Wednesday, July 31, 2013

31/7/2013: Retail Sales Dynamics: June 2013

Retail sales stats are out for June and anticipation (based on the booming Consumer Confidence index from ESRI) was for a significant uplift in sales. Alas, things turned out to be not what some expected. All data seasonally-adjusted.

  • Value of core (ex-motors) sales fell 0.73% m/m in June and was up 1.28% y/y. 
  • 3mo average through June 2013 stood at 95.1 down on 3mo average through March 2013 at 96.0.
  • 6mo average through June was at 95.5, down on 96.8 6mo average through December 2012.
  • Value of core sales in June 2013 was 5.75% below the average for the entire crisis period
  • Volume of core (ex-motors) sales fell 0.50% m/m in June and was up 1.21% y/y.
  • 3mo average through June 2013 stood at 99.2 down on 3mo average through March 2013 at 99.5, although the difference was minute.
  • 6mo average through June was at 99.4, down on 100.4 6mo average through December 2012.
  • Volume of core sales in June 2013 was 3.74% below the average for the entire crisis period.
Meanwhile, Consumer Confidence shot up 15.4% in June m/m and is up 13.3% y/y. 3mo average from consumer confidence is at 63.6 which is above 3mo average through March 2013 at 61.2. 6mo average is practically identical to 6mo average through December 2012.

Charts above show clear disconnect between retail sales (volume and value) and the reported consumer confidence index. The disconnect is bizarre. Firstly, neither current, nor lagged average consumer confidence has much to do with either volume or value of what consumers opt to purchase. Worse, since June 2008 through June 2013, Irish retail sales indices correlations with Consumer Confidence are -0.66 for value index and -0.60 for volume index. In other words, rising Consumer Confidence in Ireland tends to be associated with falling retail sales. It is worth noting that prior to the crisis - in January 2005 - December 2007 period, the above correlations were +0.72 and +0.74 respectively.

My own Retail Sector Activity Index has had a better fortune tracking overall activity in the retail sector:

 The above clearly shows the sustained 'flat at the bottom' period of retail sales overall activity (by weighted contributions of volume, value and forward confidence). The recent rise in the activity, driven so far solely by two factors: year-on-year dynamics still impacted by the losses made in May-June 2012  and by the bizarre rise in consumer confidence. It remains to be seen if the index can hold near a 14 months period high attained in June.

Tuesday, July 30, 2013

30/7/2013: Flat demand for business credit in Q2 2013

Courtesy of the Central Bank of Ireland released last week:

Changes in Loan Demand from Enterprises

Key: 1= Decreased considerably, 2= Decreased somewhat, 3= remained basically unchanged, 4= increased somewhat, 5= increased considerably.

Top of the line analysis: the patient is still in  a comma: 
  • Fixed investment (long-term investment in capital and technology) is flat two quarters running. One quarter (Q4 2012) pick up has barely brought us back 1/3 of the way for Q3 2012 contraction and on cumulated basis, we are - in Q2 2013 still below Q1 2012.
  • Inventories and working capital demand is flat in Q2 2013, so no short-term build up in either on foot of any sort of positive expectations forward. Cumulated corrections up in Q3 2012 and Q1 2013 are not sufficient to compensate for declines in Q1-Q2 2012. Conclusion: we are still worse off on inventories and working capital demand than in Q1 2012.
  • Debt restructuring demand is flat on Q1 2013 in Q2 2013. The only game in town when it comes to credit demand from the corporates in Ireland is for debt restructuring. 

The above does not bode well for the story about pick up in business expectations and flies in the face of the PMIs-signalled 'improvements' in both current conditions and forward outlook. Any early-stage expansion will have to be consistent with increases in demand for Inventories and Working Capital finance, while Fixed Investment will have to pick up if the businesses are expecting significant uplifts out 12 months.

30/7/2013: It ain't recovery until prices start rising, folks...

You know the myth - the one spun by the realtors and the likes of the various business development bodies around the country - that goes something like: "Irish recovery is showing green shoots, as foreign investors are flocking to the Irish market, kicking tyres and snapping all commercial property they can get their hands on".

As usual, there's a basic logic flaw with much of the internal Irish commercial / business world. Normally, when someone is flocking with suitcases of cash to some destination to buy, demand goes up, and prices rise. In the short run, this logic might fail to hold if there is a supply rise of involuntary sales of properties in the market. In the long run, this demand-price relationship must hold, because both voluntary and involuntary supply of properties adjusts to move along with prices. In other words, even idiot bankers would begin to withhold property from the falling market when there are willing buyers kicking tyres in hope of gaining more on sale.

It has been years, that's right - years - since the reports of the alleged 'tyres-kicking' foreign investors first started to percolate. And yet... oh well... just look at prices:

Yes, per Central Bank chart (above), commercial property is still shrinking in terms of prices. The rate of shrinkage is moderating. But that is not the same as saying that prices are rising. They are falling, falling at a diminished rate, but still falling.

The 'recovery' is much more likely in the housing market, where cash-rich farmers (having made their dosh on pre-bust sales of land and still awash with CAP cash), cash-rich and property-secured senior professionals and retirees (having made their surplus money on pre-bust sales of homes in Donneybrook etc) and cash-rich Googlites and Namanoids (the sub-sects of the South Dublin younger professionals in cushioned jobs) are all chasing prime properties in the upper middle class segment of the market. Aside from that, things are not exactly hunky-dory, like...

Still, the housing market is telling a much better story of a 'recovery' (albeit it is still not a true recovery, yet), than the fabled foreign-investors-teaming commercial property markets... The old Widow Scallan's reincarnation as an ex-Spar 'prime retail' space is out for grabs... There's (allegedly) American investment funds-led bidding war going on across the country... so hurry up...

Saturday, July 27, 2013

27/7/2013: WLASze Part 2: Weekend Links on Arts, Sciences and zero economics

This is the second post of my WLASze: Weekend Links on Arts, Sciences and zero economics.

