Roundup: Apple Losses, UK And The EU, A Weakened Yen

By far and away, the worst financial crack-up in history was Fannie and Freddie. That disaster has cost $142 billion. The knock-on effects of the collapse of these two was devastating. F/F went out of biz on September 7, 2008. The next weekend Lehman blew up. F/F put the nail in the coffin at the "Brothers," and after that, all the dominoes were falling.

With that in mind, I’m amazed that AAPL has blown off nearly twice the F/F losses in six-months, and there is not even a ripple in the water. Last night, in a few seconds of after-market trading, the stock got pasted for more than all of the losses for LEH. By the opening, the overnight losses exceeded more than LEH, AIG, GM, and Chrysler combined.

The market gets smoked for 1/4 trillion in a single name, and we’re trading at the highs. Go figure.

UK to Say “Goodbye” to EU?
The UK will have a referendum in 2017 to determine if it wants to stay in the EU. That’s so far away that it has no consequence today. I do think, though, this sets up as a “big deal” at one point in the future.

Looking at the calendar, there is something that will be emerging at the same time the UK referendum is due: The big economies in the EU have all agreed to a transaction tax.


This tax will come to only .01% on turnover of stocks, bonds and derivatives, but it will devastate the domestic markets in France, Germany, Netherlands and Italy. As a result, London will get another boost as the financial capital in Europe.

The folks in the UK will be well aware of the influx of foreign traders, the capital they bring in, and the office space they use. No doubt, the Brits will be laughing at the EU for creating their success.

It just might prove that the EU’s transaction tax becomes the reason why the UK votes to opt out. The TT will prove that the EU has no clue how to run an economy. If that is how it plays out, I will get a laugh.

Who’s Getting DI?
Social Security pays benefits to non-residents who have lived and worked (and paid payroll taxes) in the US. The info is available for 24 countries. All in, nothing mind blowing, but some details:

- 192,000 people, now living in their home countries, get SS benefits. The total benefits paid in 2012 was $500m.

- Canada has the highest number of citizens getting SS benefits (53K). Japan has 38k, Germany 22k and UK 18k. Get the full list here.

-Canada has the most number on disability and number two on the DI list is Germany. (Possibly the layoffs at Deutsche Bank led to back injuries?)

What’s missing are the numbers for Mexico. My guess is that the bucks SS heads South is larger then those headed North. I think it is larger than the total for all the 24 countries where data is available. I have asked for the numbers and if I get them, I’ll let you know. Don’t hold your breath for that article.

Hollande To Go After French ExPats?
There is a silly story going on between France and Switzerland. This one has potential to spin out of control.

There are tens of thousands of French citizens who live in neighboring Switzerland. There was a tax treaty set in 1966 between the two countries that established who would pay what – for 47 years there was no problem. On January 1, 2013 the French government published a new rule that completely abrogated the 1966 treaty. There was no prior warning or discussion by Paris. They sneaked it in on New Year’s Eve.

The Swiss were insulted. Forget the merits of what was done, it was the tactics that were used. From one Swiss official:

This is about a small group of people (most of whom are well-off) who are getting muscled. It’s also about a small country that is also getting muscled. Nobody ever likes to get muscled around; how might “they” push back?

The obvious answer is that a number of those who are affected will take up Swiss citizenship (many have lived in Switzerland for years). Given the circumstances, I think the Swiss would be happy to oblige.

This sets up for more of those embarrassing “Depardieu” moments for Paris - French citizens willing to renounce their passports to get out from under oppressive French taxes.

There is another angle to this that is a potential game changer. The new French tax rules are, in the end, a tax on ExPats. What the French did to their citizens living in Switzerland, could also be done to the French people who live in Belgium. There is the bigger question of what would happen to the income of a French citizen who resides in London or New York. A huge door has been opened and it’s not clear what’s behind the door.

This could snowball into broader opposition for Hollande. He’s running a socialist state, while taxing like a dictator.

Pay Back??
My sense is that EUR/YEN 120 is the new normal, and it will prove to be the bottom end of the range, not the top.

This sets up for a crisis in the EU. There has already been “noise” from some of the talkers. The question is, “Can they do anything but talk?” I say “no”.

Over the past decade Japan has imported deflation with a stronger and stronger currency. They tried repeatedly to intervene in the FX markets, but they failed. The reason they failed is that the other Central Banks (US Fed and EU ECB) did not want to give the Japanese any support. There was no coordinated intervention. The BOJ had to stand in front of the whole market, and got overwhelmed every time.

Now the tables have turned and we have a run-away weak yen. The Fed and the ECB can’t intervene without the blessings and support of the BOJ, so they can only talk. This sets up an asymmetric risk profile and it favors a weaker yen, – at least for the next 10%.

After years of suffering, there must be a number of guys at the BOJ who are laughing at how things are turning out. It’s amazing how quickly perceptions change.