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The U.K. Pressures RBS to Sell More Assets to Recoup Bailout Funds

Royal Bank of Scotland Group Plc Chief Executive Officer Stephen Hester is being pressed by the U.K. government to sell more assets and bolster capital as the Treasury tries to recoup some of its 45.5 billion-pound ($68.9 billion) investment in the bailed-out lender.

RBS (RBS) will this week announce plans to sell a stake in Citizens Financial Group Inc. and shrink assets at its investment-bank by as much as 30 billion pounds, said a person with knowledge of the plans, who asked not to be identified because the matter is private. As recently as August, Hester said he didn’t intend to sell the U.S. consumer and commercial lender it acquired in 1988.

“RBS is clearly under pressure from the government to shrink and make the bank much simpler,” said Ian Gordon, an analyst at Investec Plc (INVP) in London, who values Citizens at about 8 billion pounds and has a sell rating on the stock. “Regulators seem to be saying that RBS needs to raise capital.”

Hester, 52, has cut assets by more than 800 billion pounds, eliminated 36,000 jobs and scaled back RBS’s securities unit since he took over from Fred Goodwin in 2008. The shares are still little more than half the price the government paid for its 81 percent stake when it rescued RBS during the financial crisis, the biggest bank bailout ever.

Post Loss…”

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25% of US Has More Card Debt Than Savings

“Rumors of the spendthrift American consumer may be slightly exaggerated. Bankrate’s 2013 February Financial Security Index found that a majority of consumers — by a narrow margin — say they have more savings than credit card debt.

For more than half the country, 55 percent, an emergency fund outweighs credit card debt. Nearly a quarter, 24 percent, admit to having more debt on plastic than money in the bank, while 16 percent say they have neither credit card debt nor savings. That puts 40 percent of the population close to the edge of ruin while everyone else seems to be sitting pretty.

If most people have more savings than credit card debt, “Why are so many people broke?” asks Howard Dvorkin, CPA and founder of ConsolidatedCredit.org….”

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Exit Polls Show Bersani to Win Italian Elections, Why it Matters

“Morgan Stanley bills this weekend’s Italian elections as a “crucial risk event.”

The euro crisis front has been relatively quiet since ECB President Mario Draghi gave his famous “whatever it takes to save the euro” speech in July, and many analysts have been waiting for this weekend for months.

Mario Monti, an unelected technocrat, has been relatively successful in pushing through economic reforms since assuming office in late 2011, but those reforms have driven the country deeper into recession, and record high unemployment shows how Italians are suffering.

As a result, former comedian Beppe Grillo and his newly-formed political party, the anti-establishment Five Star Movement, have seen a surge in interest.

As the elections draw nearer, the position of establishment political parties heading into the polls appears to be weakening.

The fear is that reforms could be hampered, causing Italian bond yields to rise again, causing the European chaos to reignite. Furthermore, the election shows what happens when the goals of the elites goes up against the economic situation of the voters.

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Hedge Funds Cut Gold Bets The Most Since 2007

Hedge funds cut bets on a rally in gold by the most since 2007 and became the most bearish ever on sugar and coffee as concern that the Federal Reserve will slow U.S. stimulus programs drove prices for raw materials to the biggest loss this year.

Money managers and other large speculators reduced their net-long position in gold futures and options by 40 percent in the week ended Feb. 19 to 42,318, the biggest drop since July 31, 2007, U.S. Commodity Futures Trading Commission data show. Wagers across 18 U.S. raw materials tumbled to the lowest since December 2011 as investors’ net-short positions for sugar and coffee hit record highs. Bullish corn wagers fell the most since June 2010….”

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U.S. Banks Open Liquidity Spigot for European Commercial Property Market

“U.S. banks are looking to capitalize on a dearth of financing for Europe’s commercial property market that’s driven lending margins to five times the level prior to the 2008 crisis.

Citigroup Inc. (C)Morgan Stanley (MS)Bank of America Corp. (BAC) and Wells Fargo & Co. (WFC) are following insurers and distressed investors allocating capital to the region as local banks, which overextended during the last boom, are forced to contract amid new regulations. Europe faces an $82 billion shortfall between the amount of real-estate debt maturing through this year and the funding available to replace it, according to real-estate broker DTZ.

The scarcity of capital means lenders can charge as much as 3.75 percentage points over benchmarks for the safest pieces of commercial mortgage debt, about five times the spread in 2007, according to Alvarez & Marsal, an adviser on real estate transactions. Those margins will enable banks to revive the market for commercial mortgage-backed bonds, which parcel loans and slice them into securities of varying risk, after it largely shut in 2008.