The first post is linked here and is referenced below. Enjoy!

I covered superb Irish Pavilion at the Venice Biennale 2013 in my previous post. Now on to one of the best artists exhibiting this year in Venice: Catalan artist Antoni Tàpies, who, sadly passed away just last year, are in the Palazzo Fortuny. Tàpies's canvases of earth, dust, structurally rich and textured paint, and deep in colour and subdued light convey forms in their own space, free of time, interference of artist's positioning, referencing, blinding internal and external fields of view.

You can explore his work - outside Biennale - here. Tate has some excellent Tapies in collection here.
Here's one from Tate selection:

Don't forget and don't miss: ILLUSION show opened today in Trinity's Science Gallery:

I am just back from there… and kids and MrsG loved the show and the MakersFair in front of the Physics building...

By far the most impressive piece for Luca was:

Yet there are other fantastic works and projects there.

Amazing work of Portuguese artist, Henrique Oliveira in Paris. Dynamic, fluid, yet forceful. Integrated into space yet perfectly disruptive to that space…
Here is the artist website (warning - slow loading). Very good overview across three media - a rare combination for any artist.

Amazingly, let their domain lapse! Seriously poor judgement by the AN.

Cool stuff on 'superfluids': Behavior of Turbulent Flow of Superfluids Is Opposite That of Ordinary Fluids

Via example: liquid helium. "When cooled to extremely low temperatures, helium exhibits behavior that is otherwise impossible in ordinary fluids. For instance, the superfluid can squeeze through pores as small as a molecule, and climb up and over the walls of a glass. It can even remain in motion years after a centrifuge containing it has stopped spinning. Now physicists at MIT have come up with a method to mathematically describe the behavior of superfluids -- in particular, the turbulent flows within superfluids."

More scientifically, from the authors' mouth: "Superfluid turbulence is a fascinating phenomenon for which a satisfactory theoretical framework is lacking. Holographic duality provides a systematic approach to studying such quantum turbulence by mapping the dynamics of a strongly interacting quantum liquid into the dynamics of classical gravity. We use this gravitational description to numerically construct turbulent flows in a holographic superfluid in two spatial dimensions. We find that the superfluid kinetic energy spectrum obeys the Kolmogorov Formula scaling law, with energy injected at long wavelengths undergoing a direct cascade to short wavelengths where dissipation by vortex annihilation and vortex drag becomes efficient. This dissipation has a simple gravitational interpretation as energy flux across a black hole event horizon." [Few of you who took my derivatives theory few years back would recall, undoubtedly, Kolmogorov scaling in non-normality space...]

And in uber-geeeky terms via MIT: "Holographic description of a superfluid with vortices. The vertical axis is the radial direction z of AdS4. The planes at z=0 and z=1 are the boundary of AdS4 and the black hole horizon respectively.  The green surface is a surface of constant bulk charge density, with the region between the two slices defining a ``slab'' of condensate where most bulk charges reside.  The slab screens excitations from falling into the horizon. This can be seen from the vector field in the plot which indicates the direction and magnitude of the local energy flux;  note that this flux vanishes quickly below the slab. The vortices, with energy flux circulating around them, punch holes through this screening slab, providing avenues for excitations to fall into the black hole.  The surface z = 0 also shows the condensate on the boundary (with blue color representing zero condensate), superposed with flow lines of the superfluid velocity. The flux tubes show a surface of constant  |\Phi|^2/z^4, which coincides with the boundary condensate at z=0. The z = 1 surface also shows the flux of energy through the horizon.  Note that the energy flux is only significant (red and green) in the wake of the moving vortices."

Yeah, I know… WHAAAAT...WHAS...DAT?! Still, cool...

While on the impossible science set, reading through some links, I stumbled upon the ages-old Godel's Ontological proof of the existence of God. Here's the brilliant exposition. And more links on this fascinating effort:

  • Prof. Dr. Elke Brendel gives exhaustive background and compendium of actual proof here
  • Good backgrounder here
  • And more philosophical outline here.

This is why I absolutely love Godel's work. He was, beyond any doubt, one of the greatest thinkers of the 20th century. Godel's greatest contribution was in the form of two Incompleteness Theorems. Am paraphrasing these here:

  • Theorem 1: In any logical system it is possible to construct statements that are simultaneously neither true nor false.
  • Theorem 2: By Theorem 1, no consistent system can be used to prove its own consistency. 

Theorem 1 is equivalent to the Liar’s Paradox: "Everything I say is a lie" or "This sentence is false". See: Theorem 2 is equivalent to saying that "No proof can be proof of itself".  Godel's Theorem 2 is, in my view, a more defined logical version of Karl Popper's idea that any theoretical (mathematical) system based on axiomatic (or hypothesis-anchored) structure is falsifiable, but unprovable. Godel actually pre-dates Popper's thesis. Incidentally, this is why, in my view, axiomatic (theoretical) structures of inquiry are more powerful (have greater degrees of freedom) than 'natural' sciences. And hence, arts are more powerful than physical (experimental) sciences.

Time to stop…

And time to see the awesome power of nature. Courtesy of My Modern Met blogs:

The extreme and the extremely beautiful power of nature merged with the power of art. Veselin Malinov's work is fantastic. See it here. His other works are also superb, even if less dynamic. By the way - both, the exceptionally movement-saturated photographs of the storm and 'static' images of architectural spaces reveal Malinov's real strength: intuitive composition.

 Compare this with the banality of architectural photography of Peter Marlow, I covered in the first post (linked above).


27/7/2013: WLASze Part 1: Weekend Links on Arts, Sciences and zero economics

This is the first part of my regular WLASze: Weekly Links on Arts, Sciences and zero economics posts for this weekend. Enjoy...

