Saturday, November 30, 2013

30/11/2013: Land Tax back in the (Irish) news

It appears that after years of research and arguments in the media, having first done the wrong thing, the Irish Labor Party is now drifting into the space of supporting the only tax that makes sense in the context of charging against fixed assets: land value tax.

The report on this are here:

Those of you who follow this blog and my research would be familiar with the following three papers on the topic:

Additionally, Ronan Lyons also produced excellent research on the topic:

Karl Deter contributed to public debate extensively:

And Smart Taxes network produced core research funding, supports and publications platforms:

30/11/2013: WLASze: Weekend Links on Arts, Sciences & zero economics

ƒThis is WLASze: Weekend Links on Arts, Sciences and zero economics. Enjoy…

Let's start with couple of links about mathematics… popularising and reductionist, but nonetheless brightly descriptive and engaging:

"The Math Trick Behind MP3s, JPEGs, and Homer Simpson’s Face" is a post on Nautilus covering the nature and role of Fourier Transforms in our everyday life. And the comments are really good, too…

A non-Simpsonite visualisation of music using Fourier Transforms via

And a fast Fourier Transform music video:

From the science of imagining to the science of digging out: a fully intact skeleton of a baby dinosaur:
If you really are geeky, try computing the prior likelihood of this discovery…

And from prehistoric dinosaurs to human ancestry:
Dating the origin of us has to be out there with the other 'ultimate' questions such as dating the origin of everything. Which, of course, only opens up an even bigger question of dating the origin of everything that precluded the origin of everything we know as reality… Fourier Transforms won't be enough here, but Homer Simpson's world referencing might just work… "This is indeed a disturbing universe"…

Though neither the mathematics, nor Homer were the fans of Soviet automotive industry, there is a certain quaint relation between the images below and the dinosaurs:
Purely aesthetic… of course…

Courtesy of Saatchi Gallery, brilliant brief interview with American artist, Maurice Sapiro:

Space, colour, intensity, air…

A cool story from my old home town of Baltimore, where "Architects Turned This Former Set From "The Wire" Into A Training Ground For Tomorrow's Designers"
I am impressed. Really impressed. The ambition, the scale of execution, the range of thinking that went into this are substantial and substantive... all for under USD27 million?! Beats burning cash on a minor super-yacht...

Visionary and iconic at the same time, "Rigati e tessuti" glass pieces designed by Carlo Scarpa for Venini, ca. 1938–1940 are on display at the Met in a retrospective of Scarpa's works.

Per Metropolismad: "Every single piece of glass on display is breathtaking. The exhibition is organized by manufacturing technique, a strategy that works well because it is how Scarpa himself worked, pushing the master craftsmen at Venini’s furnaces to reinvent old methods, year after year."

Scarpa's work ranges from deeply structured basalt-like pieces of melted glass in organic geometry of singular bodies, to intricately woven lattices to paper-thin bowls of incredible lightness and grace, to geometric perfection of cubism. Instead of evolution toward higher complexity, Scarpa's work is a constant narrative of search and invention.

If anything, the fact that a work of a once-an-apprentice with little formal education can reach the Met is (among many other things) a testament to the long-lost pathway to exceptionalism and excellence - the good-old-fashioned learning-by-doing… You really can't teach this in an MBA class…

30/11/2013: Is the Central Bank Heading Into a Crisis?

Throughout the crisis, I have been highly critical of the Central Bank's role in the creation of conditions that drove us toward the crisis. And of the weaknesses in the CB's attempts to address the mortgages crisis, as well as the lack of direct and open assessment of the crisis.

At the same time, the CB also deserves praise. With Prof. Honohan in the driving seat, the organisation implemented major changes in operations, strategy, regulatory and reporting areas. It is well on its way toward breaking free from the past.

The CB beefed up reporting and compliance, opened up databases, cleaned up data disclosure, beefed up research. It is also a much more open organisation when it comes to communications with the analysts and the media. In dealing with the banks, the CB took a more pro-active role than is normally required. This reflected the nature and the extent of the crisis in our banking sector, as well as growing realisation within the CB that extend-and-pretend approach to the crisis is not going to help resolve the issues.

These processes of change are still ongoing and are far from being completed. The last thing we need now is a crisis in the Central Bank. With many competent people who took CB through significant and positive changes in recent years leaving, it is imperative that Prof. Honohan is given a chance to rebuild the team and press on with changes. The questions to be asked of the CB should not be limited to 'What is going on?', but must extend to include 'What is next?' We cannot allow the CB to slide back into the swamp of complacency it was prior to the crisis.

Friday, November 29, 2013

29/11/2013: Central Bank: Failure of Own Sustainability Criteria on Mortgages Arrears Resolutions?

So things are getting better with mortgages arrears crisis… practically easing the worries of the nation, according to the Irish media and officialdom… And the Central Bank is delighted that the banks are so actively meeting targets etc… (Note: my coverage of the arrears figures is here:


Per Central Bank: “We expect that lenders will continue to progress and develop their approaches to ensure that future sustainability targets will be achieved.  With indications the banks are now offering long term sustainable solutions to customers, the Central Bank continues to encourage meaningful engagement between lenders and borrowers.”

And what these 'sustainable solutions' might be, you should ask?

Per CB: "As at end of September 2013 the lenders in total reported they had issued proposals to 43% of mortgage accounts in arrears against a target of 30%."

Now, let me be forthright here on my views:
1) Repossessions and voluntary surrenders are a part of the solutions tool kit and are unavoidable (and indeed optimal) in a number of cases.
2) However, the above can only be deemed sustainable if and only if they take place in the context of first (ex-ante repossession or surrender) concluding arrangements between borrower and lender on what is to be done with the residual balance on mortgage remaining at the end of the property sale.

Since we do not know what percentage of all repossessions and surrenders were accompanied by such an agreement, we do not know if there is ANY (repeat - any) sustainability of debt has been achieved in the process of such a resolution. In other words, the Central Bank cannot make a factual claim that 55% of the resolution measures proposed were sustainable (aka meet the CB own criteria for them satisfying the target requirement).

