Of course, these findings present a much expected dilemma for Irish education system. Over proliferation of degrees-issuing organizations: from ITs to various private colleges and state support for increasing the quantity of graduates and post-graduates produced by our education system have done nothing to improve the quality of degrees in Ireland. With only 3 universities making it into top 1,000 world rankings, Ireland is hardly in the league of top performance by the quality of our research or post-graduate supervision. With less than 1/2 of the top professorial staff actually teaching students, we are not in the top league of teaching either. What have we been paying for over the last 15 years when it comes to the third level education?
Good & Bad Volatility: Before news, a quick note for those of you who are interested in academic finance. Per materials I have covered in my recent MSc course on Investment Theory, here is an interesting study of volatility designed to deal with the issue of skewness. The author argues that asymmetric nature of distribution of conditional returns (skewness) is predicated on the existence of two different dynamic processes underlying volatility of returns. In other words, the author tests whether positive returns volatility and negative returns volatility are driven by different dynamic processes. Good read.
Here is another interesting paper, from different field: "Do More Friends Mean Better Grades?: Student Popularity and Academic Achievement" from RAND looks at 'peer interactions' (socializing) role in student academic achievement. The results indicate that, controlling for endogenous friendship formation results in a negative short term effect of social capital accumulation. In other words, social interactions crowd out activities that improve academic performance. Who would have thought that hanging out at frat parties, attending football matches and going out boozing were supposed to be good for academic achievement in the first place, you might ask? The paper has tons of references to the studies that actually claimed this to be the case...
Thin newsfront today due to Easter break, but the US markets have started another week of the ongoing prolonged (some would say overextended and overbought) rally with a small correction. Despite ending trading in the negative, the markets held firm above 8,000 mark - psychology in action. So it's a 'green shoots' theme for now.
Goldman Sachs reported some good results on higher earnings and revenue and announced commencement of a $5bn common shares issue. GS has been a relative out-performer for the sector since the beginning of the crisis. GS said net earnings to March 31 were $1.8bn ($3.39 a share), compared to $1.5bn ($3.23 a share) in the same period a year earlier. This beats (by 2:1 margin) the analysts forecasts. Analysts expected earnings of $1.64 a share, according to Thomson Reuters data. Revenue net of interest expense rose to $9.4bn from $8.3bn. It is hard to estimate how much of this increase came from lower interest rates and access to preferential (TARP etc) lending. GS said that it intends to use proceeds of the $5bn shares issue to help redeem "all of the TARP capital." Good news indeed.
Wells Fargo & GS however are not enough to convince me that we are in a bounce off the bottom. Rather, it looks to me like a cyclical bear rally is upon us, driven by the simple shift of liquidity out of fixed income, commodities and cash and into equities. Thus, the volumes are starting to fall and it is worth tracing this dynamic:
most importantly, see the volumes. Needless to say - once the support folds, liquidity will outflow from equities and the new rally momentum will move onto commodities (assuming the 'green shoots' are still green) or to fixed income (should corporate reporting season turns out nastier than we expect).And this view is pretty much coincident with the macro outlook predicted by Lary Summers (here): "I think the sense of a ball falling off the table -- which is what the economy has felt like since the middle of last fall -- I think we can be reasonably confident that that's going to end within the next few months and you will no longer have that sense of freefall," said Summers, director of the White House National Economic Council. The recovery is likely to be slowed by "substantial downdrafts" in the economy. "Economies don't go from losing 600,000 jobs a month to a terribly happy path overnight."
Russian markets rally and this means inflation is just around the corner... Yes, I do mean Inflation West of Oder, not in Russia. How? Russian stocks advanced to a five-month high last week, driven by investors taking inflation hedge against oil price increases. RTS index closed up 6.6% at 810.90, breaching 800 mark for the first time in almost 5 months. Ruble-denominated index Micex also rallied. The latest rally brings overall annual gains to 28% since January 2009, beating by 16 percentage points global MSCI emerging markets index. Two big gainers were: state-controlled OAO Sberbank +12% on the strengthening of global finance shares and the largest independent oil producer OAO Lukoil +6.7% on the back of price of oil consolidating above $50pb.
French Leafs of Green? I am less swayed by the claims that the French economy is starting to show signs of stabilization (see the story here). Why? All the data underlying the claim is related to industrial activities that experienced significant - extraordinarily deep - contractions in recent months. A technical bounce is long overdue and signals nothing in terms of bottoming-out. In addition, French data usually is less volatile than that of the US, simply due to significant persistence around the trend. This means shorter falls and smaller rises, shallower recessions that are more prolonged. Timing-wise, I would not anticipate France to come out of the slump before Germany and Germany will lag the US. The former conjecture is simply based on the lack of investment capacity in France internally and the lags in investment inflows into France relative to the US and BRICS. The latter conjecture is based on the nature of two economies - US growth will restart once US consumers de-leverage (a process that is underway for some time now), German economy will restart when foreigners start buying luxury durable goods. This, in turn, cannot take place before the US consumers recover their demand for smaller consumption items...