“Nature abhors a vacuum,” said Robin Priest, a managing director of Alvarez & Marsal’s real-estate business in London. “The need for debt finance is much greater than the bank-market supply,” he said. “This is therefore positive for the CMBS market.”

Europe’s recession caused the amount of new lending for commercial property in the region to drop by about 77 percent from 2007 through 2011, according to estimates from Michael Haddock, a London-based research director at CBRE Group Inc.

Portfolio Sale…”

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Friendly States to Consider for Retirement

“Taxes, as many know, are among the biggest expenses people face in retirement. So it should come as no surprise that many retirees and would-be retirees ponder the thought of moving to a tax-friendly state.

But which are the most tax-friendly states? Well, it’s not an easy question to answer according to Kathleen Thies, a state tax analyst with CCH, a Wolters Kluwer business. States that have high personal income-tax rates might have low property tax rates and states with low personal income-tax rates might have high property tax rates.

And so the end game for those looking to find the most tax-friendly state is to review all their sources of income in retirement including earned income, Social Security, pensions, and unearned income; all the different types of taxes they might face in retirement including personal income, sales, property and the like; and their overall tax burden, Thies said in an interview.

For instance, those who depend less on Social Security and more on earned income in retirement might consider moving to a state with lower or no income-tax rates. Others who rely heavily on Social Security, by contrast, might consider moving to a state that doesn’t tax such benefits.

“People think they will move to Florida, or Texas, or Nevada and they won’t have any income tax,” she said. “But you have to remember that every state is a business and they need to create revenue. So if they aren’t doing it through income tax they will get it some other way, such as sales or property taxes.”

To be fair, taxpayers who contemplate retiring to one state or another or who contemplate retiring in place also have to calculate whether deducting certain taxes—income, sales, and property—on their federal tax return will make a difference on their overall tax burden…..”

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Payroll Tax Curbs Consumer Spending for Most Retailers


Wal-Mart Stores Inc. WMT +0.11% on Thursday joined a parade of retailers, restaurants and consumer-goods companies worried about the economic impact of the recently restored federal payroll tax that has left Americans with less money to spend.

The world’s largest retailer, Burger King Worldwide Inc., BKW +1.31% Kraft Foods Group Inc. KRFT +0.65% and others are lowering forecasts and adjusting sales and marketing strategies, expecting consumers with smaller paychecks to dine out less and trade down to less expensive purchases.

The expiration of the payroll tax cuts that knocked 2% off consumers’ take-home pay is having an impact, these companies say. It will ding a household with $65,000 in annual income $1,300 this year, and shift $110 billion overall out of consumers’ hands, estimates Citigroup C +0.92% .

Now, Wal-Mart is stocking more of its shelves with cheaper products, and smaller-size packages of diapers, toilet paper and snacks. Burger King is cutting its Whopper Jr. sandwich to $1.29 from about $2, and focusing advertising on its value menu items rather than higher-price salads or smoothies.

Kraft and meat supplier Tyson Foods Inc. TSN +1.24% are introducing more lower-priced products to help restaurants and supermarkets adapt to the consumer spending downshift.

These companies say the changes could be long-lasting and are revamping operations to better cater to consumers pinched by higher taxes, stagnant wage growth and rising gasoline prices, which jumped nearly 50 cents a gallon in the past month alone.

Less take-home pay is causing 45.7% of consumers to curtail spending, according to a survey released on Thursday by the National Retail Federation, a trade group. A quarter of consumers are delaying big-ticket purchases, a third are reducing restaurant visits, and about a fifth of shoppers are spending less on groceries, it said….”

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India Opens Up Banking Licenses for the First Time in 10 Years

India’s central bank said companies must have an equity capital of 5 billion rupees ($92 million) and a 10-year track record before getting a banking license, as it begins taking applications for the first time in a decade.

Foreign ownership of new lenders will be capped at 49 percent for five years, the Reserve Bankof India said in a e- mail statement. Companies must apply by July 1.

The rules bring India a step closer to issuing new permits as part of a process that has been under way for more than three years. Lenders winning licenses will compete with State Bank of India (SBIN), the nation’s largest, and ICICI Bank Ltd. (ICICIBC) amid the slowest economic growth in 10 years.

The licenses are unlikely to be issued until late 2014 or early 2015, A.S.V. Krishnan, a Mumbai-based analyst at Ambit Capital Pvt. said by phone today.

India’s banking sector needs to be open to more private companies to improve access to banking services, former finance minister Pranab Mukherjee said in February 2010….”

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Reserve Bank of Australia Says They Need to be Confident the Currency is “Seriously Overvalued” Before Intervention

Reserve Bank of Australia Governor Glenn Stevens endorsed the current level of interest ratesand said he’d need to be confident the currency is “seriously overvalued” before considering intervention to weaken it.

