Wednesday, 8 August 2012
I present this article in the usual manner of challenging the ENTIRE sell side of Wall Street to offer analysis anywhere near as cogent, honest, straightforward, accurate, complete and credible. Or put more succinctly, the Goldman and Morgan Stanley clients can tell their advisers that Reggie Middleton advised them to kiss his A
Axa, France's largest insurer, reported last week and both its share price and MSM media "cred" spiked. See
· Axa's First-Half Operating Profit Rises 3% on Health Insurance: Businessweek-Aug 3, 2012 Net income fell 36 percent to 2.59 billion euros after last year's results were boosted by 1.4 billion euros of gains from asset disposals, Axa said.· Europeans shun risky investment for safe life insurance Reuters· AXA H1 earnings fall, beat forecasts· Europe's Big Insurers Post Solid Results
As paying subscribers recall, I released a full forensic review of Axa and the insurance industry in general as a drill down of my overall view of the FIRE sector for 2012 - reference Reggie Middleton Sets CNBC on F.I.R.E.!!! Those subscribers who haven't reviewed this material are recommended to do so now via the links at the bottom of this article. Of particular interest is the deft skill at which Axa management has managed to handle both their portfolio and PC/life/health operations during this malaise. Subscribers (click here to subscribe) can reference Insurance Cos. Operational Stress and professional/institutional subscribers should reference pages 10-13 of AXA Report_122511 - Professional/Institutional edition to get an idea of what we saw coming late last year and how this may unfold.
Of more interest is Axa's performance in its portfolio. We have uploaded a capital gains analysis for all subscribers -
AXA Q2 2012 Capital Gains analsysis. This analysis needs to be held in the light of our professional/institutional level forensic analysis (AXA Report_122511 - Professional/Institutional edition), particularly the stress test and accompanying pages (reference 2 through 10). Now, on to the other headlines gracing the MSM this morning...
· France's Rich Prepare to Flee the Country on 75% Tax Rule: Companies are planning to move high-paid executives outside of France as the country's president wants them to “pay extra tax to get the country back on its feet again.” The New York Times reports. It's just a matter of time before the governments induce recession by overtaxing. After all, those capital holes must be filled, right? But how do you fill the if there's now economic activity to generate the stuff to fill the holes?
· French Economy May Shrink for Second Straight Quarter
Do you remember the post France, As Most Susceptible To Contagion, Will See Its Banks Suffer or Watch The Pandemic Bank Flu Spread From Italy To France To ... from this time last year, or any number of the dozens of posts I made on the topic (here's a Google search to illustrate the point)? Well, like clockwork....
· Italy's GDP Shrinks by 0.7% q/q in Q2· ISTAT estimates showed the Italian economy continuing to contract in Q2 2012 with output declining 0.7% q/q (-2.5% y/y), down from -0.8% q/q (-1.3% y/y) in the previous quarter and -0.7% q/q (-0.4% y/y) in Q4 2011. PMI, tightly correlated (relatively) with GDP, also point toward further deterioration in the Italian economy as, on August 3, the final estimates released by Markit showed, the services PMI decreased marginally as the index reached 43.0 in July from 43.1 in June—contracting for the 14th consecutive months since May 2011.
· Expect the Italian economy to contract another 3.5% by this time next year!
· BNP Paribas on Preliminary Q2 GDP Estimates: "Unsurprisingly given the poor production data, Italy's economy as a whole also continued to shrink in Q2; today's preliminary GDP release for Q2 was in line with our expectations at -2.5% y/y, though the quarterly drop surprised slightly to the upside at 0.7% q/q against our expectation for a 0.8% q/q fall. We believe Italy faces another two quarters of negative GDP growth this year. With the forward-looking PMIs still pointing downward, there is little sign as yet of light at the end of the tunnel."· Of course, BNP should be looking inward as well, as all readers and subscribers have witnessed through the article This Is Why BoomBustBlog Is THE Place To Go For Hard Hitting Research: BoomBust BNP Paribas?"· Services PMI: "July PMI data pointed to recession in Italy’s service sector deepening at the start of the third quarter. New business intakes fell at a sharp monthly rate that has been exceeded only four times over the series history, all of which occurred" around the height of the global financial crisis. Furthermore, data on expectations showed sentiment at a record low, and gave no impression of an impending recovery. Not only did July see a further deterioration on the demand front, but input cost inflation also picked up from June’s recent low. At the same time, backlogs of work were still reduced at a marked pace, suggesting yet more scope for job cuts.”Analysis Markit Economic Phil Smith Aug 03, 2012
· Manufacturing PMI: "July saw the recession in the Italian manufacturing sector extend to a year. Moreover, the downturn was shown to have deepened as the PMI sank to its lowest level in three months, primarily reflecting a sharper reduction in staffing levels. A solid and accelerated decrease in stocks of purchases also dragged the headline index lower, and suggested that firms had grown more concerned about cash flow and were not anticipating a rise in production requirements in the near term. Average input costs meanwhile fell at the fastest rate for three years during July, an offshoot of weaker demand for raw materials and semimanufactured goods both at home and abroad. Data showed, however, that Italian manufacturers did not take full advantage of the opportunity to boost their competiveness, and instead dropped selling prices only slightly over the month.” Markit Economic Phil Smith Aug 01, 2012
