Due to a run of very disappointing activity indicators, we  aggressively lower  2009 GDP growth estimates for the euro area. 

We estimate GDP growth for the euro area to -3.3%, from -1.6% before.  This would imply a contraction in activity that was last seen in WW II. !!!

Reason for cutting our numbers is not difficult to find… 

The main reason for cutting our growth outlook for the euro area is that incoming economic activity and sentiment indicators have essentially been in free fall as of late.  Not only did 4Q show a larger than expected decline of 1.5% in non- annualised terms, but also the incoming industrial production data for the month of January pointed to a further acceleration in the rate of decline in early 2009.  As a result, we now expect euro area GDP to fall nearly 2% between January and March.  In addition, downgrades to GDP growth estimates elsewhere in the world, notably in Central and Eastern Europe, cast further dark clouds over the outlook for export demand.   

Mr Trichet you are BEHIND THE CURVE !!!

There is a lot of talk about the possibility of heading towards a ” New Great Depression” but we do NOT think so.

The good news is that we think  that we aren’t headed for the Great Depression, but the bad news is that we are in for the Great Recession, where household sector, the nonfinancial business sector and the financial sector will suffer a lot.

The contraction in asset values and debt will ultimately be pushed even further than they would normally have to go. So it is going to take years.

Here is a very basic fact about this period. Balance-sheet contraction makes it impossible for the private sector to generate the profits it needs to function, whereas balance-sheet expansion generates booming profits. Therefore, it isn’t a matter of getting rid of the bad assets from the bank, and then the economy is ready to go. This process involves not just cleaning up the banking sector, but also shrinking assets and liabilities.

We think that the earliest recovery would be in 2010. But we are not sure we are going to get a recovery then, based on the economic-stimulus plan that has been passed so far, although it is moving in the right direction. The enormity of what it is trying to overcome may be too great. It is very likely we will see additional moves by the government later this year, so there will be something added, mainly because of higher unemployment.

One of the problems for any government trying to deal with this situation is the expectation that, like past recessions, it is a problem that should get cleaned up and we should go back to some level of prosperity

Among the possible outcomes of this shock are: massive and prolonged fiscal deficits in countries with large external deficits, as they try to sustain demand; a prolonged world recession; a brutal adjustment of the global balance of payments; a collapse of the dollar; soaring inflation; and a resort to protectionism. The transformation will surely go deepest in the financial sector itself.

The proposition that sophisticated modern finance was able to transfer risk to those best able to manage it has failed. The paradigm is, instead, that risk has been transferred to those least able to understand it. 

Remember what happened in the Great Depression of the 1930s. Unemployment rose to one-quarter of the labour force in important countries, including the US. This transformed capitalism and the role of government for half a century, even in the liberal democracies. It led to the collapse of liberal trade, fortified the credibility of socialism and communism and shifted many policymakers towards import substitution as a development strategy.

The Depression led also to xenophobia and authoritarianism. Frightened people become tribal: dividing lines open within and between societies. In 1930, the Nazis won 18 per cent of the German vote; in 1932, at the height of the Depression, their share had risen to 37 per cent.

The impact of the crisis will be particularly hard on emerging countries: the number of people in extreme poverty will rise, the size of the new middle class will fall and governments of some indebted emerging countries will surely default. Confidence in local and global elites, in the market and even in the possibility of material progress will weaken, with potentially devastating social and political consequences. Helping emerging economies through a crisis for which most have no responsibility whatsoever is a necessity.

IMF latest analysis : http://www.imf.org/external/np/g20/pdf/031909a.pdf

The Swiss National Bank’s decision to intervene to weaken the franc has left currency investors with one less haven from the financial crisis.

Its move comes at a time when there are also questions surrounding the future haven status of two other leading currencies: the dollar and the yen

While the dollar has enjoyed a liquidity premium amid the current financial turmoil, many investors expect it to lose its allure as the full impact of large-scale US fiscal and monetary loosening filters through.

The other main beneficiaries during the current crisis, the swiss franc and  the yen, have both lost their haven status in recent weeks.

The krone is one of the few currencies that has outperformed the dollar so far this year, rising more than 3 per cent to NKr6.694. It has soared 11 per cent to NKr10.925 against the euro.

Are we in a new haven ???

Fujitsu’s Flepia, the color e-book is now available to buy. Don’t get too excited though — even if you’re in Japan, where the Flepia is on sale, it will cost you a whopping ¥99,750, or just over $1000.

You get a lot for your money, though. The reader has a an 8″ screen which displays 260,000 colors, Bluetooth, Wi-Fi (b and g), a mini USB port and, most important of all, a touch screen 

This is completed by a soft, on-screen keyboard (just like the Kindle should have) and a battery life of 40 hours (continuos use — Fujitsu says 2400 page turns). Books are stored on an SD card and can be bought from the online bookstore Papyless.

Curiously, the Flepia seems to be a kind of tablet/e-book hybrid. Along with the book reading software, the device comes loaded with Windows CE 5, meaning support for e-mail, spreadsheets, web browsing and the like. If you view this as a low powered, long life computer instead of a color e-book reader, it starts to look less expensive. The Flepia will start shipping on April 20th.

