(ZH) Abenomics Creates "Potential For Economic Collapse Triggered By Bond Market

Abenomics Creates "Potential For Economic Collapse Triggered By Bond Market Crash", Warns Richard Koo

While Richard Koo is an employee of Nomura, or a bank which is among those who stand to benefit the most from the BOJ's doomed Banzainomics experiment, he has less than kind words to say about this latest and greatest demonstration of sheer desperation by Japan's Prime Minister, whose tenure may not be all that long - something which perhaps he is not very much against, as Abe is hardly looking forward to being named in the history books as the person who dealt Japan's economic death blow.

To wit:

When evidence meets faith, it doesn’t stand a chance
When a year and a half of aggressive quantitative easing failed to produce a recovery in private demand for funds, the government should have realized that the answer to the economy’s problems was not in monetary policy and shifted its focus to the second and third arrows of Abenomics.
But the reflationists in academia and bureaucracy who are unable to accept that monetary policy is powerless in a balance sheet recession have basically said that if one pill doesn’t cure the patient, try two, and if two don’t work try four, 16, 256....
Most patients would start to question the doctor’s diagnosis before they agreed to swallow 256 pills. But such voices have been erased from Japan’s policy debate.
ECB President Mario Draghi quipped in a press conference on 6 November that “when evidence meets faith, it doesn’t stand a chance.” For those who believe monetary policy is always effective, no amount of evidence that there are times when monetary policy does not work will convince them otherwise.
Ironically, instead of boosting the economy, Abe's latest lunacy will merely lead to even greater Japanese economic devastation and the inevitable quadruple dip. That, or an outright economic depression, one from which the country will not emerge.

Fanning inflation expectations and devaluing the yen will depress domestic demand
Reflationists like Mr. Kuroda argue that people will start borrowing again if they anticipate higher inflation. If inflation is being driven by an excess of demand over supply, the private sector will naturally borrow money to invest in facilities aimed at rectifying the supply shortfall.
But if real demand is not growing—if real consumption is actually declining and the money circulating in the real economy is increasing at a negligible pace, as is the case today—there is no reason why Mr. Kuroda’s promises should convince anyone that inflation is on the horizon.
In fact, most of the price increases reported in Japan recently have been imported inflation fueled by the weak yen. The resulting decline in the nation’s terms of trade implies an outflow of income, which naturally depresses domestic final demand.
So if Japan's QE12 (it may be QE13, we lost count after QE10) won't do much for the economy, what will it do? Well, what else: blow bubbles.

Central bank-supplied liquidity has nowhere to go without real economy borrowing
As I have repeatedly pointed out, the central bank can supply as much base money (liquidity) as it wants simply by purchasing assets held by private-sector banks.
But a private-sector bank cannot give away that liquidity, it must lend it to someone in the real economy for that liquidity to leave the banking sector.
For the past 20 years, Japan’s private sector has not only stopped borrowing money but has actually been paying down existing debt and increasing its savings in spite of zero interest rates.
Traditional economics never envisioned this kind of behavior, but the collapse of debt-financed bubbles in Japan in 1990 and the West in 2008 left many businesses and households owing as much or more than they owned, prompting them to focus on repairing their damaged balance sheets.
QE without private demand for funds only generates mini-bubbles
While Japan’s private sector finally cleaned up its balance sheet around 2005–06, the debt trauma lingered on. That, together with the collapse of Lehman Brothers in 2008, led to a situation in which Japan’s private sector is still saving 5.7% of GDP in spite of zero interest rates and aggressive quantitative easing.
Unless the government borrows and spends this 5.7%, the funds supplied by the BOJ under quantitative easing would never leave the banking system and neither the money supply nor private credit would have increased—in fact, they might actually have decreased.
No matter how much the BOJ eases policy during this kind of balance sheet recession, the liquidity it supplies will not enter the real economy as long as there are no private-sector borrowers. The only result is likely to be the creation of mini-bubbles in the financial markets.
While funds supplied under quantitative easing may provide a temporary boost to the prices of stocks and other assets, at some point those prices will correct unless they are justified by corporate earnings growth and other appropriate measures, and that will be the end of the mini-bubble.
Unless, of course the QE baton has passed to the ECB by then and/or the Fed's QE4. In which case Japan's "mini bubble" will merely merge into the maxiest bubble ever blown by the central banks.

