars have been joined by chemicals, telecoms equipment and technology.
"When I board a plane to Chile I see the plane full of Spanish businessmen flying to sell products I never knew existed to markets which none of us had ever thought of," said one Spanish executive.
But Spain's exports remain mainly dependent on the sickly euro zone. And if the world economy flags, the country's hard-won new markets in Latin America and Asia could shrivel too.
That makes further structural change crucial and some critics detect reform fatigue.
They argue that with elections looming in 2015, Rajoy will not waste political capital making tens of thousands more civil servants unemployed and cutting back unemployment benefits and the minimum wage.
Ministers dismiss such worries. They promise to press ahead with streamlining Spain's cumbersome public sector, although it is not clear they have the political will.
Other unfinished business includes further changes to labour laws and regulations to help entrepreneurs, and reforms to adjust pensions to compensate for greater life expectancy.
Credit is also a problem. Large Spanish multinationals can get around the lack of bank funding by issuing bonds guaranteed on their overseas operations but smaller companies face an almost total dearth of lending and punitive interest rates.
Markets for now are giving Madrid the benefit of the doubt. Spanish 10-year bonds are finding plenty of buyers at yields of around 4.4 percent, sharply down on the 7.5 percent seen a year ago which prompted panic and talk of a bailout.
But ultimately, Madrid's fate is likely to hang on its export performance in a still uncertain European and global economy.
© 2013

These 2 Things Are Missing on Spain's Route to Recovery

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