Let's start with some music:
H/T to t.j greene @greentak : Gipsy Kings - Duende

And while on music front, memory brings me back to one of my most favourite composers of all times: Arvo Part's his Fratres was recently heard by myself and MrsG in Dublin's NCH. Different performance, but equally sublime:

Of Fratres in us all… and science-linked, too: Nothing - emotively or nostalgically - comes close to seeing the Earth from outer space… and this photograph from July 19, 2013, the wide-angle camera on NASA's Cassini spacecraft, showing Saturn's rings and our planet Earth and its moon in the same frame does the job superbly:

Art merged with (sort of) science, or may be with just raw (accident-driven) curiosity?
Images are stunning. My favourite?

Reminds me of Kenneth Noland and Josef Albers. Kandinsky described circular form as one of the most natural and challenging simultaneously. Geometrically-speaking, circle is also conceptually one of the unique basic 'natural' shapes (Platonism)… go figure it is all inside a golf ball…

"The robots are even more baffled by Bernanke than the humans" - yes, I know - this is 'zero economics' post… but this is very, very good...
Need I to say that at a higher level - more 'Earth from Saturn' of a vantage point - Bernanke is baffling to humans too. But that has more to do with my Impossible Monetary Dilemma (you can search my blog for that to read my musings, or one of the summaries is here).

Prix Pictet photographer, Simon Norfolk, captures harsh reality of life in Afghanistan

Simon Norfolk, "The Disaster Season", 2013. Photo: Simon Norfolk for Prix Pictet

"After winning the coveted Prix Pictet commission, the British photographer Simon Norfolk travelled to Bamyan Province in Afghanistan's Central Highlands in February to shoot the landscape as it changed through the seasons. There the climate can wreak havoc on the local farming communities—May is known as the “disaster season”, when the sun melts the deep winter snow, sending it crashing down the valleys and often ripping through villages in its path. "Every year the beautiful, pristine blanket of white holds within it the possibilities of destruction and death," Norfolk writes in the Financial Times newspaper. Norfolk's series, also called “The Disaster Season”, depicts scenes photographed from the same vantage point roughly six weeks apart. The body of work is due to go on show at Somerset House in London from 10 to 27 October."

You can see more of his work here:

His other work - equally stunning:

Oak trees at Blenheim Palace, copyright Simon Norfolk. Read more:

Science and art: take a fixed spot in the sky. Take a shot every 10 seconds. Form a day-long movie of these shots. One movie per day over 360 days. Combine. Get: Creative, imaginative, structured, replicable, not confirmable. Science and art. I loved this.

And then, take the most sacred in science (speed of light) and freeze it:
"While light normally travels at just under 300 million metres per second in a vacuum, physicists managed to slow it down to just 17 metres per second in 1999 and then halt it completely two years later, though only for a fraction of a second. Earlier this year, researchers kept it still for 16 seconds using cold atoms."

But just taking fixed-point photographs does not guarantee attainment of value.
"A new exhibition by Magnum photographer Peter Marlow - opening today at London's The Wapping Project Bankside" - July 24th is an exemplification of the above statement.

Frankly, I'd run away from this parade of banality. As an architectural cataloguing project, this might fly. And the architecture is rather impressive, beyond any doubt. But as art this photography is static, boring, compositionally unchallenging and exploratively flat. Textures, tonalities, light remain unexplored, space is drained of its meanings.

Quote: "These days, Anglican cathedrals attract more tourists than churchgoers - though in some respects, both are arguably worshipping something greater than themselves. And while we wait with bated breath for the next 'starchitect' masterwork to be erected, it is worthwhile to remember that these religious shrines have withstood a test of fortitude (think two World Wars) far greater than any modern pinnacle might face - for centuries in fact."  Yes. But none of this has anything to do with Peter Marlow's effort, which, in the end, is itself a quintessentially a replica of the shallow tourist view… sans John Baldessari's capacity for sarcasm:

In contrast - a superb, absolutely superb work at the Irish pavilion at Venice Biennale 2013 offers an excellent viewing:

Panoramic landscapes from the range of geographies - rich, luscious, dynamic, juxtaposing war and peace, calm and tension, colour and depth - by Irish artist Richard Mosse's. Mosse uses infrared film to re-narrate space:

Ireland put one of the top 5 pavilions in Venice Biennale 2013, if not the best. Well done!

Stay tuned for WLASze Part 2 later… Enjoy… and think… and marvel… and question… 

Friday, July 26, 2013

26/7/2013: Forfas Report 2012: A Handy Guide to 'Egg-Face' Collision

Ireland has been described as a 'Knowledge Economy", a science and R&D intensive economy, and island of Scholars (yes, while ago we also allegedly had saints). We have enough science development policy 'platforms' to fill TCD's Long Room. And we do spend some dish on funding science.

One of the organisations, responsible for shaping policy and assessing effectiveness of all of these and other 'platforms' is Forfas - a state body in charge of economic policy supports. You can read all the glorious descriptions of what Forfas does here:

And this week, RTE reported the following nice stats about this beacon of knowledge and research (full article here:

  • "The pension scheme at State enterprise body Forfas has a net deficit of almost €1.2 billion" (to be more precise: €1,187,674,000 - up 22% from €972,389,000 in 2011). Note: "Forfas administers the pensions of a number of agencies including Forfas, Enterprise Ireland, IDA Ireland, Science Foundation Ireland and the predecessors of those agencies."
  • "The report also states that 78% of last year's €51.4m Oireachtas grant to Forfas went to pay pensions - with just 22% spent on policy activities, corporate and shared services."
  • "The cost of payments to pensioners rose from by over 23% from €35.3m in 2011 to just under €43.5m last year."
  • But wait, there's more: "'non-effective expenditure' of €1.4m relating to rents for unoccupied office space.

On top of the figures highlighted in the RTE article, here are the actual breakdowns from the annual report:

  • EUR79.052mln was total income received by Forfas from all sources in 2012, down on EUR79.229mln in 2011.
  • Pensions spending was EUR61.372mln in 2012 or 77.63% of total income. In 2011 the same was EUR60.424 or 76.27%.