Finally, we are happy to see that Mr. Koo reads Zero Hedge and the Banzainomics term that was conceived on these pages.

Overseas views on QQE2 are divided
Overseas views on the BOJ’s surprise easing announcement can be broken down into two camps: the reflationists, who commend the BOJ for its bold actions, and those critical of the policy, who say it is a symptom of the final stages of Japan’s economic decline.
The critics can further be divided into two groups: those who believe that continuing the current policy of “Banzainomics” will lead to a collapse of the Japanese economy and government finance triggered by a crash in the JGB market, and those who worry that the ongoing devaluation of the yen under this policy will hurt their own countries’ industries.
Of those in the second group, I think the voices from the US and the UK can be safely ignored. After all, what Japan is doing now is exactly what those two countries did six years ago with their reckless quantitative easing and currency devaluation
But the first group’s scenario, in which the BOJ’s reckless attempts to achieve a 2% inflation target trigger a bond market crash and an eventual collapse of the Japanese economy, is of greater concern. After all, it is the same scenario the world’s QE pioneers—the US and the UK—are desperately trying to avert at this very moment.
Collapse it is then. The only question is when.

NYT : Higher Counterbid Made for Club Med, With Help From K.K.R.

Higher Counterbid Made for Club Med, With Help From K.K.R.

PARIS – Andrea C. Bonomi, the Italian businessman battling a Chinese-French bid for Club Méditerranée, on Tuesday announced another sweetened offer for the resort company, this time with backing from Kohlberg Kravis Roberts and Company.

Acting just two days before a regulatory deadline, the Global Resorts consortium led by Mr. Bonomi’s Investindustrial said it was offering 23 euros, or $28.58, for each share of Club Med, which is based in Paris.

The consortium now includes K.K.R. as “a minority co-investor, it said.

The latest offer tops the €22 a share offered on Sept. 12 by a Chinese conglomerate, Fosun International, and its French partner, Ardian. Mr. Bonomi is trying to derail that bid, which already has the backing of Club Med’s chief executive, Henri Giscard d’Estaing.

The improved bid values Club Med at €874 million, including its convertible bonds, the consortium said. Shares of Club Med were suspended on Tuesday afternoon before the announcement and did not resume trading. They closed at €23.11, giving Club Med a market value of about €830 million.

Global Resorts said it had bought 2.1 million shares Tuesday on the open market at a price of €23 each, bringing the total held by it and its allies to about 15.9 percent of Club Med’s share capital and 14.3 percent of its voting rights. It said it also held an option to raise those totals to 18.9 percent and 17.0 percent, respectively.

The takeover battle comes as Club Med fights to grow outside of its home European market, where demographics and a listless economy have held back growth. Mr. Bonomi initially argued that the Fosun-Ardian bid focused too heavily on China, and proposed a broader approach, with expanded investments in Europe and emerging markets outside Asia.

But differences in strategy, after months of public confrontation, have begun to narrow, and the main concern now seems to be one of price.

The French and Chinese partners had appeared to be on their way to walking away with the resort operator in May 2013 after proposing a €17 a share offer to take it private. They said they planned to speed up investment and expand in markets outside Europe, particularly in China.

Some shareholders argued that insiders were taking the company private at a fire sale price. The French and Chinese partners then raises their bid to €17.50. This June, Mr. Bonomi forced their hand again with his initial unsolicited offer of €21 a share.

Club Med did not immediately respond to a request for comment.