Worse, the massive number - 55% - is itself an indication that the entire Central Bank-led process is a complete failure. In fairness to the Central Bank, the language of the release ( suggests that the bank is not entirely happy with the status quo distribution:

"There has been a change in the trend of proposed solutions from Quarter 2 to Quarter 3. In Quarter 2 62% of the proposals were in the Surrender/Repossession category, which decreased to 55% in Quarter 3."

But there are problems even with this claim. Firstly, there is no trend. There is not enough time series data to show ANY (repeat - any) trend up or down in the data. What we have is one quarter against another. Should the 'trend' of 7 percentage points per quarter continue, we will end 2014 with over 40% 'resolutions' leading to foreclosures or surrenders of properties. Given the bank wants to deliver 75% resolutions target by the end of 2014, this would imply that more than 40% of the mortgages accounts in arrears will be in liquidation. That is a trend to a national disaster.

29/11/2013: McKinsey estimates of QE effects on economies

Recent paper by McKinsey Global Institute, published November 2013 and titled "QE and ultra-low interest rates: Distributional effects and risks" looked at the effects of exceptional monetary policy measures implemented by the central banks in the US, the UK, Japan and the euro area since 2007.

"More than five years [since the beginning of the crisis] …central banks are still using conventional monetary tools to cut short-term interest rates to near zero and, in tandem, are deploying unconventional tools to provide liquidity and credit market facilities to banks, undertaking large-scale asset purchases—or quantitative easing (QE)—and attempting to influence market expectations by signaling future policy through forward guidance. These measures, along with a lack of demand for credit given the global recession, have contributed to a decline in real and nominal interest rates to ultra-low levels that have been sustained over the past five years."

The "ultra-low interest rates have produced significant distributional effects if we focus exclusively on the impact on interest income and interest expense." as the result:

McKinsey's core findings include:

  • ƒ"Between 2007 and 2012, ultra-low interest rates produced large distributional effects on different sectors in advanced economies through changes in interest income and ...expense."
  • "By the end of 2012, governments in the US, the UK, and the Eurozone had collectively benefited by $1.6 trillion, through both reduced debt service costs and increased profits remitted from central banks."
  • "Meanwhile, households in these countries together lost $630 billion in net interest income, with variations in the impact among demographic groups. Younger households that are net borrowers have benefited, while older households with significant interest-bearing assets have lost income."
  • "Non-financial corporations across these countries benefited by $710 billion through lower debt service costs."
It is worth noting that the McKinsey study does not account for the effects of reduced unemployment and shallower recessions that were attributed to the deployment of the monetary policies. Neither does the study account for the effects of higher taxation levied by the Governments on households.

Banking sector effects identified in the study are:

  • "The era of ultra-low interest rates has eroded the profitability of banks in the Eurozone. Effective net interest margins for Eurozone banks have declined significantly, and their cumulative loss of net interest income totaled $230 billion between 2007 and 2012."
  • "...Banks in the US have experienced an increase in effective net interest margins as interest paid on deposits and other liabilities has declined more than interest received on loans and other assets. From 2007 to 2012, the net interest income of US banks increased cumulatively by $150 billion."
  • "Over this period, therefore, there has been a divergence in the competitive positions of US and European banks."
  • "The experience of UK banks falls between these two extremes."

Financial companies and assets:

  • "Life insurance companies, particularly in several European countries, are being squeezed by ultra-low interest rates. Those insurers that offer customers guaranteed-rate products are finding that government bond yields are below the rates being paid to customers."
  • Obviously, not a word about the vast financial repression sweeping across the financial sector, especially in the euro area, which is seeing assets seized for 'tax raising' etc.
  • But a stern warning: "If the low interest-rate environment were to continue for several more years, many of these insurers would find their survival threatened."
  • And, not stated but on everyone's mind: if the low interest-rate environment were to come to an end, wholesale bankruptcy of household and corporate financial balance sheets will do miracles to the economies too...
  • Per McKinsey: "The impact of ultra-low rate monetary policies on financial asset prices is ambiguous. Bond prices rise as interest rates decline, and, between 2007 and 2012, the value of sovereign and corporate bonds in the United States, the United Kingdom, and the Eurozone increased by $16 trillion."
  • "But we found little conclusive evidence that ultra-low interest rates have boosted equity markets. Although announcements about changes to ultra-low rate policies do spark short-term market movements in equity prices, these movements do not persist in the long term. Moreover, there is little evidence of a large-scale shift into equities as part of a search for yield. Price-earnings ratios and price-book ratios in stock markets are no higher than long-term averages."


  • "Ultra-low interest rates are likely to have bolstered house prices, although the impact in the United States has been dampened by structural factors in the market. At the end of 2012, house prices may have been as much as 15 percent higher in the United States and the United Kingdom than they otherwise would have been without ultra-low interest rates, as these rates reduce the cost of borrowing."
  • "If one accepts that house prices and bond prices are higher today than they otherwise would have been as a result of ultra-low interest rates, the increase in household wealth and possible additional consumption it has enabled would far outweigh the income lost to households. However, while the net interest income effect is a tangible influence on household cash flows, additional consumption that comes from rising wealth is less certain, particularly since asset prices remain below their peak in most markets. It is also difficult today for households to borrow against the increase in wealth that came through rising asset prices."
Summary of the effects:

Thursday, November 28, 2013

28/11/2013: Irish Mortgages Arrears: Q3 2013

Numbers are out for Residential Mortgages Arrears in Q3 2013 and the data shows that the chronic problem of mortgages distress is still with us with little change after months of tough talks from the authorities, 'resolute' actions from the banks and a barrage of legislative, regulatory and rhetorical changes.

Top of the line numbers are still frightening, albeit things have largely faltered out on most fronts.

