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The cost of quakes and conflicts

April 27: Plus, the loneliness of Yanis Varoufakis, dangerous student loans, and HSBC’s China threat


 

MORNING-PLAYBOOK-STORYToday, the biggest stories aren’t in the world of business: as the death toll in Nepal has climbed above 3,700, rescuers are scrambling to reach remote villages. Even as the death toll continues to climb, it is clear that the impact on Nepal’s development is going to be huge: a consultancy group estimates the cost of reconstruction will be at least $5 billion, a fifth of the country’s GDP.  Meanwhile, another international crisis rumbles on, as meetings between the EU and Ukraine begin today, with the threat of Russia looming ever larger. A new round of funds last week brought the country’s rescue package to $1.6 billion – but the president says they need $2 billion more to shore up the economy and rebuild war-ravaged regions.

Today, we have the spectacle of Apple earnings to keep us occupied – in the quarter since the company sold 75 million iPhones, they’ve tentatively launched the Apple Watch – and tomorrow, we have both provincial GDP by industry, and more on the state of the economy from Bank of Canada governor Stephen Poloz and his deputy, who will be in the House of Commons. The U.S. Fed will be meeting tomorrow and will make their rate announcement Wednesday. But the big numbers come in on Thursday, when Canada’s real GDP for the first quarter will be announced. (On Wednesday, the U.S. will also announce its quarterly GDP – I claimed incorrectly that this was happening last week!) On Thursday, we’ll also see budgets for Manitoba and Newfoundland and Labrador.

We’re coming into the week fairly flat, after the TSX/S&P Index gained just 15 points on Friday, and the loonie stayed above 82 cents – oil, too, is flat this morning, resting above $57. Market movers this morning include a downgrade of Japan’s credit rating to A (from A+) by Fitch, and another robust day in the Shanghai markets, which have been on a spectacular tear and, despite constant refrains about dangerous bubbles, have shown no sign of slowing yet.

The loneliness of Yanis Varoufakis. As Greece and the eurozone ministers met in Riga, Latvia, on Friday, relationships were frayed: at the centre of that circus was the Greek finance minister, Yanis Varoufakis. “They are unanimous in their hatred for me and I welcome their hatred,” the former professor tweeted, referring to the other eurozone ministers. If any substantive progress in negotiations is being made, it’s not clear what it is. Now the sidelining of the minister may come from his party, too, as the eurozone attempts to deal directly with Alexis Tsipras instead. The politics of politics are a sideshow at the centre of a debacle of bad relationships, and as ever, the clock is ticking down until Greece finds a way to get its bailout funds, or defaults. This week, the country faces another round of payments for domestic pensions and salaries, while saying they will not pay government suppliers. In order to pay, the government has ordered local mayors to pool their funds in Athens, but many mayors are refusing to give the money up on worries about losing it permanently. The real truth here is not whether Greece will default, but to whom it will default: its debtors, its suppliers, or its people? (Or, as may well be the case, all three.) Bloomberg has a terrifying “debt calendar” here. Talks will continue today.

The Hong Kong threat. HSBC has had a long few years: the “Swiss secrets” scandal, which showed the bank had colluded with clients (including a varied list of magnates, tyrants and high-level Mexican drug dealers) to shelter money from taxes, is just the latest in a running tally of scandals, as Europe’s biggest bank has seen profitability fall and regulations tighten. So in the week before the British election, where a rising bank levy is one of the few issues in relative agreement (the amount of the hike itself is up for debate), the massive bank is pulling out its trump card: they’re looking into relocating. The bank actually used to review this regularly – three times a year, in fact – a practice that was put on pause as the global regulatory system was in flux. But the timing of a renewal is hardly a coincidence: the bank itself says increasing regulation – uh, and paying less tax – is behind its decision to look into moving. The general assumption is that if HSBC did leave, it would return to Hong Kong, where it is the city’s biggest lender, and where it was founded and based until 1993. At that point, the bank levy would only be applied to its U.K. balance sheet, rather than its global profits. The stock promptly jumped on the news, with the local authority in Hong Kong immediately saying HSBC would be very welcome. No kidding: for context, the FT notes that the bank’s balance sheet is nine times the island’s GDP.

What do American tuition costs and subprime loans have in common? 16,000 fewer students are in classes today in California, after Corinthian, a for-profit chain of colleges was forced to shutter their 28 remaining schools over accusations of fraud. Last summer, when the U.S. government cut off Corinthian’s access to federal student aid, the chain had 72,000 students. (The year before, it had received $1.4 billion in federal student aid.) The group is accused of falsifying all kinds of records, from grades to job rates after graduation, and has been the focus of investigations in 20 states, as well as multiple federal criminal investigations. So what to do about all those students? The college has said it will try to place them elsewhere, and the government has said that it will consider wiping out loans for students who can show they were defrauded by the company. All sound just a bit too familiar? The bankruptcy and fraud charges against Corinthian are an interesting development in a now long-running debate about whether college tuition is the new predatory mortgage, saddling graduates with astronomical levels of debt they can’t possibly pay back. Student debt in the U.S. is now estimated at at least $1.1 trillion, with almost a fifth of students in default. Education debt is now only second in scale to mortgages in terms of consumer debt. The New York Times’ Upshot blog puts a fine point on this: since the financial crisis, rates of mortgage debt have been closely watched and widely available for analysis. But perhaps the most worrying thing about student debt, which is held by the federal government, is that this information is not publicly available: it’s not clear who is defaulting on their student loans, and where. Others don’t agree, and say that student loan is largely manageable (with a few exceptions), that it pays out over the long run, and that reforms to repayment have made student debt more reasonable.

Cruisin’ for China. If Cirque du Soleil is heading to China, they’re certainly not the only elaborate entertainment franchise to have that idea: just ask the cruise liners. In this hilarious fly-on-the-wall report from a cruise out of Shanghai, a Bloomberg reporter tallies up attempts to woo China’s new rich, whose reactions to cruise-luxe Italian food, magicians, and the occasional strip show range from bafflement to confusion to more bafflement.

Need to know:
TSX: 15,408.33 (+15.98), Friday
Loonie: 82.17 (-0.16), Friday
Oil (WTI): $57.15, Monday (5 a.m.)


 

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