Investindustrial, an Italian private equity firm founded by Mr. Bonomi, is the majority investor in Global Resorts. In addition to K.K.R., the consortium includes Sol Kerzner, a South African hotelier; the PortAventura amusement park group; and GP Investments, a Latin American private equity firm.
​

NYT - BNP Paribas Could Make a Merger With Monte dei Paschi Work

BNP Paribas Could Make a Merger With Monte dei Paschi Work

BNP Paribas should be thinking seriously about Monte dei Paschi di Siena. After this year’s $8.9 billion fine from American regulators, BNP’s shareholders probably feel they’ve had enough excitement. But looking past the risks, there would be logic to swooping on the Italian lender.

Such a tie-up has been suggested before. Buying Monte dei Paschi would give BNP scale in Italy, turning its BNL division from that country’s sixth-largest bank into its third.

But the risks always outweighed the potential rewards. The charitable Sienese foundation that controlled half of Monte dei Paschi could block a deal that meant cuts in its hometown. Other issues: Monte dei Paschi’s big exposure to Italian sovereign debt could hit capital, and already high non-performing loan issues could be underestimated.

These barriers are fading. The foundation is now a minority shareholder, and the Italian establishment, particularly the Bank of Italy, would welcome a foreign buyer. Last month’s asset quality review and a plan to sell new shares to raise as much as 2.5 billion euros are solidifying Monte dei Paschi’s balance sheet.

And there’s potential to take out costs. BNP and Monte dei Paschi’s branch networks don’t overlap much, so achieving synergies worth 20 percent of the target’s costs, as seen in some Italian bank mergers, might be tough. But a conservative 10 percent synergy target would deliver 260 million euros before tax.

Meanwhile, BNP’s global heft could lower Monte dei Paschi’s funding costs: recent travails have left these 40 basis points (0.4 percentage points) higher than the Italian average. A 20 basis point decrease in funding costs would be worth 260 million euros. Taxed and capitalized, these combined synergies would be worth 3.4 billion euros – Monte dei Paschi’s current market capitalization.

BNP investors would still fret. Unless the deal is carefully managed, buying Monte dei Paschi could push their bank into a higher bracket of globally systemically important financial institutions. That would increase its capital requirement by 0.5 percentage points. Bulking up in deflation-hit Italy, where loan growth is stagnant and bad debts high, carries risks.

Yet the French bank could reflect this in its terms. It could push for an all-share merger that gave Monte dei Paschi shareholders a modest premium: The Tuscan lender’s investors know their group could struggle after the rights issue, and might look positively on a small stake in a bigger bank if they got a tangible share of the synergies.

BNP could then use its greater muscle to either play an eventual Italian recovery, or spin off some of its bigger business. It could be a risk worth taking.

RTR - Germany eyes windfall from sale of Telekom, Post stakes

Germany eyes windfall from sale of Telekom, Post stakes DBN.UL DPWGn.DE DTEGn.DERTRS


  • Finance ministry lays out privatisation plans
  • Deutsche Telekom stake valued at over 17 billion euros
  • Rail privatisation was put on ice by financial crisis

BERLIN, Nov 11 (Reuters) - The German government is considering selling its stakes in Deutsche Telekom DTEGn.DE and Deutsche Post DPWGn.DE, a move which could bring up to 24 billion euros into state coffers at a time when Berlin faces pressure to spend more on infrastructure.
A finance ministry document seen by Reuters, which is due to be approved by Chancellor Angela Merkel's cabinet on Wednesday, sketches out plans to reduce government holdings in a range of companies, the most politically sensitive being rail operator Deutsche Bahn.
The government had wanted to sell a minority stake in Deutsche Bahn in Merkel's first term, but cancelled the plan when the global financial crisis hit in 2008. Any sale now would depend on market conditions, the document said.
Merkel's "grand coalition" government has promised to balance the federal budget next year for the first time since 1969 and a share sale could help it do that at a time of slowing growth and reduced tax revenues.
It could also free up cash for public investments as Merkel is under pressure from European partners and domestic industry to spend more to stimulate the economy and shore up Germany's crumbling infrastructure.
At Monday's closing share price, the government's 31.7 percent stake in Deutsche Telekom -- which includes a 14.3 percent direct stake and a 17.4 percent indirect holding via state bank KfW -- was worth over 17 billion euros.
Its 21 percent stake in Deutsche Post, held by KfW, was worth over 6 billion euros. Together, the stakes could fetch roughly 24 billion euros, although the government could choose to sell a portion, rather than all of its shares in the firms.