  • Total number of PDH accounts at risk or defaulted (defined as all accounts currently in arrears, restructured and not in arrears, and in repossessions) at the end of Q3 2013 stood at 185,604, down 329 accounts or 0.2% from Q3 2012. 
  • Over the 12 months through September 2013, number of BTL accounts at risk or in default rose 3,022 (+5.9%) to 54,094. 
  • Thus, total number of mortgages accounts currently at risk or defaulted at the end of Q3 2013 stood at 239,698, which is 1.1% higher than in Q3 2012. 
  • Total outstanding volume of mortgages at risk or defaulted for both BTL and PDH mortgages at the end of Q3 2013 was EUR46.77 billion, up EUR1.75 billion on year ago.
  • As of the end of Q3 2013, 20.3% of all PDH mortgages accounts and 36.65% of all BTL mortgages accounts were either in arrears, restructured due to previous arrears or in repossession. 
  • Across the entire system, 26.18% of all mortgages accounts and 33.6% of all mortgages volumes outstanding in Ireland were at risk or defaulted at the end of September 2013.

Deleveraging process is not working either:

  • Total outstanding volume of mortgages debt in the country was EUR138.88 billion in Q3 2013, only 2.4% lower than a year ago.
  • Total number of mortgages accounts fell to 915,746 in Q3 2013, down 3.08% y/y.
  • Residential mortgages in arrears rose to 141,520 accounts (+0.1% y/y) and BTLs accounts in arrears numbered 40,426 (+10.35% y/y). Thus total number of accounts in arrears was up 2.2% y/y.
  • Total outstanding volumes of mortgages in arrears stood at EUR36.56 billion in Q3 2013, up 5.8% y/y (comprising EUR25.56bn in residential mortgages volumes +4.75% y/y and EUR11.0bn of BTLs +8.32% y/y).
  • Total amounts of actual arrears rose to EUR3.479bn in Q3 2013, up 28.2% y/y.
  • Repossessions rose to 1,566 in Q3 2013 from 1,503 in Q2 2013 and 1,358 in Q3 2012. Residential repossessions rose to 1,050 from 1,001 a quarter ago and 944 a year ago. The process of repossessions remains very slow and is likely to accelerate in the near future.

These figures clearly show that banks-driven approach to the process of resolving the mortgages arrears crisis, adopted by the Government and the financial sector regulatory authorities is not delivering. To-date, the speed of mortgages arrears restructuring and resolution is disappointingly slow.

Some charts to illustrate the trends:

28/11/2013: Irish Residential Property Prices: October 2013

Irish Residential Property Prices index (RPPI) for October was published yesterday showing continued and rapid convergence in Dublin prices toward national levels.

Overall National all-properties RPPI rose 6.12% y/y in October 2013, having posted 5th consecutive month of annual rises. Compared to peak, National RPPI stands down 46.82% and is up 8.27% on crisis trough. 3mo MA of RPPI is 3.96% higher than for previous 3mo period. Cumulated 24 months change is now -2.53%.

National Houses RPPI also rose strongly, posting a gain of 5.86% y/y and marking the 5th consecutive annual rise. The index is 45.23% below its peak and 8.23% above the crisis period trough. Cumulated change over the last 24 months is -2.69% and 3mo average through October is up 3.95% on previous.

National Apartments RPPI is up a massive 11.68% y/y and is 15.1% above the crisis period trough, although the index is still 57.55% below the peak. Cumulated 24 months gain is +0.77% and 3mo average through October is now 4.49% ahead of 3mo average through July.

National ex-Dublin RPPI declined 0.29% y/y. last time the index posted positive gain was in February 2008. The rate of decline is moderating significantly, however, as shown in the chart below. The index is now 46.89% below its peak and 3.48% above the crisis trough. Cumulated change over the last 24 months is -9.16%, but 3mo average through October 2013 is 0.69% above 3mo average through July 2013.

Dublin RPPI (all properties) rose massive 15.02% y/y in October, marking 10th consecutive annual rise and third consecutive rise in double-digits. The Index is now 49.89 below its peak and 17.63% up on crisis period trough. Cumulated 24 months change in the index is +6.81% and 3mo average through October is 8.31% ahead of 3mo average through July.

Decomposition of Dublin RPPI:

Dublin Houses RPPI rose 14.61% y/y in October. This was the third month of double digits annual gains and the 10th consecutive month of positive annual rates of growth. The index is down 48.19% on peak and is up 17.43% on crisis trough. Cumulated 24 months gains are 5.62% and 3mo average through October is 8.7% higher than for the 3mo period through July.

Dublin Apartments RPPI posted the fourth consecutive double digits annual rise with a gain of 18.01% y/y. This is the 5th consecutive month of positive annual growth rates. The data is exceptionally volatile and, as CSO points out, is based on thin volumes.Overall, apartments prices are down 56.28% on the peak and are up 20.3% on the crisis trough. Cumulated 24 months gains are at 9.65%.

Top-line conclusions:

  • Dublin prices are converging back toward longer term equilibrium levels. These, in my opinion, should be around -20-25% of the peak, to return us to inflation-consistent growth path.
  • The rate of convergence is very strong and disturbing. This is probably due to one-off factors that are likely to run their course over time.
  • It is likely that the prices will overshoot the new equilibrium trend on the way up and will then moderate back toward trend.
  • The rest of the country is in the flat-line pattern and can see a psychological boost from Dublin. This boost is unlikely to be sustained in the short run.
  • Uncertainly is significant in the market in the short run (through 2014-early 2015) due to the backlog of unresolved mortgages arrears and Nama holdings.
  • Long-run equilibrium for the national prices is also around -25-30% on pre-crisis peak.

Table below summarises the levels of equilibrium indices and the shortfall on equilibrium:

28/11/2013: To OMT or not to OMT?

Per Irish Times report ( "In remarks to The Irish Times, ECB executive board member Jörg Asmussen said leaving the bailout without a credit line meant Dublin did not meet conditions for the bank to buy Irish debt under its bond-buying programme." He is referencing OMT programme.