So: EUR43.5m on pensions, EUR1.4m on wasted rent, our of EUR51.4m grant means that Forfas has managed to spend ca EUR44.9m from EUR51.4m on… err… being a well-housed pension administrator. Less than 12.65% of the organisation grant went to fund its activities.

Seriously, folks, this does not give one much confidence in getting 'value for money'…

Updated: A comment from a senior science body head in Ireland: "I was gobsmacked to see this figure. I wonder how much of the country's so-called €500m 'science' budget goes on pensions? This is not to begrudge retired public servants their entitlements, but we should be transparent about what we spend on science & what we spend on other things."

26/7/2013: Eurocoin signals 22nd consecutive month of recession

CEPR and Banca d'Italia leading growth indicator for the euro area, Eurocoin, is out for July, showing that growth in the euro area economy remained under water for 22nd month in a row.

Per charts above,

  • Eurocoin indicator stood at -0.09 in July, an improvement in the rate of contraction on -0.18 in June 2013 and on -0.24% in July 2012.
  • Both, 3mo MA and 6mo MA of Eurocoin through July 2013 are at -0.14.
  • Q2 2013 forecast for growth is now at -0.15 and Q3 2013 forecast (based on July and trend) is slightly more benign -0.1-0.11, though that is a very high risk forecast.  

Looking at the 'Impossible Monetary Policy Dilemma':

ECB rates are at zero bound and are not stirring growth, with HICP being in the 'safely benign' territory. We are looking at a scenario where the only reason not to drop rates to zero is that doing so will not make any serious difference to growth.

Thursday, July 25, 2013

25/7/2013: BlackRock Institute latest survey results for global economic outlook: June 2013

The latest summary of the global growth conditions from the BlackRock Investment Institute. Click on the chart to open larger version. I have highlighted Ireland on the chart.

Blue bars reflect consensus on current phase of economic development (for example, in Ireland's case, current phase is seen as being recessionary by roughly 25% of respondents to the survey). Red dot corresponds to 6mo forward expectation (in Ireland's case, 50% of respondents expect recession in Ireland to either continue or to present itself again in 6 months time).

Note: this is the view of surveyed economists and not the view of the BlackRock II. The chart is based on the "trailing 3 survey reports for the other regions we poll. In our first month of this initiative, we collected the views of over 430 economists from more than 200 institutions, spanning over 50 countries"

25/7/2013: Entrepreneurship in Ireland, 2012

Here's a recently published report on entrepreneurship in Ireland (data through 2012):

Some points of note, quotes direct from the text, italics emphasis is mine:

"Less positive trends…….
  • The general perception of opportunities for new businesses by people in Ireland continues at historically low levels and is far below that pertaining across the OECD and EU.
  • The aspiration to become an entrepreneur remains low, and is far below that generally observed across the OECD and EU, at a time when the perceived need for entrepreneurs is greater than ever.
  • Fewer people are currently planning and starting new businesses in Ireland. This is particularly the case among men.
  • In respect of early stage entrepreneurs, Ireland’s position relative to other European countries has significantly declined.
  • The prevalence of early stage entrepreneurs in Ireland is at historically low levels and is half of what it is in the United States.
  • The level of early stage entrepreneurs that are motivated by necessity continues at a high rate.
  • A marked lowering of growth ambition may be observed among men starting new businesses.

More positive trends…..
  • Successful entrepreneurs continue to be well considered in Irish society, and success at entrepreneurship is considered to confer considerable status.
  • There is a growing general perception of supportive coverage by the media of entrepreneurs and their activities.
  • The educational attainment level among early stage entrepreneurs in Ireland is one of the highest internationally.
  • More than half of all early stage entrepreneurs are focused on overseas markets and many expect a significant number of customers to be from overseas markets.
  • The growth expectations among women entrepreneurs have considerably increased and there is no longer a significant gender gap in this area.
  • The prevalence of owner managers of established businesses in Ireland is higher than it is across the OECD and EU.
  • The level of growth expectation among early stage entrepreneurs remains at a high level."
Another point of interest: "Early stage entrepreneurship is higher among immigrant groups (7.2%) than it is among the non-immigrant population (5.8%) (Table L). This is the case in the other EU-15 countries, with the exception of the Netherlands. Immigrant early stage entrepreneurs are typically motivated by opportunity (73%), which is also the case for non-immigrant entrepreneurs (70%). More specifically, a higher percentage of first generation (3.0%) and second generation immigrants (2.9%) have recently started a business in Ireland, compared to the non-immigrant population (2.2%)."

Role of the recession: "Almost a third of those consulted identified the recession and continuing high rates of unemployment as fostering entrepreneurial activity. The view is that the high unemployment rate has reduced the fear of failure as a deterrent, as people have little to lose. The high unemployment level is forcing people to consider starting up. This point ties in with the continuing high levels of necessity entrepreneurship identified in the 2012 GEM research"

It is worth noting that involuntary entrepreneurship (due to lack of employment) is usually associated with poorer business outcomes.

On funding side: "Informal investors play a vital role in the development of new businesses. In Ireland in 2012, 3.7% of adults reported having provided funds in the past three years (June 2009 to June 2012) to a new business started by someone else. This rate was broadly similar to that reported in 2011 (3.2%). Informal investment is more pervasive in the US (5.4%), across the OECD (4.6%) and the EU-27 (4.5%). The rate in Ireland is more on a par with the EU-15 average (3.4%). The great majority (81%) of the 36,000 individuals, who provided funds as informal investors in Ireland in 2012, provided them to family, friends or work colleagues. Instances of providing investment to entrepreneurs unknown to the investor were much less common (19%)."

Some summary stats:

25/7/2013: More on Sovereign-Banks Contagion risks in Spain and Italy

Two interesting charts detailing continued rise in risk links between the sovereigns and Italian and Spanish banks:

 Both via Ioan Smith @moved_average.