The document, signed by Finance Minister Wolfgang Schaeuble, says a sale of the Deutsche Telekom stake should be "carefully examined", suggesting it may be one of the first priorities.
Reuters reported back in February, citing sources, that KfW had invited banks to make proposals for a placement of Telekom shares, which have risen roughly 50 percent since early 2013. Deutsche Post shares are up 67 percent over the same period.
Late last year, a monopolies commission urged the government to sell both the Telekom and Post stakes to avoid conflicts of interest which might arise from its role as a guarantor of fair competition in the sectors where these firms operate.
The Berlin/Brandenburg, Cologne/Bonn and Munich airports were also listed in the document as privatisation candidates.
A sale of Deutsche Bahn, which has been struggling to cope with a train drivers strike in recent weeks, might prove the most difficult because of political sensitivities about putting a vital public service - which is heavily unionised - into private hands.
After Reuters reported the existence of the document, the transport ministry issued a statement saying that a rail privatisation was "not currently on the political agenda".
"When a horse is dead, it's time to get off," said Hubertus Heil, a senior member of the centre-left Social Democrats (SPD), who share power with Merkel's conservatives. He was referring to the decision to abandon an initial public offering of the rail operator in 2008.
In the document, the finance ministry said any rail privatisation would exclude the company's infrastructure. It did not set out a timetable for any of the share sales.
Deutsche Telekom shares were up 2 percent at 12.5 euros after the Reuters report on Tuesday, outperforming a flat DAX .GDAXI index of German blue chips.

WSJ : Pocket Watch Sold for World Record-Making $24 million

Pocket Watch Sold for World Record-Making $24 million
A 1933 pocket watch with 24 complications—expensive, but with a very human story behind it.

THE HENRY GRAVES JR. SUPERCOMPLICATION, has sold at Sotheby’s , Geneva, for a record-breaking $24 million (which includes the buyer’s premium).

With 24 complications, it has previously been styled as the most famous watch in the world, but it comes with a very human story attached, and illustrates how the Swiss watch industry worked in the early 20th century.

Sotheby’s expects to sell the Henry Graves Jr. Supercomplication, one of the most famous watches in the world, for at least $17 million in Geneva on Nov. 11. WSJ’s Michael Clerizo tells us why it’s worth so much. Photo: Sotheby’s
The watch is the result of a competition between two phenomenally wealthy men: Henry Graves, a New York banker, and James Ward Packard, a car manufacturer from Warren, Ohio. Both loved watches and engaged in a gentlemanly contest to determine who could commission the most complicated Patek Philippe watch. (A “complication” is any function on a watch other than telling the time of day, such as a calendar, chronograph, minute repeater, and so on.)

In 1916, Packard was ahead with a 16-complication pocket watch. In 1925, Graves countered by challenging Patek Philippe to create a watch with 24 complications—the most complicated watch ever produced until that point, which the Swiss company delivered to Graves’s Fifth Avenue home in January 1933.

However, the competition had ended sadly almost five years earlier, on Mar. 20, 1928, when Packard died. Had Packard devised a plan for besting his rival? We will never know. What we do know is that Graves grew unhappy with the attention the watch attracted and feared that his grandchildren might be kidnapped and held for ransom. He considered throwing the watch in a lake. Fortunately, his daughter Gwendolen, convinced him to hold on to the Supercomplication and it remained in the family until 1969.