We knew that. Despite the fact that just a week ago, Minister Noonan claimed that "leaving the bailout without a precautionary credit line neither rules Ireland in nor out of accessing the ECB's Outright Monetary Transactions (OMT) programme. It has been speculated that going it alone without the safety net of a credit line would ban Ireland from the ECB scheme. "There is a misunderstanding in Ireland, even at the highest level of economic thinking, about OMT," Mr Noonan told TDs yesterday." (


Note: I wrote about this problem two weeks ago: I was clearly 'misguided'...

Wednesday, November 27, 2013

27/11/2013: Irish Employment by Sectors: Q3 2013

In the previous post I looked at the data from QNHS on broader measures of unemployment in the economy ( This time, let's take a look at employment numbers across various sectors. The data below is not seasonally adjusted, so these are actual counts.

Starting from the top:

  • Overall employment levels at the end of Q3 2013 stood at 1,899,300 which represents a rise of 3.15% y/y. Over the last 12 months, employment averaged 1,865,930 which is 1.54% ahead of employment levels 12 months average through Q3 2012.
  • Relative to pre-crisis levels (average of 2008), employment is still down 10.76%, but compared to the crisis period trough we are up 4.07%.
  • Current levels of employment are the highest since Q2 2010.
  • Agricultural employment changes are well highlighted by the CSO and as such I will not interpret these here.
  • Non-agricultural private sector employment is at 1,308,200 in Q3 2013, up 2.98% y/y. 12 months average level through Q3 2013 is at 1,278,950 up 0.99% on 12 months average through Q3 2012. Not exactly spectacular change, but still a welcome positive reading. Relative to pre-crisis 2008 average, non-agricultural private sector employment was 14.96% lower in Q3 2013.
  • Public sector and state-controlled sectors (health and education) employment fell 0.99% y/y to 480,500. 12mo average through Q3 2013 was at 486,930 which is 0.16% down on previous 12mo average through Q3 2012. Not exactly a massive drop-off. However, compared to 2008 average, employment in this category is 1.2% higher in Q3 2013 - a poor omen for the claims of significant reductions in public and state-controlled employment. 
Chart to illustrate:

Welcoming changes in the higher value-added sectors of the economy:

  • ICT sector employment stood at 82,000 in Q3 2013, up 4.86% y/y. 12mo average through Q3 2013 is at 80,750 and this is up 2.34% on 12mo average through Q3 2012. Levels of employment in the sector in Q3 2013 were 14.77% ahead of 2008 average.
  • Professional, scientific and technical activities employment rose to 113,300 in Q3 2013 up 10.86% y/y and the 12mo average through Q3 2013 stood at 106,350 which is 7.1% higher than in 12 months through Q3 2012. Nonetheless, the sector employment levels in Q3 2013 were 2.22% below the 2008 average.
  • Administrative and support services employment stood at 64,700 in Q3 2013, down 2.85% y/y and 12mo average through Q3 2013 was at 61,350 which is 4.66% below the average through Q3 2012. The sector employment is still well below 2008 levels - down 15.73%.
  • Financial, insurance and real estate services employment fell 0.78% y/y to 101,500 in Q3 2013 and 12mo average through Q3 2013 was at 100,730 down 0.93% on 12mo average through Q3 2012. Compared to pre-crisis levels (2008 average) employment in this sector is down 5.10% in Q3 2013.

Education, Health and Public Administration all showed continued weaknesses:

  • Public administration and defence, compulsory social security sector employment declined 3.61% y/y to 96,100, and 12 mo average through Q3 2013 stood at 95,600 or 4.66% lower than over 12 months through Q3 2102.Relative to 2008 average, employment in the sector is now down 8.63%.
  • Education sector employment rose 0.14% y/y to 140,800. Sector employment averaged 145,980 in 12 months through Q3 2013 which is 1.02% ahead of 12 months average through Q3 2012. However, compared to 2008 average, Q3 2013 level was 3.13% lower.
  • Human Health and Social Work sector employment was down 0.57% y/y in Q3 2013. 12mo average through Q3 2013 stood at 245,350 which is 0.99% higher than 12mo average through Q3 2012. Compared to 2008 average, Q3 2013 reading was 8.62% higher.

Employment in Industry is quietly running slightly up despite overall decline in goods exports values:

  • Industry ex-Construction sector employment rose 4.72% y/y in Q3 2013 to 242,000 and was up in 12mo average terms by 1.3%. However, compared to pre-crisis average for 2008, Q3 2013 reading was still 15.98% lower.
  • Industry including construction sector employment rose 4.58% y/y to 347,300. In 12mo through Q3 2013, employment in the sector was up 0.59% compared to 12 months average through Q3 2012. Relative to pre-crisis average for 2008, employment in sector stood massive 34.15% lower in Q3 2013.
  • Meanwhile, services employment rose 1.30% y/y in Q3 2013 to1,439,200. In 12mo through Q3 2013 employment averaged 1,423,050 which is 0.7% higher than for the same period in 2012. Compared to 2008 average levels, Q3 2013 employment in Services stood at -2.64%.

So on the net - some good aggregate numbers. Rates of increases, especially averaging-out over 12 months (4 quarters) period are still not exactly spectacular, but we do have overall growth in employment and this growth is also present in the higher value-added sectors. 

Here is the summary of changes for the period since the current Government took office:

Tuesday, November 26, 2013

26/11/2013: Broader Unemployment & Underemployment in Ireland: Q3 2013

This is the first post on the QNHS results for Q3 2013, covering broader metrics of unemployment as reported by the CSO, plus the State Training Programmes (STP) participation.