25/7/2013: Ifo Business Climate Survey for Germany: July 2013

Ifo Business Climate Index for industry and trade in Germany is out for July. The index is up at 106.2 from 105.9 in June, marking the third consecutive month of improvements. Current situation index is at 110.1 in July, up from 109.4 in June and also marking third consecutive month of gains. expectations 6 months out remained relatively static at 102.4 against 102.5 in June. Expectations are struggling to gain solid footing, suggesting that businesses are perceiving current conditions (expansion) as being still at risk.

Per Ifo release: "Conditions in the German economy remain fair. The business climate indicator in manufacturing rose slightly. Satisfaction with the current business situation increased for the third month in succession. Business expectations declined minimally, but remain positive. …After last month’s sharp in-crease, export expectations fell somewhat. Firms nevertheless expect expansionary impulses from export business."

Wednesday, July 24, 2013

24/7/2013: Few Links to Thought-Provoking Articles in Economics

Few reading links on economics of inequality and income growth trends links to human capital: "Is Inequality Inhibiting Growth?" by Professor Raghuram Rajan

"Starting in the early 1970’s, advanced economies found it increasingly difficult to grow. Countries like the US and the United Kingdom eventually responded by deregulating their economies.

"Greater competition and the adoption of new technologies increased the demand for, and incomes of, highly skilled, talented, and educated workers doing non-routine jobs like consulting. More routine, once well-paying, jobs done by the unskilled or the moderately educated were automated or outsourced. So income inequality emerged, not primarily because of policies favoring the rich, but because the liberalized economy favored those equipped to take advantage of it.

"The short-sighted political response to the anxieties of those falling behind was to ease their access to credit. Faced with little regulatory restraint, banks overdosed on risky loans."

Another interesting link on income inequality data 

War for Talent is covered here: "It’s the Market: The Broad-Based Rise in the Return to Top Talent" Steven N. Kaplan and Joshua Rauh

And a very provocative, and thought-provoking paper "Defending the One Percent" by N. Gregory Mankiw.

On G20 Tax Proposals: "OECD bureacrats in new diversionary plan to harm business and hike taxes" by  Daniel J. Mitchell covers the OECD proposals for dealing with tax anomalies presented to G20. 

24/7/2013: CBRE Q2 2013 Irish Commercial Property Report

A very good quarterly report from CBRE on Irish Commercial Property markets in Q2 2013.

Some highlights:
In the above, I added the red line for referencing current yields to other urban locations across the EU. Pretty much suggests current valuations are in line with current macro fundamentals. Also, the chart above shows just how much more dramatic the swing has been from the cycle high to the cycle low in Dublin - wider than anywhere else.

Does this mean the market is now priced about right? Barring any dramatic improvement in the fortunes, I can't see much of an organic upside here. That said, external investment demand and longer-time investment horizons can (and probably will) push prices up. On the downside, there is the pressure of cost of long term funding news acquisitions.

On the shorter end, there are strong signs of market recovery. Per CBRE: "There was a significant improvement in transactional activity in the Irish investment market during the first half of 2013. In total, there were 34 investment transactions of more than €1 million in value completed in the six month period. In total, €603 million was invested in the first half of 2013, compared to a full year spend of €545 million in 35 transactions in the entire year last year."

More on the good news side: " Total returns in the Irish market in Q2 2013 increased by 2.3% while capital values were flat in the period according to the Investment Property Databank (IPD) Irish Index. Indeed, total returns in this index have been positive for seven consecutive quarters now." However, the chart shows continued negative capital returns:

The chart also shows that cumulated total returns over the positive 7 quarters are just about cover total losses cumulated from Q4 2009 -Q1 2010.

The headwinds remaining in the market, in my opinion are:

  1. Risk to growth fundamentals in the economy: any further significant compression on current yields will have to be factoring stronger growth than recorded in 2010-2012,
  2. Risk to the future long-term interest rates
  3. Risk to supply/demand balance: current demand is driven largely by lack of other asset classes with comparable returns, plus surplus cash positions built up by some domestic investors. These are at risk of reversals on foreign demand side and exhaustion of domestic cash reserves. On supply side, there is a risk of NAMA eventually starting to dispose of domestic assets in earnest. 
For now, however, my feeling is that the yields are close to fundamentals-determined equilibrium.

24/7/2013: Q2 2013 CDS report: spotlight on Irish CDS performance

CMA published Q2 2013 report on CDS markets. Here's the top 30 table of riskiest sovereigns (ranked by probability of default over 5 years):

Note Ireland's significant improvement from Q1 2013, moving from 20th most risky (5 year CPD of 15.7% and mid-point CDS  at 188.64) to 27th most risky (5 year CPD down to 14.0% and CDS at 165.22).

Tuesday, July 23, 2013

23/7/2013: Irish Residential Property Prices: June 2013

Irish Residential Property Price Index (RPPI) is out today with latest figures for June 2013 offering a snapshot on H1 and Q2 activity in the sector, with some encouraging signs.

From the top line data: the overall property price index has managed to post the first annual increase in June since January 2008. However, overall trend in overall index remains flat, as established from Q2 2012.

  • Year on year, RPPI was up 1.23% in June, having posted -1.07% growth in May 2013.
  • 3mo cumulated change through June 2013 was at 2.34% and this contrasts +0.62% rise in 3 months through May 2013.
  • 6mo cumulated change remains negative at -.03%, but much shallower than -1.97 6mo cumulated change through May 2013.
  • M/m June rise of 1.23% was the largest m/m move up since September 2007.
  • However, on 3mo MA basis, the index June reading was 65.0 - still below the levels recorded in February 2013.
  • Relative to peak the index is down 49.73%, the best reading since December 2012. However, the RPPI is only 2.34% above the all-time low.
Top-line conclusion: RPPI is struggling to lift up above the flat trend despite the unprecedented level of prices collapse to-date.

