New party Anti Euro Party in Germany

 http://www.dw.de/german-party-says-no-to-the-euro-yes-to-the-eu/a-16660602

Opponents of the euro in Germany have founded a new party in favor of abolishing Europe's common currency. But critics question whether the rather academic group can pack the populist punch it needs to enter parliament.

"The Alternative for Germany" - Germany's new party opposing the eurozone - is unlikely to impress Angela Merkel. The German chancellor takes pride in her policy aimed at saving Europe's monetary union. "The end of the euro would also be the end of the European Union," she has said - justification in her view for why the monetary union must be sustained.
But there is a substantial group within Germany that disagrees. In a survey conducted by the Germany weekly news magazine "Der Spiegel" in July 2012, 54 percent of interviewees said they don't believe investing vast sums of money to keep the common European currency is really worth it.
Opposition to the common currency in not reflected in the German parliament at all, says Konrad Adam. For years, he was a journalist at the center-right German daily "Frankfurter Allgemeine Zeitung," and has decided to start the new political party together with a handful of business experts who have worked in media and research.
The group, which calls itself Alternative for Germany, demands the dissolution of the eurozone and an open discussion of bailout strategies.
The euro is ‘destroying Europe'
Adam is frustrated about the lack of representation for euro opponents in parliament.

Konrad Adam, founder of Alternative for Germany

“All of the parties in the Bundestag have effectively the same opinion when it comes to rescuing the euro,” he told DW. “The only distinction between them is how much money should be invested and when. The euro is seen as holy, and anyone with a differing opinion is either dismissed as a populist or is shamed. That is not right.”
That's what led Adam to band together with like-minded journalists and scholars, such as Bernd Lucke, who teaches economics at the University of Hamburg, to start their own party.
“When I go to vote, I want a choice, which is why we wanted to create an alternative,” Adam said.
The issue isn't exactly minor in the German political arena. Germany must contribute 21.7 billion euros ($28.2 billion) to the euro rescue fund, which is meant to prevent EU countries with financial problems from slipping into bankruptcy by providing such countries with favorable lending conditions. So far, Greece, Ireland, Portugal, Spain and Cyprus have tapped into the fund.
According to the founders of Alternative for Germany, the possibility of getting rid of the euro and stopping the payments is being ignored by German politicians. They believe the end to the common currency to be the best thing that could happen to Europe.
“We are afraid that Europe isn't benefitting from the euro, but is actually being subtly destroyed by it,” Lucke told DW.
Dissolving the eurozone, not the EU

Germany has pumped over 20 billion euros into rescue funds

Lucke clarifies however that while the party is against the euro, it is not against European unity. The party focuses on getting rid of the eurozone. They call for the countries to either choose between national currencies, such as the deutschmark, the franc, or the drachma, or to create smaller currency unions. Adam could envision a northern euro and a southern euro, for example
The founders of Alternative for Germany don't want to get too specific with such proposals at the moment. While they support the principle of adherence to EU treaties, the group's members also hope to see changes to EU treaties that would allow Germany and other countries legal means of exiting the eurozone. Further, the new party is calling for binding referendums that would give EU citizens more power to make decisions.
A decision on whether the party fulfils the criteria to take part in Germany's federal elections this September is expected in April. At the very latest, the party's leaders hope to take part in the European elections in 2014.
A 'dangerous' position?
Rudolf Hickel, an economist and former head of the Institute of Labor and Economics (IAW) at the University of Bremen, considers Alternative for Germany's chances for success in September's elections to be slim.

Rudolf Hickel believes calls to dissolvr the eurozone are 'dangerous'

“Normally, I'd certainly give a party like this a chance to reach five percent,” Hickel told DW, referring to the law in Germany that a political party must win at least five percent of the vote to gain parliamentary representation. “But the people behind Alternative for Germany are the best guarantee that the party won't make it into the Bundestag. They are professors and frustrated economists. If the party were headed by a populist, I'd consider them dangerous.”
Hickel does welcome an open debate about the euro rescue mechanisms, but he considers abandoning the currency bloc to be very dangerous.
“If Greece, for example, was out of the euro, it would be a permanently poor country, but would remain in the European Union,” Hickel explains. “And I can say now that, in that case, the EU would have to help with payments, or pressure would mount on Greece until it left the European Union. Then other EU countries would have to pay more. That would be an extreme burden on the European project."
That's where the founders of Alternative for Germany disagree. The party believes Germany's political elite must stop clinging to the joint currency without paying more attention to the sacrifices being made to keep the currency bloc afloat along the way.

 

Weekly Review 10.30.2012

 

This was a record setting week! Literally 

Europe
Eurozone hit a record high debt of 90% from all 17 countries that use the single euro currency.  This is the highest level since 1999 when the EU currency was first implemented.
"The euro area economy remains stuck in a rut" said James Ashley, Sr. European economicst at RBC Capital Markets.
According to the Eurostat, five countries are in recession Greece, Spain, Italy, Portugal and Cyprus.  Many analyst expect the Eurozone to slip back into a recession next month when the official numbers are released. (recession is defined as two downward quarters of negative growth in a row)
Furthermore, PMI remains lowest in three years at 45.8  We can see this with BMW and VW, their exports have taken a hit on YoY basis. 