“There is a good deal of interest rate stimulus in the pipeline,” he said today in semiannual testimony to a parliamentary panel in Canberra. “It is having an effect.”

The local currency and bond yields rose as Stevens said an overnight cash rate target at 3 percent is appropriate. The RBA chief reiterated that rate cuts are more likely than increases as he aims to rebalance a two-speed economy where mining regions in the north and west thrive while manufacturers, builders and retailers in the south and east struggle.

The so-called Aussie’s almost 60 percent climb in the past four years has hurt exporters. While rate settings aren’t seeking a particular exchange rate response, “they are being set with a recognition of the exchange rate’s effect on the economy,” he said.

“The other tool that may be available is, of course, intervention, and I think the truth is that the power of forces at work here, you need to be pretty confident that it’s seriously overvalued or that the market’s behaving in some quite irrational way before you would launch a large-scale intervention,” Stevens said in response to a lawmaker’s question. “It’s somewhat too high, but we’re not talking 50 percent or something like that.”

Zero Rates…”

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Kindly Grab the Bag Sucker


“Insider Sales of Stock Hit 2 Year High as Retail Sheep are Fooled Once Again

For a while there it was looking as if the market might actually make its high and move lower before Wall Street and corporate insiders were able to hand the bag over to the suckers in retail.  It looks like that was just wishful thinking, as new stats show the retail sheep taking stock from the oligarchs at the highs as usual.  I guess the more things change the more they stay the same.  From Bloomberg:

Corporate executives are taking advantage of near-record U.S. stock prices by selling shares in their companies at the fastest pace in two years.


There were about 12 stock-sale announcements over the past three months for every purchase by insiders at Standard & Poor’s 500 Index (SPX) companies, the highest ratio since January 2011, according to data compiled by Bloomberg and Pavilion Global Markets. Whenever the ratio exceeded 11 in the past, the benchmark index declined 5.9 percent on average in the next six months, according to Pavilion, a Montreal-based trading firm…..”

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Here are Seven Ways You Will Feel the Pain of Sequestration

“Millions of American families are bracing for the forced budget cuts that could kick in on March 1.

Some of the hardest hit would be 2.1 million federal workers who could be spending up to 22 business days at home without pay on a furlough.

The impact of federal food inspectors, park rangers, airport traffic controllers and security personnel staying away from work would be felt by many more Americans.

An important caveat: Congress still has time to avert the spending cuts, and if they do take effect they aren’t expected to come right away. Experts expect agencies to do all they can to delay the start of furloughs, in some cases by several months.

But if they happen, these seven cuts will be really felt by many Americans.

1. Shrinking unemployment benefits. Some 3.8 million Americans estimated to collect unemployment checks between March and September will feel the pain the most. That’s because unemployment benefit checks are being pared by 9.4%. On average, it would mean a cut of $400 over that period.

2. Beef and chicken to cost more and even face a shortage. A $51 million dollar cut to food safety programs means food inspectors will be furloughed and lead to closures of meat and poultry plants for up to 15 days. Americans will have to pay more and deal with shortages of chicken, eggs, pork and beef, according to U.S. Department of Agriculture Secretary Tom Vilsack. “Food safety could be compromised,” he said in a letter. There will have less food available — by as much as 2 billion pounds of meat, 3 billion pounds of chicken, 200 million pounds of eggs.

3. Granny won’t get her lunch. More than 4 million home-bound and disabled seniors may have to go without supper this year because of cuts to Meals on Wheels programs. Just in Erie County, New York, it could mean 36,000 fewer meals will be delivered, according to the Meals On Wheels Association of America….”

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Cocaine Gorillas Please Stay Calm as The Fed Will Keep Stimulus Ongoing Given Weaker Economy

“The Federal Reserve, saying economic growth had “paused” in recent months, announced Wednesday it will continue its $85 billion monthly bond buying and hold interest rates near zero until unemployment falls to at least 6.5 percent.

The central bank decision, which followed a two-day meeting, had been widely expected, especially after a surprising decline in U.S. economic growth for the fourth quarter.

Earlier Wednesday, the government announced that GDP unexpectedly suffered its first decline since the 2007-09 recession, falling at a 0.1 percent annual rate after growing at a 3.1 percent clip in the third quarter. (Read More: GDP Shows Surprise Drop)

Markets showed relatively little reaction to the GDP report, in part because it reinforced expectations that the Fed will continue to provide stimulus as long as the economy is weak. Stocks were slightly lower after the Fed decision….”