The dials on the Supercomplication bear the name Patek Philippe but that doesn't mean the watch was designed and built in the company’s Geneva workshops. In 1925, producing the watch was beyond the capabilities of any one enterprise. Historically, Geneva-based watch brands outsourced (to use a contemporary term) devising and producing complications to specialist companies in the Swiss watchmaking heartland of le Vallée de Joux, an often snow-clad region about 30 miles north of the city.

In Geneva the complications were added to the base movement, and cased. The Sotheby’s catalog records nine workshops involved in manufacturing the Supercomplication, including one for project management, one for the case, and another for the winding mechanism.

The name of the company that produced the dials, Stern Frères, adds another twist in the story of the Supercomplication. The Stern brothers, Charles and Jean, purchased Patek Philippe in 1929.

>>> InterContinental board responds to Marcato, says current strategy remains be

InterContinental board responds to Marcato, says current strategy remains best option 

The Board of InterContinental Hotels Group (IHG) (the "Board") notes the announcement made by Marcato.

IHG maintains an active dialogue with all its shareholders and welcomes the feedback it receives. The Board regularly considers all options for driving shareholder value. IHG met Marcato on 22 September 2014 and 29 October 2014 and reviewed its analysis. Following this review, the Board has concluded that it remains in the best interests of all its shareholders to continue to pursue its current strategy for high quality growth and delivering strong operational and financial performance.

Earlier today, Marcato Capital Management LP ("Marcato"), a San Francisco-based investment manager that owns approximately 4.0% of the outstanding shares of Intercontinental Hotels Group plc (LSE: IHG; NYSE: IHG), released a letter to IHG shareholders along with a detailed presentation outlining the results of an independent evaluation of various potential strategic alternatives conducted by Houlihan Lokey. In the letter it urged a full review of strategic alternatives.


Source Stock Exchange Announcement

(BFW) Bilfinger Shrs Probed for Possible Insider Trading: Manager Mag.

Bilfinger Shrs Probed for Possible Insider Trading: Manager Mag.
2014-11-11 16:31:15.132 GMT


By James Kraus
Nov. 11 (Bloomberg) -- Germany’s financial market regulator
BaFin initiated an investigation after indications of insider
trading in Bilfinger shrs emerged, Manager Magazin reports.
* Probe started after routine check in Sept.
* Shr price has almost halved since ~EU90/shr in May
* NOTE: Nov. 5, Bilfinger Falls to More Than Four Year Low on
Power Impairment
* A spokeswoman for Bafin in Bonn didn’t immediately return a
phone message left by Bloomberg News today. A spokesman for
Bilfinger also wasn’t immediately available.


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To contact the reporter on this story:
James Kraus in Geneva at +41-22-317-9232 or
jkraus2@bloomberg.net
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Mariajose Vera at +49-89-244478-803 or
mvera1@bloomberg.net
Nicholas Comfort

WSJ : SABMiller Seeks to Repeat Its Hop on the Global Beer Brand Wagon

SABMiller Seeks to Repeat Its Hop on the Global Beer Brand Wagon
U.K.-Based Brewer Could Seek a Takeover or Expand From One of Its Existing Stable of Beers

LONDON—In 2002, soon after acquiring Miller Brewing Co. from Philip Morris Cos., the newly formed SABMiller PLC unveiled its plan for world beer domination: It launched Pilsner Urquell—a premium Czech lager—into the U.S. market.

In doing so, SAB was breaking with its past. The U.K.-based brewer had become the world’s second-biggest beer company by stocking up on popular local brands in countries like Ecuador, Poland and Tanzania. With Pilsner Urquell, it wanted to build a global beer brand.

Beers with a global footprint are rare but have clear advantages over local labels. The tried-and-trusted marketing strategies and distribution channels of a world beer like Budweiser or Heineken make it easier to launch into new markets, a key consideration. They can also be sold for much higher prices than local brews.