China
PMI- HSBC report showed Wednesday rising new orders.  3 month upward trend shows that the economy is slowly picking up.  However, this is not sustainable given US potentially falling off the cliff and the meltdown in Europe.  Nonetheless, PMI was 47.9(August)  49.2(September) and 49.8 in October.  This is still below 50 but indicates slow improvement and a moderate rebound of the worlds second largest economy.  Weak external demand and a slack job market are key factors, therefore one should expect more easing policies to secure recovery.

China's yuan reached a 19 year high against the US dollar.  Currency hit 6.2417 yuan per dollar, it has been appreciating since QE3 and the ECB bond buying plan.   HK monetary authority has injected more than $14B to stabilize Curreny.  Could this be the start of a currency war? Last weeks review we talked about Brazil's finance minister publicly scolding the US selfish actions at the IMF conference in Tokyo.   Chinese exports are sure to take a beating. 

Japan
Japan adds $9.4B to stimulus program to bump up growth as bond investors told government they were worried about delays and more spending.  Finance minister said this was necessary because Japan would run out of money if the bill was not passed.  This is only estimated to boost GDP by .1%.  Japan has the highest debt level among developed nations and has experienced 2 lost decades.  According to world renowned economists Rogoff and Reinhart  a Country with debt-to-gdp in excess of 90% is unsustainable.  Japan is at over 200%. (see book "This time is Different")

United States
Fiscal Cliff can be much worst than it is.  Many economist think every dollar of deficit reduction will subtract nearly the same amount from economic growth.  The IMF suggest 1$ could drain as much as $1.70.  With interest rates at near zero the pain will be much worse. Bernanke has acknowledged he would not be able to fully offset the pain if the economy runs into the fiscal cliff.  


The “fiscal cliff” and long-term government deficit issues are weighing heavily on the minds of finance professionals, and they do not expect business conditions to improve regardless of the results of the Nov. 6 presidential election.
Three-fourths of 949 executives who responded to a survey at the annual conference of the Association for Financial Professionals (AFP) this month reported that they believe overall economic conditions will weaken if various tax law provisions expire and mandated government spending cuts go into effect as scheduled in January 2013.
Respondents rated implementing changes to avoid the fiscal cliff as the second-most important issue for federal elected representatives to focus on after the election. The most important issue to respondents was resolving long-term government fiscal and deficit issues, identified by 63% of finance professionals in the survey.

Herman Venegas
 

Is Now a Good Time to Invest in Currencies?

If you are looking to invest your money somewhere, currencies like the Euro or the U.S. dollar may not be the best option for you right now. Although currencies have always been a significant component of pension funds in countries like the U.K. and the U.S., since the market crash of 2008 currencies have had a less than stellar performance as an investment instrument. Up until the crash, a successful investment strategy was to borrow in a currency that had a low yield and use that money to invest in a currency that had a high yield. That story changed after 2008. In terms of performance, last year was perhaps as bleak as it would get for top currency indices.  Considering the debacle in which the European Union is right now, it might not come as a surprise that the Euro has been getting weaker and weaker every month for the past twelve months. Here is a chart highlighting the Euro’s performance against the Canadian dollar for the past five years:

 

 

For those Europeans who saw this coming, even as late as six months ago, a good investment strategy would have been to get into a currency future. A currency future is a futures contract to exchange one currency for another at a specified date in the future at a price (exchange rate) that is fixed on the purchase date. 

Economics 101 tells us that the above graphical trend makes European imports cheaper for Canadians and Canadian exports more expensive for Europeans. Luckily for Canada, exports make up only 29 percent of the country’s GDP. That somewhat explains why Canada’s GDP continues to grow despite the adverse global conditions. Moreover, the USD-CAD exchange rate has been hovering at around parity for almost a year now (see below). Despite Canadian exports becoming more expensive for Americans, the United States continues to be Canada’s biggest trading partner. With the Canadian dollar being as strong as it is, it would be to Canada’s advantage to form ties and trading agreements with emerging markets as opportunities for trade are aplenty across the Pacific and Atlantic oceans. 

 

Individuals looking to invest in currencies can also use the same proposed strategy on a micro level.  Analysts say pension funds are nowadays “investing in emerging market currencies, though this is currently more popular among UK funds than those in the US”.

The Bottom Line:

If you are thinking of investing in currency these days, it is much better to expand your horizons and invest in emerging market currencies rather than one of the top currency indices. In the long term this is a much better investment strategy, as returns on these sorts of currency investments are expected to be considerably high according to experts and trends. 

Ali Kazerani

Weekly Review

Gloom and Doom

Certainly this has not been a fun week for most markets around the world.  Many companies came out missing target estimates reaffirming the fact that the economy is far away from a real recovery. The UK shocked the markets when the latest GDP numbers from the Office for National Statistics showed that the economy shrank by 0.7% over the second quarter. 