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Business Loans Pick Up in 2012


“Carl DelPrete, chief executive of suburban New York supermarket chain Uncle Giuseppe’s Inc., couldn’t be happier with the current lending environment. To fund a recent expansion, he got bids from three banks and calls the terms on the $14 million loan “the best we’re ever going to see in our lifetime.”

The episode reflects a renewed willingness by some banks to lend cheaply and on flexible terms.

But with banks not far removed from persistent criticism that they were slow to make business loans that would kick-start an economic recovery, a new concern is emerging: Is the pendulum swinging too far the other way?

The surge in loans to businesses is raising worries that lenders are competing so aggressively that some will pay for their largess down the road.

So-called commercial and industrial loans were up 4.4% in the fourth quarter and 16% for all of 2012, according to data compiled by research firm SNL Financial of Charlottesville, Va.

The push comes at a time when many banks have been flooded with deposits as slow economic growth and low interest rates crimp investment. Domestic deposits since mid-2008 have surged 29% to $9.06 trillion, according to Federal Deposit Insurance Corp. data.

“Banks are loaded with liquidity and starving for growth,” said Paul Miller, an analyst with FBR Capital Markets.

Banks of all sizes are fueling the lending trend. Business loans outstanding at Wells Fargo WFC +0.03% & Co., the country’s fourth-largest bank, jumped 12% to $187 billion in 2012. The State Bank of Southern Utah, a community lender based in Cedar City, Utah with $715 million in assets, saw a 9% jump for the year to $38 million. The bank is a unit of Southern Utah Bancorp.

Yet the profitability of the loans that banks are making is under pressure….”

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The BoE Shoots Down King’s Stimulus Plans


“Bank of England Governor Mervyn King was defeated in a push for more stimulus this month as officials considered options including a rate cut and expanding the range of assets purchased as ways to help the economy.

King, Paul Fisher and David Miles wanted to increase the target for bond purchases by 25 billion pounds ($38 billion) to 400 billion pounds on Feb. 7, though they were outvoted by the remaining six members of the Monetary Policy Committee. The pound fell after the release of the minutes in London today….”

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Samurai Abe and His New Central Bank Leadership Say there is No Need to Buy Foreign Bonds

“Japanese Prime Minister Shinzo Abe said that buying foreign bonds will be unnecessary under a new central bank chief, backing away from a policy proposal that may be seen by other nations as an attempt to weaken the yen.

“We decided to consider this in November last year,” Abe said in parliament today, referring to a ruling party proposal to set up a fund to buy foreign bonds. “The need for this will basically disappear once we get the new BOJ governor and deputies in March.”

Avoiding foreign bond purchases would limit tension with Group of 20 nations that pledged this week to refrain from targeting exchange rates for competitive purposes. The yen is swinging as investors assess the limits of the economic campaign dubbed ‘Abenomics,’ with the prime minister preparing to choose a new BOJ governor next week.
“This effectively removes foreign bond buying as a policy option for Abe,” said Norio Miyagawa, a senior economist at Mizuho Securities Research and Consulting Co. in Tokyo. “The G-20 statement suggests that aiming to guide the yen lower by verbal intervention or other means such cannot be accepted.”
The yen rose 0.3 percent to 93.26 per dollar at 4:35 p.m. today in Tokyo after earlier falling as much as 0.3 percent. The Nikkei 225 Stock Average closed 0.8 percent higher.
Finance Minister Taro Aso said in the same parliamentary session today that the government has no intention to buy foreign bonds….”

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India Embarks on a Record Borrowing Binge

“India plans gross market borrowing of about 6 trillion rupees ($111 billion) in the year through March 2014, a record high, according to three Finance Ministry officials with direct knowledge of preliminary estimates.

The increase from 2012-2013’s level will provide funds for government spending and debt repurchases as existing sovereign bonds near maturity, the officials said, asking not to be identified as the details aren’t public. Another official said borrowings will climb next fiscal year, without giving a figure. Exact numbers have yet to be finalized, all four said.

India’s government faces the task of containing the widestfiscal deficit in major emerging nations to avert a credit- rating downgrade to junk status. Finance Minister Palaniappan Chidambaram, due to unveil the budget Feb. 28, has vowed to pare the gap even as economic growth falters and an election due by May 2014 adds pressure for spending to win the support of voters.

Chidambaram’s goal is a shortfall of 4.8 percent of gross domestic product in 2013-2014, from 5.3 percent this year. Government expenditure has contributed to price pressures that have limited room for interest-rate cuts in an economy expanding at the weakest pace in a decade.

Still, GDP growth will be sufficient for Chidambaram to meet his budget-gap goals as a percentage of the economy even as borrowings climb, the officials said.