Terminology first:

Per CSO data:

  • PLS1 (unemployed persons plus discouraged workers) unemployment rate stood at 13.8% down from 14.8% in Q2 2013 and 16% in Q3 2012. Compared to peak, PLS1 is now 2.4 percentage points lower. Q3 2013 rate stands at the lowest since Q4 2009.
  • PLS2 (PLS1 + Potential Additional Labour Force) rate declined from 16.2% in Q2 2013 to 15.2% in Q3 2013. The rate was 17.1 in Q3 2012. Current rate is the lowest since Q1 2010 and is down 2.1 percentage points on the peak.
  • PLS3 (PLS2 + others who want a job, not available & not seeking for reasons other than being in E/T) rate fell to 17.5% in Q3 2013 from 18.2% in Q2 2013 and is now down 1.5 percentage points on Q3 2012. PLS3 is down 1.7 percentage points on peak and is the lowest reading since Q1 2010.
  • PLS4 (PLS3 + underemployed) was at 23.5% in Q3 2013, down on 24.7% in Q2 2013 and on 25.5% in Q3 2012. Relative to peak the rate is down 2.3 percentage points and this marks the lowest reading since Q4 2010.
  • Adding State Training Programmes participation data from the CSO Live Register reports, PLS4+STP measure is now at 27.0% down on 27.8% in Q2 2013 and 28.9% in Q3 2012. Compared to peak the measure is down 1.91 percentage points and the measure is at its lowest level since Q1 2011.
  • Finally, adding estimated emigration rate, PLS4+STP rate rises to close to 28.0% in Q3 2013, down on 28.7% in Q2 2013. This is an estimate, so should be treated with caution.
Charts to illustrate and summarise:

While the above data is positive, it should be treated with some caution, as the turnaround in employment driving the above statistics is reflective of significant increases in part-time and self-employment figures. In addition, with just 4 quarters of downtrend in the series so far, the dynamics, while encouraging, are yet to be fully established.

Additional good news was provided by the Labour Force numbers:

  • Labour Force numbers rose to 2,182,100 in Q3 2013 from 2,165,800 in Q3 2012, gaining 16,300 year on year.
  • Labour force numbers were up 44,600 on crisis period trough in Q3 2013.
  • Crisis trough to pre-crisis annual average stands at 136,400. Last 12 months average relative to pre-crisis average stands at -115,450, which means we are around 2.5-3 years out from closing the gap.

Stay tuned for more analysis tomorrow.

Sunday, November 24, 2013

24/11/2013: WLASze: Weekend Links on Arts, Sciences & zero economics

This is WLASze: Weekend Links on Arts, Sciences & zero economics. Enjoy!

Shopping malls rarely inspire - both in terms of exterior architecture and interior design… their utilitarian purpose combines with aesthetic of the masses to produce bland, dentally-inspired greyness… unless, of course, it is a shopping mall in Sweden, where extreme capitalism collides often spectacularly with extreme socialism to produce unexpected visuals. Behold this Van-Damme-Volvo-ad ( equivalent in the shopping mall architecture:
After all, energising those satiated consumers to spend their money on things other than social justice requires visual experiences that are truly spectacular...

Three sets of links relating to space next.

First, NASA's latest Cassini images of the Titan - with high resolution section showing Northern Lakes (Salt Flats):
H/T: @raluca3000 @NASAWebbTelescp (click on image to enlarge)

Second, a beautiful set of visuals to put the relative dimension of the Earth and our solar system compared to some stars out there:

The page above comes courtesy of a fantastic Mechanical.Art.Devices (M.A.D.) Gallery A fascinating glimpse into the world of unique engineering and design… (not strictly space image, but so elegant, it might just be stellar)...

Three: one hell of a cool story, via arstechnica, from the Antarctica, where earlier this year, scientists discovered Ernie and Bert, "two neutrinos with energies over 100 times higher than the protons that circulate in the LHC. Now, the same team has combed through its data to find an additional 26 high-energy events, and they've done a careful analysis to show that these are almost certainly originating from somewhere outside our Solar System."

And in a related story, arstechnica covers the jobs at the South Pole data centre where they have to "heat the air used to cool… data centre".

Brilliantly written and fascinating!

Science Gallery at TCD is featuring this week in dezeen with a story about the latest show "Grow Your Own - Life After Nature" that runs through 19 January 2014 and is worth visiting… See @ScienceGallery

A brave show, pushing the bounds of what we consider aesthetically acceptable and blending these bounds with what we consider both art and science. And the science bit is not about the actual physical stuff, like growing cheese culture based on human body excretions-produced bacteria. Instead, it is a science of our self-awareness, the compartmentalising nature of our understanding of the acceptable. In many ways, this is about ethics reaching beyond their own domain into aesthetics. As we commonly have a problem with seeing the animal that provides us with a steak in their living condition, we have a problem seeing (let alone tasting) a slice of cheese that was grown from the bacteria harvested from our bodies.

"Selfmade is a series of ‘microbial sketches’, portraits reflecting an individual’s microbial landscape in a unique cheese. Each cheese is crafted from starter cultures sampled from the skin of a different person. Isolated microbial strains were identified and characterised using microbiological techniques and 16S ribosomal RNA sequencing. Like the human body, each cheese has a unique set of microbes that metabolically shape a unique odour."

We then frame the whole experiment into what is ethically or aesthetically acceptable to us: "Cheese odours were sampled and characterised using headspace gas chromatography-mass spectrometry analysis, a technique used to identify and/or quantify volatile organic compounds present in a sample."

I will leave you at this and suggest you explore the said boundaries on your own…

Interesting show in London's St Petersburg gallery: Vladimir Baranov-Rossine: From Cubism to Surrealism:

Apparently, the first exhibition in 30 years retrospecting his works in Europe.

While on Russian art, an amazing collection of rare Allies posters highlighting the role of the Soviet army during the World War 2:

And travelling further in time, an unseen until recently collection of early photographs of life in Russia from the beginning of the 20th century
Here's a sample - both in colour and original print:

Readers of WLASze would know that I am not a big fan of Zaha Hadid, having written before my opinion about her over-exposed, over-worked studio. However, where credit is due, it should be given. Fantastic aesthetic and total absence of respect for balance can be a cool combination. This building confirms:

And for the last bit - an absolutely fantastic Gel talk by Vi Hart on mathematical applications to music composition:


Saturday, November 23, 2013

22/11/2013: 'Clean exit': spin vs non-spin

Yesterday, I tweeted in response to the quote by An Taoiseach Enda Kenny concerning Ireland's 'exit' from the bailout as follows:

'Clean'? 'Break'? 'Right'? 'Course'? Is he randomising words off refrigerator magnets? RT @harrymcgee: Making ‘clean break’ from Troika was right course, Kenny | Cause, you know - it is neither a break (2-pack) nor 'clean' (debt still there), nor 'right' (retro debt relief not in place), nor a 'course' (cause we didn't have a choice - the money run out & the pot is empty).

