It was a day of record losses for European banks. Both France’s BNP Paribas and Portugal’s Banco Espirito Santo have just reported second-quarter earnings — somewhat unsurprisingly for those following the news in the last few months, both banks lost billions.
BES disclosed a €3.6 billion ($4.8 billion) net loss in the first half of the year. The Bank of Portugal is requiring BES to raise capital after it set aside money to cover the losses, and it may end up needing state aid. Paul Murphy writes, “the losses appear to have taken the bank’s equity tier 1 capital ratio down to circa 5 per cent – that’s the wrong side of an absolute regulatory floor of 7 per cent.” Additionally, Reuters reports, “BES’s top risk management, compliance, supervision and audit officials had been suspended over suspected ‘harmful management’ that may have contributed to the bank’s massive losses.” The New York Times quotes analyst Antonio Barroso saying the moves by the Portuguese central bank are effectively a back door nationalization of BES.
Welcome to #GrieFault day. That’s twitter’s hashtag for the Argentine technical default, caused largely by a series of court rulings by U.S. federal court judge Thomas Griesa, which was triggered this afternoon. That is to say that the ratings agency S&P cut the country’s credit rating to selective default. The country’s representatives are still negotiating with bondholders in Manhattan as of this writing. This was the story yesterday:
Good news: the economy bounced back last quarter. In fact, after a terrible first quarter in which the economy contracted at a 2.1 percent rate, GDP rebounded to grow at a 4 percent annual rate between April and June.
The news was a beat — expectations were only for 3 percent growth. However, the average growth rate of the economy over the last few years still hovers around 2%, as you can see in this chart:
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Argentina is down to the wire — the likelihood it will default tomorrow is extremely high. After missing a $539 million interest payment on its bonds on June 30 (previous coverage in the saga here and here), the country had a 30-day grace period to reach a settlement with its holdout creditors — mostly the hedge fund Elliott Management — in order to avoid default. The clock runs out on Wednesday.
While the federal judge presiding over the case between the sovereign nation and the fund has ordered the country’s representatives to sit down with Elliott continuously to try to hammer out a settlement agreement, they have so far not spent more than a few hours in negotiations. So what happens if the country defaults? The question is complicated, and there won’t be clear cut answers until a default actually happens (and, probably, lawsuits ensue). Here are some thoughts:
The Ebola outbreak in West Africa has gotten scarier. More than 670 people have died of the disease in Guinea, Sierra Leone, Liberia, and now Nigeria, which on Friday confirmed that a man in Lagos had died of the deadly disease. Over the weekend, Liberia closed most border crossings into and out of the country to try to clamp down on the spread of the virus, which can kill up to 90 percent of victims (in this outbreak the fatality rate is around 60 percent).
Here’s what the outbreak looks like geographically as of late last week.
The governments trying to battle Ebola in West Africa are up against two huge issues: first, there’s a lot of mistrust of health care workers in the region where the disease is most prevalent. The family of an Ebola patient in Sierra Leone “forcefully removed her from a treatment center and took her to a traditional healer,” Reuters reports. She died Saturday in an ambulance after authorities found her and tried to get her back to the treatment center.
North Dakota is in the middle of something the rest of the country can only dream of: an economic boom. The state has become a massive success story over the last five years, with unemployment at 2.6 percent and its population growing rapidly to fill demand for oil jobs. “The state’s modern history has been rewritten by the energy industry in just four short years,” writes Bloomberg’s Nicholas Kusnetz. But is it sustainable? Thanks to the shale boom, the state is currently producing as much oil in a month as it did in all of 2004, and production is growing at an exponential rate. That kind of growth can’t go on forever, says Fivethirtyeight’s Ben Casselman. Eventually it’s going to have to flatten out, and that has major implications for the economic stability of a state that has been very suddenly made rich (and just as suddenly dependent on this oil production).
Predictably, Katie Brown, at Energy In Depth (which is funded by the Independent Petroleum Association of America) says Casselman is wrong. It’s not just about recoverable oil, but about changing technology, she says. The U.S. Geological Surveyrecently doubled its estimate of the amount of recoverable oil in North Dakota, an estimate which is up 25-fold since 1995, according to Brown. Better technology is going to mean more oil, essentially. “It’s important not to get trapped by assumptions of static technology, especially in an industry like oil and gas, where innovators have proved over and over … that the recoverability of resources increases over time,” Brown writes.
The White House wants to help you move out of your parents’ basement. That was the message from Jason Furman, the chairman of the White House’s Council of Economic Advisers, at the Zillow Housing Forum in Washington yesterday.
Here are the basics: housing is a big driver in the U.S. economy. Young people aren’t buying houses during the recovery at as high a rate as they did historically, which is at least part of the reason that the housing recovery (and thus the great economic recovery) from the Great Recession has been sluggish. The question is why, and to what extent will this trend become permanent?
The two giants of the beverage empire reported earnings this week, with PepsiCo outperforming estimates and Coca-Cola missing them.
For Coke, global sales volume rose 3 percent, but beverage sales were flat in North America. This is partly because Americans are drinking fewer diet sodas, Reuters reports. Interestingly, sales of regular Coke rose 1 percent in North America, which the company attributes to “demand for smaller packages of the product, which Coke has found to have generated more ‘brand love.’”
The Herbalife saga continues. Yesterday, Bill Ackman made what he claimed would be the most important presentation of his career: a three-and-a-half-hour slideshow detailing how the company’s nutrition clubs prove it is a pyramid scheme. If you put “three-and-a-half hours” and “power point” together and guessed that many felt Ackman’s event failed to live up to the hype, you would be correct. David Gaffen spent most of the time during the presentation tracking the steady rise in Herbalife’s share price. At one point yesterday it was up 25 percent over where it had opened.
Herbalife’s statement on the presentation seized on this: “Once again, Bill Ackman has over-promised and under-delivered on his $1 billion bet against our company.” John Hempton at Bronte Capital (long a supporter on the Herbalife side) didn’t find Ackman that convincing. He says he too has done a lot of research on the company and its nutrition companies. “This is not a pyramid. There are plenty of real sales to real people … Its a lousy business but it is a business in which people have integrated their lives and their families,” he writes.
The latest inflation numbers are out. According to the Bureau of Labor Statistics, the consumer price index rose 0.3 percent in June, following a 0.4 percent rise in May, mostly thanks to high gasoline prices. However, core CPI — which ignores volatile food and gas prices — was only 0.1 percent. CPI year-over-year, which is the number commonly referred to when talking about inflation, now sits at 2.1 percent (1.9 percent without food and gas).