Chart to illustrate the above trends:

Apartments drove the overall index up on a m/m basis and largely accounted for much of change y/y. The problem is that apartments index is based on thin data, so it is subject to much volatility.
  • Houses RPPI was up 0.89% y/y in June, having posted a y.y contraction of -0.88% in May. M/m index rose 0.89%.
  • 3mo cumulated increase in Houses RPPI was 2.10% in June against a rise of 0.9% in May.
  • 6mo cumulated move in Houses RPPI remains negative at -0.73% - a moderation on -2.17% contraction in May.
  • 3mo MA through June is 67.7, which is the best 3mo MA reading since February 2013 (67.93).
  • Relative to peak, Houses RPPI is down 48.3% and current index reading is only 2.1% above the all-time low.
  • Apartments RPPI reached 50.1 in June 2013, up 5.25% y/y and this contrast in the index being down 3.09% y/y in May 2013. M/m June move stood at +6.37%.
  • 3mo cumulated change through June 2013 stood at +4.59% a strong reversal on -8.54% 3mo cumulated fall in May 2013.
  • 6mo cumulated rise in June stood at 6.82% against 6mo cumulated rise of 3.06% in May 2013.
  • Current reading of the index is 59.56% below the peak and is 9.53% ahead of the absolute low.
  • However, Apartments RPPI STDEV during the crisis period has been at 23.5 against 20.3 for Houses Index. And STDEV for m/m changes was 2.36 for Apartments, against 0.84 for Houses.
  • 3mo MA for Apartments index reached 48.53 in June 2013, which is above May 3mo MA, but below April.
Chart below illustrates Apartments and Houses indices trends:

Top line conclusions: Again, the flat trend remains for the houses index and there is a slight upward trend for the apartments. Both series are relatively anaemic, despite the positive moves. High volatility in Apartments index suggests that caution should be used in interpreting overall RPPI data short-term moves.

Dublin RPPI:
  • Dublin RPPI rose 4.15% y/y in June 2013, having posted a rise of 1.37% y/y in May. June marks sixth consecutive month of increases in Dublin RPPI (y/y terms).
  • 3mo cumulated change in June stood at 2.38% reversing the 3mo cumulated decline of -0.17% in May 2013.
  • 6mo cumulated increase in June was 1.69%, reversing a -1.33% 6mo cumulated drop in may.
  • Relative to peak, Dublin RPPI is now down 55.24% and relative to absolute low the index is up only 5.06%.
  • 3mo MA at 59.43 in June 2013 is the best 3mo MA reading since January 2013.
  • Against the peak, current reading brings us back to the levels last seen in December 2011-January 2012.
Chart to illustrate:

Top line conclusions:  Dublin RPPI is showing most significant and lasting gains of all sub-indices, backed also by medium-range volatility (STDEV for m/m changes is 1.38 for Dublin RPPI).

How significant was the skew in All Properties RPPI due to movements in Apartments? Very significant. 
  • All RPPI was up 1.2% y/y in June 2013
  • National Houses RPPI was up 0.9%
  • National Apartments RPPI was up 5.3%
  • Ex-Dublin, All RPPI was down -1.0%, Ex-Dublin Houses RPPI was down 0.9% (close to All RPPI ex-Dublin)
  • Dublin All RPPI was up 4.2% with Dublin Houses RPPI up 3.6% and Dublin Apartments RPPI up 9.7%.
Hence, overall RPPI was strongly pushed up by Apartments and Apartments index was pushed up by Dublin Apartments.

23/7/2013: Ireland is not Greece... and never was...

Resting on one's laurels is a dodgy proposition. However, forgetting one's achievements is of an equally problematic virtue. To balance things up - a good reminder of Ireland's road travelled from the 1960s through 2008 and I have adjusted figures for Greece and Ireland for 2012 levels of GDP per capita based on IMF data.

Source: the original from World Bank, 2012.

Interesting bit - Ireland remains in the 'rich' club as a country that managed an elusive move from middle income economy in the 1960s to high income economy in 2000s and 2010s. Greece dropped out of the same group.

Monday, July 22, 2013

22/7/2013: That Growing Debt Pile...

In the week when Irish debt/GDP pushes above 125% that some of the luminary 'green jerseyists' said it will never do, let's say loudly to ourselves: "Ireland is not Greece..."

A gentle reminder to stay calm and not to worry, because, as we now know, debt does not matter at all... what matters is pants,.. bright pink pants...

Chart source:

22/7/2013: G20 Spells Out a Squeeze on Tax Arbitrage

Last week we saw the conclusion of the G20 Finance Ministers and Central Bank Governors meeting in Moscow. The meeting covered, in part, financial regulation and international taxation issues, aimed at addressing, as the IMF put it, "international spillovers of national tax policies".

Here's what the basic set of the proposals discussed implies for Ireland - a country at the centre of these spillovers in the euro area and largest per-capita beneficiary of the international tax arbitrage after Luxembourg.

The OECD-prepared, G20 discussed 'Action Plan' on Base Erosion and Profit Shifting (BEPS) covers loads of technical ground. The main points of relevance to Ireland's real economy are:

  1. Tax issues relating to the Digital Economy - including coverage of tax application to services, geographic distribution of tax revenues etc. In the nutshell, the G20 will aim to adapt international direct and indirect taxation rules to the digital economy, including attribution of profit 'together with the character and source of income'. In simple terms, aggressive tax base shifting from, say the UK-sold advertising revenues to, say Ireland-based pro forma sales centre. In other words, the rules will challenge the system on which much of the Ireland's comparative advantage in ICT and financial services currently rests. The threat is more genuine in my view in the case of ICT services than in the case of financial services.
  2. Tighter controls over Controlled Foreign Company rules - a relatively minor issue from the point of view of Irish real economy, but having a potential to impose small adjustment on our official GDP.
  3. Reduce artificial avoidance of tax application, presumably including by schemes such as Double Irish. This has potentially strong adverse impact on Irish economy.
  4. Intangibles transfers within the company group are to be tightened, to reduce effectiveness of transfer pricing. Once again, this suggests pressures on IP tax arbitrage and licenses arbitrage - a core competitive point for Ireland.
  5. The Plan also aims to (explicitly) develop rules to align profits with value creation. Bad news for major MNCs operations here.
  6. Beefing up of data, tax and transfer pricing documentation, and reporting compliance in line with BEPS proposals - an additional significant cost for Irish companies and MNCs, although this is symmetric for all other jurisdictions, so not an issue from comparative advantage of Ireland point of view.