Daily dose of fun... Courtesy of www.TheDailyStuff.ie is the following test for budding photo journalists out there: You are on an assignment to photograph flood-striken Dublin.
You shoot Sandymount and waves spilling onto the strand. Liffey waters raging to the bay.
You see a man swept by the current, rushed out to the sea ahead. You suddenly realize who it is... It's Brian Cowen! You notice that the raging waters are about to take him under. You think to yourself, you can save the life of Brian, or you can get a Pulitzer Prize winning photo.QUESTION and please give an honest answer: Would you select
(A) a high contrast colour shot
or (2) a classic black & white?
More to come later...
Re: comments on inflation.
ReplyDeleteIn general terms the US Fed and the UK are rapidly increasing money supply.
Demand is collapsing and debt servicing looks likely for a number of years to come.
There is huge excess capacity to produce globally now.
So given the above is inflation really on the cards or are we in for a good few stagnant years until excess capacity has worn through ,until debts are paid down and demand returns.?
Allied to the above has the US Fed been essentially bound and gagged by its own policy in purchasing US treasuries to influence the interest yield curve while being held a hostage to fortune by the banks who are playing the bond markets and not lending to business.
I am thinking that the Fed announces in advance its bond market policy which is a green light to the banks to play the bond markets at no risk to themselves.The US taxpayer picks up the tab for this.
Given the state of the world economy there is therefore no incentive for the banks to lend to business.
Can you please comment? I do not have an economics background so I could have interpreted everything wrongly.
Regards,
Sean.
Sean, many thanks for the comment.
ReplyDeleteHere is my take on the mechanics: Money supply is up dramatically, so liquidity is there. The de-leveraging process in the US and pretty much elsewhere in the world is not going to take the form of sustained demand destruction because no policymaker - democrat or not - can sustain years of suppressed demand, forced savings and loans repayments, so a writedown is looming in one way or another.
In the US, such a write down will combine increased welfare spending, loans re-structuring for the 'poor' via Fannie-Freddie-Ginnie and subsidies to employers. Incidentally, these subsidies will also help to mop up excess capacity.
Globally excess productive capacity is a problem, but if US Democrats have their way (and EU plutocrats will help them along the way), global supply chains will be narrowed and imports substitution with domestically subsidized and produced goods/service will commence.
So a combination of:
1) returning demand (a weakest link in the process) in addition to direct consumption subsidies from Uncle Sam;
2) accountancy-based and federally-assisted de-leveraging of the households;
3) FED mopping up bonds and unable to unload them on the open market (too much issued, too few buyers - the Fed might sell these privately to Chinese and other SWFs, further injecting dollar liquidity into economy); and
4) hidden, but real protectionism and production subsidies at home...
and you have the makings of inflation.
Now, it won't be double-digit - at least not at first, but even +2% with interest rates at 0% is a significant problem.
Your view of the banks-bonds-Fed triangle is absolutely spot on. It is a license to print cash for the banks, which, given that the banks can also borrow cash from the Fed in a virtually unrestricted fashion, leads me to a question:
Why were the markets so pleasantly surprised by the Wells Fargo results last week?
Sean, many thanks for the comment.
ReplyDeleteHere is my take on the mechanics: Money supply is up dramatically, so liquidity is there. The de-leveraging process in the US and pretty much elsewhere in the world is not going to take the form of sustained demand destruction because no policymaker - democrat or not - can sustain years of suppressed demand, forced savings and loans repayments, so a writedown is looming in one way or another.
In the US, such a write down will combine increased welfare spending, loans re-structuring for the 'poor' via Fannie-Freddie-Ginnie and subsidies to employers. Incidentally, these subsidies will also help to mop up excess capacity.
Globally excess productive capacity is a problem, but if US Democrats have their way (and EU plutocrats will help them along the way), global supply chains will be narrowed and imports substitution with domestically subsidized and produced goods/service will commence.
So a combination of:
1) returning demand (a weakest link in the process) in addition to direct consumption subsidies from Uncle Sam;
2) accountancy-based and federally-assisted de-leveraging of the households;
3) FED mopping up bonds and unable to unload them on the open market (too much issued, too few buyers - the Fed might sell these privately to Chinese and other SWFs, further injecting dollar liquidity into economy); and
4) hidden, but real protectionism and production subsidies at home...
and you have the makings of inflation.
Now, it won't be double-digit - at least not at first, but even +2% with interest rates at 0% is a significant problem.
Your view of the banks-bonds-Fed triangle is absolutely spot on. It is a license to print cash for the banks, which, given that the banks can also borrow cash from the Fed in a virtually unrestricted fashion, leads me to a question:
Why were the markets so pleasantly surprised by the Wells Fargo results last week?
Constantin,
ReplyDeleteThanks for an illuminating reply.I was interested in your observation on protectionism.
Maybe this will impact on Irish exports to the US.
Anyway I cant see anything positive in there that would enable us ride the coat tails of an American revival.
Regards,
Sean.