The quote contained in this Irish Times article: was as follows:
"Taoiseach Enda Kenny has asserted that the Government took the right course of action in making a ‘clean break’ from the Troika despite its own independent economic advisers recommending the State should have accepted a precautionary line of credit."

Let me explain why I have take the statement to task.

Word 'clean' implies that we have severed whatever attachments to the bailout we had in exiting the bailout. Alas, there were two such attachments to severe:

  1. Troika oversight. This still remains, albeit in slightly altered form: Note that, per my analysis here:, our exit from oversight can be interpreted as ejecting the more positive side of the Troika and retaining the oversight by the less positive (from our interest perspective) members. Further note, Minister for Finance explicitly admitted that there was no exit from the oversight.
  2. Financial ties to the bailout. These ties were not even reduced, let alone cut, since the entire debt we owe the Troika is still outstanding to the Troika.
Word 'break' implies an act of breaking free from something - the act of the doer. Ireland did not 'break' away from the bailout, but rather we have run out of the bailout terms. We completed drawing down the loans available per bailout. We completed the process on time (without overruns) and without requesting another bailout. But we did not 'break' from the bailout.

Thus, one cannot claim that we made a 'clean break' from the bailout, but rather that we have moved to the second stage of the bailout: paying down the loans.

Was the 'exit' a right choice? Time will tell. Fiscal Council thinks (as I do) that on balance of things, we should have secured a precautionary line of credit. Moreover, we can now clearly kiss goodbye any chance of a retrospective debt deal on legacy banks debts. Not being within a bailout disallows us to extend an argument of hardship arising from these debts, and by removing the IMF from the oversight process, we have now removed the strongest advocate of such a deal we had, after the Ballyhea-Charleville group of protesters and other similar groups. Note: Irish Government ranks, in my view, as a distant third force in asking for such a deal.

Thus one cannot argue that the 'exit' was a 'right choice' as it clearly fails to achieve the objectives that would have made it 'right'.

Lastly, the issue of the word 'course'. Course implies an option of direction undertaken. Ireland had no such option. We have completed the first stage of the bailout - conditional loans disbursement. Full stop. Altering this 'course' of completing the first stage would have required us negotiating a new bailout - something that was clearly not feasible, given the problems Germany and rest of the EU have encountered in Greece and given the fact that the IMF is desperate to stop lending in the Euro area. The entire process of Euro area bailouts has cost IMF hugely in terms of reputational costs and risks. The Fund came to severe blows with the EU and ECB over the policies and structures of the bailouts and it has run out of the road in extending more funding to the Euro area states beyond the funds agreed. In short, neither Germans, nor the IMF were looking forward to lending us any more cash should we request another bailout. Which means there was no 'course' nor a choice of action to take.

The good news, we do not need another bailout. The Irish people and the Government deserve a credit on this. The bad news, we neither exited the bailout, nor achieved a clean separation from the Troika, nor pursued a correct path of action on structuring our completion of stage 1 of the bailout. The Irish people certainly are not to be blamed for these. Which leaves only one question open: is our Government to be blamed?

I neither desire to answer the last question, nor to deal with what the potential answer might be.

Friday, November 22, 2013

22/11/2013: Euro area banks: leveraged through the nose... still

All you need to know about European banks sickness (it is still raging), the state of European regulations and quality oversight over the banks (it is still crap) and just how far we have travelled from the causes of the crisis (not far at all) in one chart:

European bounds set for the banks are a joke. A bizarre joke. And yet, Europeans call this a 'reform'. And regulators in the countries with completely dysfunctional banks (e.g Ireland) harp on about their banks 'compliance' with or 'meeting' the 'European standards'...

Notice, under the US proposed standards, leverage ratio requirement will be raised to 6% for FDIC-insured banks... meanwhile in Europe, 3% is 'rigorous' and 'robust' and 'safe' and 'never again' level...

Time to smell the roses. Going at the current rate of 'reforms', it will be decades before this European mess is sorted and by then, Europe won't matter to the rest of the world... will not matter at all... backwater with a few nice museums and some statues of the Great Leader Hermit von Frompy strewn across the lovely fields of wheat...

Oh, and if you still think that Newbridge Credit Union is a Big Story - my suggestion is: time for a visit to your friendly head doctor?..

22/11/2013: Freedom of Press in Ireland: 2013

I recently tweeted on the subject of press freedom assessment of Ireland, but have not blogged the numbers. So correcting for this shortcoming, here's the latest assessment of Ireland by the Reporters Without Borders under the Press Freedom Index:

  • From 2011 through 2013 we are ranked 15th in the world in terms of freedom of press;
  • In 2013, we were ranked 14th in Europe (not EU or EA) in freedom of press;
  • Our worst ranking on the record was 17th achieved in 2003;
  • We were ranked 1st in the world in 2004-2005 and again in 2009;
  • We ranked in top 10 in the world in 2002, 2004-2010

Here is our 'neighbourhood' in terms of top 20 ranked countries in 2013, compared to 2010-2012 average:

I will be speaking and participating in a panel discussion at NUJ event tomorrow, focusing on the Future of Journalism:

PS: For those who might ask why I was invited: I used to work as the Group Editor of Business & Finance magazine and its sister publications for a number of years and subsequently was non-executive director of the publishing house.

22/11/2013: German GDP - no surprise to the downside

German GDP figures out: Q2 2013 confirmed at +0.7% q/q, Q3 2013 final at 0.3% q/q. Year-on-Year Q3 2013 at +1.1%, exports up only +0.1% q/q, imports up +0.8% q/q.