· Rabobank: “After falling GDP of 0.2% q/q in 11Q3 and 0.7% in 11Q4, Italy’s economic contraction accelerated further, to 0.8%, in 12Q1. The deepening recession stands in contrast to the aggregate eurozone, which managed to avoid a widely expected second quarterly drop in output....Analysis Rabobank Tim Legierse Jun 05, 2012
· OECD: “Since late 2011, Italy has introduced significant structural reforms while making progress in fiscal consolidation. The economy has re-entered recession, under pressure from weak European economies and the short-term consequences of fiscal tightening. Activity seems likely to continue to decline over the next year but will turn up in late 2013." The OECD expects the economy to contract by 1.5% y/y in 2012 before witnesing no growth (0% y/y) in 2013.Analysis OECD May 22, 2012
· European Commission: "After inrporating the large GDP decline in the fourth quarter of 2011, economic activity entered 2012 with a negative growth impulse of 0.5 pp. It is set to continue to contract in the first half of 2012, as spending and investment plans of consumers and firms are held back by poor labor market prospects and still-high uncertainty in financial markets. Real GDP is expected to have declined by a further 0.7% q-o-q in the first quarter of 2012 and to fall by 0.4% in the second quarter. Under the assumption of no further worsening in financial market conditions and yields on 10-year Italian sovereign bonds slightly below 6%, output is expected to stabilise in the third quarter of 2012 and to start expanding only mildly as of the last quarter of 2012. As a result, real GDP is set to fall by 1.4% in 2012 and increase by 0.4% in 2013."Analysis European Commission May 11, 2012
· IMF: “Italy’s growth is expected to continue at a modest pace. Staff projects Italy’s output to grow by 1% in 2011 and 1.3% in 2012, in line with most other forecasters. By end-2012, the Italian economy would have recouped only half of the output loss suffered during the crisis. Growth is expected to continue to be driven by exports and the resumption of investment from low crisis levels. However, it will likely be held back by subdued domestic demand and further fiscal consolidation. Such a modest pace of activty will not allow a significant recovery in employment. Persistent labor market weakness, sluggish income growth, a decrease in government transfers, and a rising cost of credit will curb household spending. A persistent competitiveness gap hindering export growth, and slow progress in structural reforms, will also limit growth.”Analysis International Monetary Fund (IMF) Apr 17, 2012 & Analysis IMF Jul 13, 2011
I'd like to take this time to comment on the sheer lunacy of taking the IMF's or the EC's word for ANYTHING EU sovereign debt-related. In 2010, I clearly outlined the joke that is the IMF/EC economic forecast in Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!, to wit we can see in big pretty charts how accurate the IMF and EC have been in regards to Italy since the crisis began:
This is Italy's presumption of economic growth used in their fiscal projections:
For those that don't subscribe, there is still a lot of nitty gritty that I made publicly available on Italy here:Once You Catch a Few EU Countries "Stretching the Truth", Why Should You Trust the Rest?
Those who are interested on a more realistic, unbiased and non-political view on Italy from that period should reference the BoomBustBlog subscriber documents:
Italy public finances projection 2010-03-22 10:47:41 588.19 Kb as well as the
Italian Banking Macro-Fundamental Discussion Note. And back to the Hopium induced optimistic bullshit (the same Hopium induced optimistic bullshit we have witnessed in the US, btw BS At The BLS Leads To Profitable Short Opportunities As Hopium Smokers Get High Off Of Depreciated Dime Bags Of Manipulated Euphoria!)
· Growth Revised Downward: Reuters (April 19th) “The assessment, a technical document which will be submitted to senior EU officials, comes after Italy said on Wednesday its deficit would be 0.5% of GDP next year, up from a previous forecast of 0.1%, which will be reached instead in 2014. The government forecast an economic contraction this year of 1.2%, almost in line with the Commission's forecast of a 1.3% drop in output."News Reuters Francesco Guarascio Apr 19, 2012
· UniCredit: “After the ugly 1Q, we can expect the pace of contraction in consumer spending and investment to ease in the remainder of the year, helped by receding financial tensions. Therefore, we are confident to leave broadly unchanged the q/q GDP path beyond 1Q, envisaging a stabilization in output already starting in the spring. As a result, we lower our full-year GDP estimate for 2012 to -1.0% from -0.3%.”Analysis Unicredit Bank Marco Valli Mar 09, 2012
As a matter of fact, there is only one MSM headline that I came across today, that seemed to hold any water, and that was from CNBC... Is the Market Rally Just a Set-Up for a Bigger 'Collapse'. Remember... Contagion Should Be The MSM Word Du Jour, Not Bailouts and Definitely Not Greece! What happens when you take the raw public debt exposure and you massage it for reality? Well, BoomBustBlog subscribers already know. Here's a sneak peak of just one such scenario...
(Click to enarge)
· Sovereign Contagion Model - Retail - contains introduction, methodology summary, and findings· Sovereign Contagion Model - Pro & Institutional - contains all of the above as well as a very detailed methodology map that explains what went into the model across dozens of countries.
BoomBustBlog subscribers, reference please reference the following insurance related documents:
AXA Report_122511 - Professional/Institutional edition
AXA Report_122511 -Retail edition
AXA Preliminary Observations
Insurance Cos. Operational Stress
Insurance cos. EU exposure 11-2011
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