Growth Challenge…”

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Two Thirds of All Mutual Funds Recover 2007 Highs

“While the Dow Jones industrial average is still about 1% below its October 2007, two-thirds of all stock mutual funds — 2,576 — have posted new highs since then, according to Lipper, which tracks the funds.

One reason: The Dow doesn’t include reinvested dividends. If you include dividends, the Dow is up 14.8% from its 2007 peak. By contrast, the average diversified U.S. stock fund is up 10% since then….”

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China Withdraws Market Liquidity For the First Time in Eight Months

“Since institutional memories are short, it is time to remind readers that it was the threat, and subsequent reality, of China overheating in the spring and summer of 2011 (when record high food prices sent the entire North African region in a state of coordinated revolt and gradually moved far east), when even the Great firewall of China could not block news of frequent break outs of localized violence from hungry and angry mobs, that halted and broke the spine of the great reflation trade then (and yes, 2013 has so far been a carbon copy replica of 2011 as we summarized in “It’s Deja Vu, All Over Again: This Time Is… Completely The Same“).

Furthermore, as only Zero Hedge forecast back in mid-2012, when ever other commentator was shouting over the rooftops that an RRR or interest rate cut out of Beijing was imminent, the PBOC would be the last to stimulate the market with monetary easing as it was well-aware that an entire developed world reflating at the same time would hit none other than China the fastest as the hot money flew straight into Shanghai. Just as it did in 2011. So instead China proceeded to engage in a series of daily reverse repos, or ultra-short term liquidity injections that prevented the advent of wholesale inflation: after all the Fed, the BOJ, the ECB and soon, the BOE, were doing it for them. And the last thing the country with the highest allotment of CPI, or book inflation, to food and energy can afford, is to let foreign central banks dictate its price level. After all, it has more than enough of its own.

Well, the Chinese New Year celebration is now over, the Year of the Snake is here, and those following the Shanghai Composite have lots to hiss about, as two out of two trading days have printed in the red. But a far bigger concern to not only those long the SHCOMP, but the “Great Reflation Trade – ver. 2013″, is that just as two years ago, China appears set to pull out first, as once again inflation rears its ugly head. And where the PBOC goes, everyone else grudgingly has to follow: after all without China there is no marginal growth driver to the world economy.

End resultChina’s reverse repos, or liquidity providing operations, have ended after month of daily injections….”

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The Current Account Deficit of Greece Shrinks, Showing a Slight Response to Extreme Austerity


“ATHENS (Reuters) – Greece’s current account deficit narrowed last year to its lowest level since the country joined the euro, adding to evidence that the economy is slowly responding to harsh austerity measures.

The gap narrowed by 73 percent in 2012 to 5.58 billion euros ($7.45 billion), helped by falling imports and lower interest payments after a sovereign debt cut, the country’s central bank said on Tuesday.

The bank gave no breakdown on the extent to which import cuts reflected less purchases of machinery by Greek firms, a bad sign for crumbling investment levels and chances of a much needed revival in exports such machines could produce.

However, one telltale statistic showed how showy lifestyles are out of fashion in bailed-out Greece. Only one new Ferrari sports car was registered nationally in the whole of 2012. That, plus one used Ferrari sold, contrasted with 21 new and 37 used ones in 2007, the last year before Greece’s recession started.

The current account deficit shrank to 2.9 percent of gross domestic product (GDP) in 2012 from 9.9 percent the previous year – its lowest level since at least 1999, according to available data.

“The pace of the adjustment was impressive last year,” said Nikos Magginas, an economist at the country’s biggest lender National Bank.

The current account balance is a key measure of how competitive a nation’s economy is and of whether it is living within its means. The reading had deteriorated during a debt-fuelled economic boom to a record deficit of 14.7 percent of GDP in 2008.

But a severe economic contraction, partly due to austerity measures as part of the country’s international bailout, has narrowed the gap and may eliminate it in 2014, according to government estimates.

In a further sign of economic adjustment announced last week, consumer prices stopped rising in January for the first time since at least 1996, reflecting a plunge of almost a third in households’ real disposable income….”

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Australia Keeps Rates Unchanged, Comments That Lower Rates are Helping Economy

“The Reserve Bank of Australia said there are indications that lower interest rates are starting to spur the economy and reiterated that tame prices provide scope to ease further if needed.

“Interest rate sensitive parts of the economy had shown some signs of responding to these lower rates, which were well below their longer-run averages, and further effects could be expected over time,” minutes of the Feb. 5 meeting released today in Sydney showed. The inflation outlook gives “scope to ease policy further, should that be necessary,” it said….”

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