A chart (via @moved_average):

And the chart lesson? Recovery period: 2010-to-date: Trend growth down-sloping, volatility consistent with 2002-2007 period. The latest recovery sub-period - unconvincing.

More on euro area growth:

Thursday, November 21, 2013

21/11/2013: Art = Rubbish Investment Despite 6%+ Average Annual Returns?..

Two interesting recent studies on economics of investment in art markets worth reading.

The first study, titled "Does it Pay to Invest in Art? A Selection-Corrected Returns Perspective" by Arthur G. Korteweg, Roman Kräussl and Patrick Verwijmeren (October 15, 2013) "shows the importance of correcting for sample selection when investing in illiquid assets with endogenous trading. Using a large sample of 20,538 paintings that were sold repeatedly at auction between 1972 and 2010, we find that paintings with higher price appreciation are more likely to trade. This strongly biases estimates of returns. The selection-corrected average annual index return is 6.5 percent, down from 10 percent for traditional uncorrected repeat sales regressions, and Sharpe Ratios drop from 0.24 to 0.04. From a pure financial perspective, passive index investing in paintings is not a viable investment strategy once selection bias is accounted for. Our results have important implications for other illiquid asset classes that trade endogenously."

The study is solid on econometrics and shows very clearly how the selection bias mechanism drives abnormally high reported returns for art. This, in my view, sets a new standard of analysis for the sector. The study is available here:

Another paper, titled "The Investment Performance of Art and Other Collectibles" by Elroy Dimson and Christophe Spaenjers (September 2, 2013) was authored by finance specialists who should have known better to test for selection biases. They did not. Which means that some of the econometrics reported should be suspect. Still, the study is interesting if only because it covers not only fine art, but also philately and musical instruments.

Per abstract: "We assess the long-term financial returns from high-quality collectible real assets, and review the unique risks that are associated with such investments. Over the period 1900-2012, art, stamps, and musical instruments (violins) have appreciated at an average annual rate of 6.4%-6.9% in nominal terms, or 2.4%-2.8% in real terms. Despite the similarity in long-term returns, short-term trends can vary substantially across these different types of emotional assets. Collectibles have enjoyed higher average returns than government bonds, bills, and gold. However, it is important to recognize the quantitative importance of transaction costs in collectibles markets. In addition, price volatility is larger than is suggested by conventional measures of risk, and these assets are also exposed to fluctuating tastes and potential frauds. Yet, despite the large costs and many pitfalls, investment in emotional assets can pay off, because of the non-financial yield they provide."

The study is available here:

Wednesday, November 20, 2013

20/11/2013: Euro Area: the Zaporozhetz of Growth?..

"Ello... Ello... Stagnation calling... Is this Europe?"

Two snapshots from the recent ECB staff forecasts for the euro area performance: 2012-2014... Real GDP in the range of cumulative 3-years growth of... -0.0076%... 2014 rapid expansion of the forecast range of 0.9-1.2%... If this is the engine of growth, then this is the engine of mobility:

Update: The Zaporozhets of Growth is now spilling coolant (oil has drained already):

Via BBVA Research.

20/11/2013: Irish pensions: a crisis of policy, institutions and savings - Sunday Times November 17

This is an unedited version of my Sunday Times article from November 17, 2013.

Back in the early 2011, with the new Government coming into the office, fresh ideas were filling the airy halls of the Department of Finance. Armed with the knowledge that Irish pensions industry was the last vault in the country that still had money in it, Minister Noonan focused his sights. Hitting private pensions was a preferred alternative to raiding banks deposits or imposing cuts to public sector pensions. It suited the pseudo-fairness agenda of the Labor. Better yet, setting a levy on private pensions funds would, in PR-speak, allowed Fine Gael to avoid 'increasing taxes'. The fat cats (private pensions investors) were to share the burden of the fiscal adjustment while the Government was riding a high horse of delivering a rhetorical victory for the little man. The real logic of the move was exactly in line with the reasoning used in continuously raiding health insurance policies: go after the money.

Economics of the measure swept aside, the Government got busy expropriating private property and weakening the system of future pensions provisions. A temporary pensions levy was born out of this. With it, the country was firmly put on the road to a comprehensive dismantling of the already dysfunctional system.

Set at 0.6 percent per annum for 2011-2014 the original levy was dressed up in 2011 as a measure to free unproductive savings to fund jobs creation in the economy. Budgets 2012 and 2013 followed up with a raft of other measures, all designed to take more cash out of savings. Budget 2014 not only failed to curtail this onslaught but created a new levy of 0.15 percent that will run over 2014-2015 period and, according to a large number of analysts, is expected to continue beyond the 2015.

Yet, as the documents recently released by the Department of Finance show, back in 2011, the Department briefed the Minister as to the fallacy of his thinking. At the time, the pensions deficits accumulated in the Irish system totaled EUR10-15 billion. These deficits, according to the briefing, were in excess of what the nation's employers and employees could shoulder even before the Government moved on the funds. Between 75 and 80 percent of all Defined Benefit funds in the country were technically insolvent, accounting for two thirds of all pensions.

The Minister also had to be aware that a tax on capitalised value of the funds amounted to expropriation of private property. And that it cuts across the serious warnings concerning our pensions sustainability coming from the Troika and the OECD.

The problems with this approach to pensions systems are manifold and are setting us up for a long-term crisis. They include: exacerbating catastrophic pensions shortfalls, reducing future credibility of the system and undermining public confidence in the security of our financial system. Increasing future pressures on the Exchequer finances stemming from demographic changes and the legacy of the current crisis is the direct corollary of the short-termist position adopted by the Government.

Irish pensions system is fundamentally insolvent today and this insolvency is only made worse by our policies.