In effect, many proposals link directly into CCCTB structure (see my analysis of this in the G8 context here):

  • Reporting on tax matters re-aligned to cover business activities and capital bases
  • Focusing on documentation of the location where key business risks and business processes are located
  • A country-specific breakdown of group profits and revenues
  • Common anti-avoidance regime
  • Services delivered on-line will migrate toward effective tax rates based on location of end-user of services
  • As KPMG analysis statesd: "Change in effective rate of tax on group profits where change in transfer pricing basis for profit attribution alters the mix of profits attributable to group members". Or in other words: kiss goodbye the key pillar of tax arbitrage in Ireland via consolidation of the tax base.
  • Tax base will migrate to the locations "of key functions and management and oversight of key risks"

So good luck eating that 'breakfast of champions' of the claims that the G20 proposals present no threat to Ireland's economic model. They might not spell a full-scale closure of the tax 'haven' we run, but they do present a significant costs and risks threat to our model, where it is reliant heavily on tax arbitrage. Not a catastrophe, but...

Sunday, July 21, 2013

21/7/2013: WLASze Part 3: Weekend Links on Arts, Sciences and zero economics

The third part of my regular WLASze: Weekly Links on Arts, Sciences and zero economics...
Parts one and two are available here and here. Enjoy!

On science, first.

The EU calls for a radical action to cut carbon emissions on Mars… well not quite, but sometime ago, they could have with some justification, some 3.6 billion years ago: here. Alas, the Martians were not to be blamed, it appears, for that environmental disaster, as much of the CO2 concentration on the Red Planet is due to rapid and massive thinning of the atmosphere, as new data from NASA's Curiosity rover shows: here.

And on arts - more specifically, architecture.

Here's an excellent retrospective of new architectural practices from around the world by the Wallpaper:

Numbers 13-16 are a delightfully whimsical translation of a barn-set modernism.
Brilliant treatment of stairs in number 29

A physical proof that modernising garden gnomes is not an improvement on the hideous original at numbers 36-38. A great attempt at doing the obvious: merging outdoors with indoors and opening up to light and view at 92-95 and 106-109… and so on… drive through this deck!

And Metropolis mag has another, much more pret-a-porter stairway treatment -

My most favourite museum in the world, NYC's MOMA is having two exhibitions not to miss: the first one is the Rain Room installation:

and Le Corbusier: An Atlas of Modern Landscapes retrospective The clinical painting devoid of dynamism (Le Corbusier was a lousy painter, as most architects are) contrasted by surgical ability to restructure space (Le Corbusier was a brilliant architect, intuitive and bold at the same time, dynamic and imposing, a fine balancing act of mass and space).

Both exhibitions are, ultimately, about forced interactions between external and internal , both are basically about pushing nature into our domain (yes, in that - reversed - order).

Moscow Biennale is coming up in the second half of September:
Official site here: or in English:
You can see previous Moscow Biennale site here:
Special Projects section is of interest while the rest of the site is still being assembled:

An interesting article on the issue of whether dinosaurs were cold- or warm-blooded suggesting that the latest evidence points to the latter possibility: link here.

Dinosaurs might have been warm blooded, but our news flow this week, concerning Detroit, was very much cold-blooded, with Detroit being in the news - for the wrong reasons, but possible for the right outcome as I argued here: However, as they point out in Detroit's favourite graffiti message:

For all its multiple 'fails', there's always a reminder of the Detroit's good corners. DIA is one… a superb museum…
Kiki Smith, Lot's Wife, 1997
Beverly Fishman, C.E.L. 1997 MediumCollage, resin, paint
Clyfford Still 1951. Oil on Canvas - my favourite of all DIA collection:

And, H/T to @FrankSunTimes we also have Detroit's music legacy: MrsG has encyclopedic knowledge of this stuff...

Last point on the arts via ArsTechnica:

I am not sure this qualifies as art, since the whole project is a simplified form of averaging based on dimensional measurements. There is a very clear separation between a mechanical averaging exercise and a perceptive interpretation of the average by an artist or a human observer.

To see this, look no further than the most famous 'averaging' attempt by an artist (actually two artists together - Vitaly Komar and Alex Melamid) here: Artists' official webpage is here: The duo brilliantly took their Most Wanted and Least Wanted paintings series to music:

And for another dose of smiles, recall Mr Grigory Yakovlevich Perelman (You say who? I say Poincare) who in 2006 was confirmed by the Science journal to have proved the famous Poincare Conjecture that eluded mathematicians from 1904… Mr Perelman has a beautiful mind. And as such, he is rather eccentric, earning him number 1 spot in Top 10 Odd News Stories of 2011: (H/T to @greentak for spotting the list). One obviously wonders what his Mom response was when he came back home with the news: "Ma, I told em to shove their 1 million dollars where the sun doesn't shine, cause I can control the universe, ya know!" Needless to say, Mr Perelman has not been seen in the news ever since… Note, the Dude also declined Fields Medal (2006) which is the equivalent of the Nobel Prize in mathematics.

So little does Mr Perelman engage with the media or the public, that his life is already attracting that voyeuristic attention which can only be attracted by the unattainable (oh, human nature) - there's a German book on his life out last month:

Here are some good academic links on Perelman's proof of Poincare Conjecture: You can feel your brain twist reading this and after about an hour, you too can get to the point of controlling the universe... just don't tell your Ma, please... And should you be at risk of gaining such powers, a non-technical discussion:

Image from the Clay Institute and a write up:

The end of WLASze for this week… 

Saturday, July 20, 2013

20/7/2013: WLASze Part 2: Weekend Links on Arts, Sciences and zero economics

The second part of my regular WLASze (Weekly Links on Arts, Sciences and zero economics)... enjoy!