That explains why SAB is back in the hunt for a global beer. In September, Heineken NV said it rejected a takeover approach from the British company in a deal potentially worth $40 billion. Heineken’s namesake lager brand is coveted because it is sold—often at premium prices—in more than 100 countries.

SAB does have an alternative to spending billions on an established brand: It could expand one from its existing stable. Its big brands include Miller Genuine Draft, Grolsch and Peroni, an Italian lager that is the focus of SAB’s latest high-end expansion efforts.

But the brewer has a patchy history of trying to create global brands. SAB spent $20 million on the U.S. rollout of Pilsner Urquell, but it was a “total flop,” said Nick Fell, the company’s marketing director. That was one of several failed attempts by SAB in the early 2000s to grow its own global beer.

“In the early days, we handled a global premium brand in exactly the same way as we handed a local brand,” Mr. Fell said. “We put it into mass distribution, we pumped a lot of basic advertising and promotion behind it. And then we failed.”

To be sure, SAB does own a 49% stake in the world’s top-selling beer, China’s Snow. But Snow has limited appeal and distribution outside its homeland. Anheuser-Busch InBev SA, the world’s No. 1 brewer by sales, owns four of the world’s top 10 beers, including Budweiser and Corona.

For years, SAB’s local approach has contrasted with the focus on building global megabrands at AB InBev. As well as Budweiser, the Belgian brewer owns Bud Light and Stella Artois. SAB has Club Premium, the top-selling lager in Mozambique, and St. Louis, Botswana’s favorite beer brand.

SAB executives insist local brands are still its best route to success. “We remain convinced beer is a fundamentally local business,” Chief Executive Alan Clark told The Wall Street Journal last year.

But the company’s recent Heineken approach—as well as expanded budgets and international distribution for Miller Genuine Draft and Peroni—suggests SAB is modifying that view.

“The only thing that’s really missing on the scene, especially as [SAB] takes more of its brands across borders within regions, is a truly global beer brand,” said Chris Wickham, an analyst at Oriel Securities.

In part, SAB’s change of tack reflects increasing competition among major brewers to sell to consumers in markets where beer consumption is low, especially in Africa and Asia. Africa alone will have 65 million more legal drinkers by 2023, according to the African Development Bank.

Another reason for SAB’s renewed interest in a world-wide brand: It would make the company less susceptible to a long-rumored takeover bid from AB InBev. Mr. Clark last month rejected that theory, saying the move for Heineken was “assertive, not defensive.” AB InBev has declined to comment on the deal speculation.

Either way, buying Heineken seems an unlikely solution for SAB. The Heineken family owns just over 50% of the parent company and has said it is unlikely to sell, meaning SAB may look elsewhere for a blockbuster beer brand. Industry analysts have speculated that SAB could target Turkey’s Anadolu Efes , in which it already owns a 24% stake. Efes is Turkey’s No. 1 beer and has a strong presence in Russia, with the potential for expansion in Asia, experts say.

If SAB can’t buy a global beer, it plans another attempt at building one, executives at the company said. In recent years, SAB has invested heavily in Peroni and given another push to Pilsner Urquell throughout Europe and the U.S.

In the U.K., Peroni has succeeded through a premium pricing strategy—a draft pint sells for around £5.50 ($8.73)—and by using ads that target women as much as men. U.K. sales of the beer—which SAB insists is served in a bespoke Peroni glass—increased 15% in the six months ended September. SAB said it doesn’t break out specific sales figures for its brands.

SAB has similar plans for Peroni in the U.S., already its third-largest market outside Italy. The brand is “growing strongly” and has the potential to take price increases, said Mr. Fell, SAB’s marketing director.

“We want to behave as if we were Ferrari, or Armani, or Gucci,” he said. “We don’t want to attract 25-year-old plumbers who are quite happy being plumbers.”