Top figures speak for themselves: at the end of 2012, there were 232,939 Defined Contribution schemes members, 527,681 Defined Benefit schemes signees and 206,936 PRSAs. Inclusive of PRSAs, total capitalisation of the system was around EUR78-79 billion. Defined Benefit schemes made virtually no contributions to the capital pool backing pensions system in the country. Excluding PRSAs, almost 7 out of 10 Irish pensions were funded by the IOUs on future taxpayers and company employees. The cumulated potential obligations in the pensions provisions of the Defined Benefits schemes amounted to some EUR 165 billion or around 100 percent of Ireland's GDP. These are growing, fuelled by early retirement schemes in the public sector and exits of private sector Defined Contributions savers.

Private pensions in Ireland remain not only underfunded, but also insufficient in cover. Currently, Ireland ranks the lowest in the OECD in terms of net pensions wealth held for those earning at or above average wages. Things are somewhat better for those on lower incomes. Still, we rank below OECD mean in terms of pensions cover for workers earning less than the average wage. An Irish family with two earners and combined annual earnings of around EUR90,000 can expect a pension cover of 40% of the pre-retirement earnings for 10.5 years. Budget 2014 has reduced this number by at least 0.5 years. OECD average for such coverage is closer to 28 years. OECD estimates show that at the end of 2009 only 41.3 percent of our public and private sectors’ workers were enrolled in a funded pension plan.

Since the beginning of the century, the systematic policy approach adopted by the Irish Governments to dealing with the pensions crisis has been to rely on Defined Contribution schemes to plug the vast deficit in the Defined Benefit schemes. The former are dominant in the private sector, the latter are the cornerstone of the public sector. Since the onset of the crisis, Irish state has acted to level huge burden of fiscal adjustment on future retirees, with levies and tax adjustments reaching into billions of euros and rising rapidly. The measures hit hard not only the savers at the top of the income distribution, but ordinary middle class investors. For example, according to a recent report on Budget 2014 measures, a young worker setting aside annually some EUR2,500 as a starting pension in 2011 will see a life-time cost of the pensions levies reach EUR32,500. He or she will face a reduction of EUR1,625 per annum in annual retirement benefits thanks solely to levies alone.

All of this is gradually eroding the public credibility in the system and acts to lower future solvency of the private and public schemes. According to the Pensions Board and OECD data, Ireland pensions coverage is declining over time. The numbers of workers covered by both, Defined Benefit and Defined Contribution schemes have fallen steadily since 2006 for the former and 2008 for the latter.

This trend is compounded by the nature of the crisis that hit Ireland since the end of the Celtic Tiger era. Unprecedented collapse in property markets triggered massive destruction of household wealth and catastrophic inflation of the debt crisis for households that are nearing the age when they normally accelerate their pensions savings.

Despite this, the Government continues to reduce tax deferrals available for those retirement savings. Examples of such policies include changes to lump sum payments tax treatments, changes to the Standard Fund Threshold, elimination of the PRSI and health levy/USC relief and so on. In effect, pensions funds became a ground zero of the Irish Government-waged war of financial repression – a brutal and cynical policy aimed at protecting own interests at the expense of the future retirees.

The OECD report on Irish pensions system, presented to the Government earlier this year, before Budget 2014 contained the usual litany of complaints about the system.

These include the fact that Ireland does not have a mandatory earnings-related pensions system to complement the State pension at basic level. According to the OECD, as a result, Ireland "faces the challenge of filling the retirement savings gap to reach adequate levels of pension replacement rates to ward off pensioner poverty." Furthermore, private pension coverage, both in occupational and personal pensions, is uneven and needs to be increased urgently. The latest changes introduced in Budget 2014 clearly exacerbate this, and the Government cannot claim that it was not aware of this problem. The existing tax deferral structure in Ireland, based on marginal tax rates, provides higher incentives to invest in pensions for higher earners, resulting in severe pensions under provision for middle classes. The OECD identified "unequal treatment of public and private sector workers due to the prevalence of defined benefit plans in the public sector and defined contribution plans in the private sector."  The reforms aiming to address this gap by introducing new pensions scheme for public servants are "being phased in only very slowly and [are] unlikely to affect a majority of public sector workers for a long time".

The OECD produced a long list of recommendations for the Government aimed at improving the system design and addressing some of the above bottlenecks. Virtually none of these saw any significant action.

The two options for a structural reform of the State pension scheme recommended by the OECD: a universal basic pension or a means-tested basic pension remain off the drawing board. Explicitly, OECD stated that “to increase adequacy of pensions in Ireland, there is a need to increase coverage in funded pensions. Increasing coverage can be achieved through 1) compulsion, 2) soft-compulsion, automatic enrolment, and/or 3) improving the existing financial incentives.” Instead, the Government continues to treat private pensions savings as funds it can raid to raise quick revenues. This makes it impossible for broad and structural reforms to gain support of the public, undermining in advance any future effort to address the crisis we face.

Note: this information was just released today:


In economics terms, it is often impossible to put a hard number on the value of less tangible institutional capital of the nation. Yet, systems and institutions of governance and democratic participation do matter in determining nation’s economic capacity and competitiveness. Sadly, it appears that the Irish Government is giving the idea that open and transparent state systems are a necessary condition for building a sustainable and prosperous economy and society little credit. Instead, the Irish authorities are about to significantly restrict effective access to state information. To do so, the Government is planning to introduce a new, more complex and expensive system of fees that apply to the requests filed under the Freedom of Information Act. Some observers have been arguing that the true objective is to reduce the public disclosure of information. Others have suggested more benign reasons for the proposals. Irrespective of the motives, over time, these changes are likely to lead to greater opacity and lower accountability across the State and private sectors. Such trends usually go hand-in-hand with increases in corruption, mismanagement, poor design of public policies, and increased political and civic apathy. In the long run, the proposed reforms can, among other things, spill over into generating greater economic inefficiencies, less meritocratic distribution of resources, and distort returns to investment. They can also reduce our attractiveness as a destination for domestic and foreign investors, entrepreneurs and workers. The victims of poor governance that can arise on foot of any effort to reduce effective access to information will be both the Irish society and our economy.