Part one is available here.

Let's start the second WLASze for the weekend we are in from science. The cognitive science to be more precise. Basically, in a summary, there's a myth that once we hit twenties, we are already matured, formed and, although conditions and our responses to them do change, we are basically 'emotional intelligence'-wise pre-determined. I am not so sure if my own recollection of my twenties supports this myth, but someone, somewhere, in large enough numbers believes it to be true. 

It turns out this is not the case (which makes me at my 45 at last being on the sane side of an argument about my own twenties). And here's an article arguing the point: "The brain is going through a second critical period of growth," she explained. "The brain doesn't finish developing until some time in your twentysomething years. Being more specific, the pre-frontal cortex doesn't reach maturation until some time in your twenties. This is the last part of the brain to have evolved; it's the last part of the brain to mature. For our purposes, what's important to know about the pre-frontal cortext is that this is the part of the brain that thinks about time, probability, and uncertainty."

Enough said. And a H/T @raluca3000 for digging the article up...

PS: I have no idea who the Girls are, but they look like something of a horror flick, where a bunch of giggly cheerleaders are about to be terrorised by a crazed alien that emerges from their mom's smile...

With alien worlds, then, here's a tale of a speedy demon: basically, someone digging through old data from that relic of the technology past that keeps on ticking - the Hubble Telescope - has spotted a little dot - a new Moon of Neptune. Quote d'resistance: “This is a moon that never sits still long enough to get its picture taken”. The thing flies around at a speed of ca 16,174 miles per hour. 

Staying with the theme of speed: ArsTechnica reports about the black hole that sucks gases at a speed of 10 million kmph or 6.21 million mph or 384 times faster than the Neptune's newest moon moves at. For those old enough to remember Ross Perot (no, not Hercule Poirot) can certainly see now where his famous reference about the 'giant sucking sound from the South' coined 21 years ago has some tangible traction... No, not in Texas, yet...

Shifting the gears from pure science (no, not Ross) to a grey area between science and arts: amasing visualisation of numbers properties: here is visualisation of π, φ and e:

impressive visualisation h/t to Brian O' Hanlon and his comment to last week's WLASze. 

And while on the topic: progression and transition for the first 2,000 digits of e:

I have always argued that:

  1. Mathematics is a part of Art,
  2. Art is the most powerful tool of inquiry available to the (wo)mankind, and
  3. Physical sciences (beyond theory) can only aspire to possess the power of Art

Need more evidence? The above was a trip from math to art. Now, from art to math by Roman Opalka:

Moving on from the methodologised (or theorised) madness of subtle beauty, but staying with the boundary between art and science theme, here's an interesting post on the evolution of typography and design in scientific publishing. Here's an oldest (albeit not the best designed) academic journal:

Although the French as usual claim the whole thing to be their own invention (they beat the Brits to it by 3 months) with this

Thankfully, we don't have to fight this one, though the French design definitely beats the UK dysfunctional plain-face approach to jumbling together a page of text made up of some 10 fonts and about as many font sizes... 

More on history, this time - a new discovery from the Mayan civilisation. The discovery relates the tales of political battles that raged in the Dark Period (dark because we know little about it, although the entire Mayan civilisation was not exactly 'light' when it came to ethics, but...). This dates back to AD 550-560s, as my reading of the article suggests and gives us the names of two kings we didn't know about... Meanwhile in Europe Justinian's boys smuggle contraband silkworms from Asia and Black Death is all the rage across the continent... Also, rather not very light-filled years...

Silkworm was smuggled from China back in AD 553. In return, we brought Chinese art back into the fold of 'thinking art' (away from pure propaganda utilitarianism) ca AD 1980s (yep, it took that long and even as late as 1989, the Chinese Communist Party was not too keen on modern art, especially when the bosses shut down the first modern art exhibition held in China in February 1989). But as with silkworm taking hold in Europe, it will take time for art to take hold in China, although the country art scene has been hugely dynamic and original. The reason for it is that we are now into the early stages of the second generation of Chinese (resident) artists that have any capacity to think beyond the constraints of the limited vocabulary and philosophy of Communist art (Socialist Realism). 

To see this, go no further than this example of a superb online flip book of contemporary Chinese artists in Paris: Much of this is 'soft' - excitingly interesting for its novelty and naivety factors, but conceptually and artistically boring. Take numbers 10 and 11 - iconoclasm does not work in Western art context. 

Not since we broke the taboos of strictly dogmatic interpretation of the subject of art as drivers of form - the school of thought that dominated pre-Rinascimento and then occasionally re-floated under various political regimes throughout the ages, including in the 1930s-40s in fascist states and subsequently in the Warsaw Pact (plus Yugoslavia and Albania). Stuff like the above is now mostly kitsch, unless it has a historical (as opposed to artistic) value. Don't tell the fans of late (post-abstract minimalist) works of Jeff Koons:

Efforts at abstract art as well as reinterpreted traditionalist expressions represented in the e-book on Chinese art in Paris remind me of the period in Russian art around 1988-1998 when Russian artists raced to catch up with the Western vocabulary, philosophy, composition and theory, and semiotics. This process in Russian art is now exhausted, largely, although the market for Russian art still shows strong interest in that expressionist nostalgia for preservation of any departure from the past norm, even if that departure relies on the very same norm for juxtaposition-defined raison d'etre.

The entire book left me in a strange state: I would not want to hold a single work in my collection, but I would not be averse to holding many works, were I to end up with them in my collection… Strange? Try not to think too hard… the e-book is lovely... just lovely... just...

Stay tuned for Part 3 of WLASze coming up later tonight.