USA
The US economy expanded at a rate of 1.9% the first quarter.  Numbers just came out today indicating that the economy grew at a slower pace of 1.5% for the second quarter from April to June.  The economy slowed amid weak consumer spending, government cuts and a rise in imports from foreign countries.  Weak confidence in the Euro currency has led to capital flight into the American dollar thereby pushing up its value.  With a stronger US dollar exports have become less attractive which in turn is hurting local manufacturers export their products.
Bush tax cuts are set to expire be the end of 2012 (Fiscal Cliff).  Most economist predict that if all of the 2012 tax and spending cut measures occur under current law, it would reduce the deficit but also drag down GDP by 4% or more and cause a recession next year.

EU

European Central Bank President Mario Draghi pledged on Thursday to do whatever was necessary to protect the euro zone from collapse, sending a strong signal that inflated Spanish and Italian borrowing costs were in his sights.  Spain's 10-year bond yield sank to as low as 6.92%, around 40 basis points lower.  Furthermore, the news reversed the 5 day decline of the Euro/USD.  The Euro made significant gains.

Italy also came into the spotlight as the provincial government association (UPI) warned that schools may not be able to open after the summer holidays due to planned spending cuts and local finances. These comments proceeded prime minister Mario Monti's comments last week announcing that Sicily was on the brink of default and on the same day the press stated that 10 Italian cities faced serious financial difficulties.
  
Citigroup said there’s now a 90 percent chance Greece will leave the euro in the next 12 months to 18 months.



 

China

China National Offshore Oil Corp.(CNOOC) — is a state-owned oil company.
Calgary-based oil and gas firm Nexen Inc. has agreed to be acquired by CNOOC Oil Company in a $15.1 billion US cash deal. It will pay $27.50 per Nexen share. That price makes the deal the largest foreign transaction that Beijing has ever attempted.

The New York senator, a noted opponent of China's international trade policies, told U.S. Treasury Secretary Timothy Geithner that the U.S. should block the takeover of Calgary-based Nexen unless China lives up to its free trade commitment.

With stronger Canadian/Chinese trade relations and uncertainty in middle eastern oil we can expect to see more M&A activity in the Canadian energy markets.

Herman Venegas

Weekly Review

 

What a week!  Looks like the major central banks fired some bullets with the intent to fuel the economy.  Lets take a further look into specific regions...........

China
This is the second time in a month (second time in four years!)  that the Peoples bank of China have cut interest rates.  One year lending rate decreased 31basis points and one year deposit rates dropped 25 basis points. 
The effects were felt immediately! Chinese property shares rose the the most in four months.  The Shanghai Composite Index added 350basis points.  Companies like China Vanke and Poly Real Estate Group benefited from this despite governments restriction on the property market.  Lets keep in mind that Chinese rates are currently sitting at 6% which gives them lots of fire power.

Eurozone
ECB president Mario Draghi adopted Bernanke style Economics by cutting the Benchmark rate to a Record Low of 0.75% and the overnight deposit rate to 0!  Unlike China's 6%, the ECB doesn't have much fire power left and will eventually fall into a liquidity trap. 
How have the European markets responded?...............Not Good!.  Despite the the rate cut and the EU plans to recapitalise the banks, Spanish yields are back up to 6.95% from 6.25% earlier this week (7% is very likely a tipping point).  There's not much the ECB can do now without some sort of Fiscal unity.  I say lock the EU leaders up in a cabin somewhere in the Alpes and don't let them out until they reach an agreement. 
Will the Euro Zone break up?...............  Roger Bootle thinks so, he is managing director at Capital Economics Ltd and talks about the outlook for the euro zone, central bank rate cuts and monetary stimulus. Bootle recently won the Wolfson Economics Prize for proposing a contingency plan for the breakup of the euro. 

England
Recovering from the Rupert Murdoch scandal of last year, England was hit with another one.  The Bank of England has been drawn into the scandal over Barclays Plc's rigging of LIBOR rates.  Nonetheless, the Bank of England raised its target for bond purchases by 50billion pounds to stimulate the economy.  The Bank has grown particularly concerned that rising borrowing costs could trigger defaults that cause bank losses to mount, setting off “an adverse feedback loop” that would weigh on economic growth and threaten the health of the financial system as a whole. Barclays is the most exposed of all UK lenders to the eurozone periphery, with loan and sovereign debt exposures equivalent to 170% of its entire equity capital. Royal Bank of Scotland also has dangerously large total exposures to the region.

US
After the FOMC and the extension of Operation Twist on June 20th we saw positive signs in the economy.  Home sales rose the most since April 2010 and the markets showed some signs of improvements.  But what's really happening? In the last month, two municipalities of California, Stockton and Mammoth Lakes filed for Bankruptcy.  A bad economy, housing problems and unfunded pension obligations seems to be the root cause of the problem. 
Just look the numbers! official data showed firms had created only 80,000 new jobs in June, leaving the jobless rate unchanged at 8.2%.  Job creation remains below the 100,000 judged necessary by the Federal Reserve for a stable job market, according to the US Labour Department.
So what will the Fed's do now?  Do I smell QE3?  TD economists tend to think so placing the odds of a third round of quantitative easing at  a relatively high possibility!