It looks like the age of the e-book is finally upon us…

Spain is going “fishy”…  The waters of the port of Gijon are shortly to be invaded by robots.Scientists are building a robot fish to be let loose in the port to check on the quality of the water. Modelled on carp and costing about $29,000 each to make, the fish are to be lifelike in appearance and swimming behaviour so they will not alarm their fellow marine inhabitants.

The fish were developed by the University of Essex in Britain and UK-based engineering consultancy BMT Group. They are the result of a three-year research project funded by the European Commission. The robots are equipped with tiny chemical sensors capable of detecting pollutants in the water.

“This efficiency is something we need to ensure that our pollution detection sensors can navigate in the underwater environment for hours on end.”

Each robotic fish is about 1.5 metres long and can swim at a maximum speed of about one metre per second. Whenever they find traces of pollutants, the fish can relay the information to the shore.

The robots are autonomous, rather than remote-controlled, and run on batteries that are recharged every eight hours or so when the fish return automatically to a charging point.

The final touches are still being made to the design of the fish, which are scheduled to be released into the port’s waters next year.

Bad news about America’s newspapers, that are tumbling out too fast for their presses to keep up. The closure of “the Rocky” after 150 years and the 180-year-old Philadelphia Inquirer joined the owners of the Chicago Tribune and Minneapolis Star Tribune in bankruptcy proceedings.

San Francisco Chronicle  is threatening to close ; USA Today, has followed The New York Times in slashing its dividend to preserve cash. Titles from the venerable Cincinnati Post to the six-year-old New York Sun have folded.

Obituaries for the news business are being written in newsrooms around the world as advertising revenues that long subsidised the cost of newsgathering shrink, just as digital media usurp print’s role as intermediary between advertisers and customers. The crisis is affecting not just newsprint: most news magazines, broadcast news outlets and newswires are also suffering.

Meanwhile blogs, tweets, social networks and online news are growing exponentially… 

 is to start targeting its internet advertisements according to what people look at on the web, a controversial technique that privacy groups fear will give the search engine group even greater access to personal information.

The internet company will monitor the web pages that people visit and the YouTube videos they watch to create a profile of each user.

The company will then use the information to show display adverts to viewers based on those interests whenever they browse the web.

Google hopes advertisers will pay more for these targeted adverts, an important move at a time when the growth of online advertising is slowing down. A small group of advertisers will start using the system next month.

WSJ published the Economists´s survey about Obama´s administration : “U.S. President Barack Obama and Treasury Secretary Timothy Geithner received failing grades for their efforts to revive the economy from participants in the latest Wall Street Journal forecasting survey.

A majority of the 49 economists polled said they were dissatisfied with the administration’s economic policies.

On average, they gave the president a grade of 59 out of 100, and although there was a broad range of marks, 42% of respondents rated Mr. Obama below 60. Mr. Geithner received an average grade of 51. Federal Reserve Chairman Ben Bernanke scored better, with an average 71.

Economists were divided over whether the $787 billion economic-stimulus package passed last month is enough. Some 43% said the U.S. will need another stimulus package on the order of nearly $500 billion. Others were skeptical of the need for stimulus at all.

The economists pushed back yet again their forecasts for when a recovery would begin. On average, they expect the downturn to end in October. Last month, they said the bottom would arrive in August. They estimate that U.S. gross domestic product will continue to contract in the first half of this year, with slow growth returning in the third quarter.”

But there are possibilities that the recovery remains elusive until 2010 !!!

No one understood better than Picasso that slang was the inevitable language of modern art. “Every act of creation is first an act of destruction,” he said.

To invent the fractured planes and disrupted viewpoints of cubism, he smashed rules of representation and perspective enshrined since the Renaissance. Such an act of iconoclasm determined the raw, broken visual vocabulary of the 20th century.

It also located Picasso in the past, as he endlessly competed against and cannibalised the art of unity and harmony to which cubism had dealt a death blow.

We should listen and apply his wisdom in order to understand and navigate today´s turbulent times.

 For some investors, gold provides a safe haven in an environment where tremendous uncertainty is plaguing the outlook for many asset classes.  For others, fears that the current path of monetary and fiscal policy is a prelude to broad-based fiat currency devaluation and inflation — which would erode the wealth of all assets — is reason enough to buy and hold gold.  Increased protectionism is also likely to lift inflation by reversing some of the enormous gains from trade seen over the past decade.

In the Developed world corporate default risk has increased markedly since mid-2008, the risk of government default has also accelerated, particularly in recent weeks, prompting investors to question the ‘safety’ of government debt.  Increased government spending together with falling tax revenues are leaving government balance sheets nearly as unattractive as those of corporates and consumers.  This growing risk of default has been matched with increased gold demand.  

In Emerging economies, while debt default has been an issue, so have concerns surrounding economic growth, which have resulted in capital flight and an exodus to the US dollar.  With currencies depreciating, and capital markets often not convertible, investors here too have been rotating towards the safety of gold.