7/6/17: European Policy Uncertainty: Still Above Pre-Crisis Averages

As noted in the previous post, covering the topic of continued mis-pricing by equity markets of policy uncertainties, much of the decline in the Global Economic Policy Uncertainty Index has been accounted for by a drop in European countries’ EPUIs. Here are some details:

In May 2017, EPU indices for France, Germany, Spain and the UK have dropped significantly, primarily on the news relating to French elections and the moderation in Brexit discussions (displaced, temporarily, by the domestic election). Further moderation was probably due to elevated level of news traffic relating to President Trump’s NATO visit. Italy’s index rose marginally.

Overall, European Index was down at 161.6 at the end of May, showing a significant drop from April 252.9 reading and down on cycle high of 393.0 recorded in November 2016. The index is now well below longer-term cycle trend line (chart below). 

However, latest drop is confirming overall extreme degree of uncertainty volatility over the last 18 months, and thus remains insufficient to reverse the upward trend in the ‘fourth’ regime period (chart below).

Despite post-election moderation, France continues to lead EPUI to the upside, while Germany and Italy remain two drivers of policy uncertainty moderation. This is confirmed by the period averages chart below:

Overall, levels of European policy uncertainty remain well-above pre-2009 averages, even following the latest index moderation.

12/4/17: European Economic Uncertainty Moderated in 1Q 2017

European Policy Uncertainty Index, an indicator of economic policy risks perception based on media references, has posted a significant moderation in the risk environment in the first quarter of 2017, falling from the 4Q 2016 average of 307.75 to 1Q 2017 average of 265.42, with the decline driven primarily by moderating uncertainty in the UK and Italy, against rising uncertainty in France and Spain. Germany's economic policy risks remained largely in line with 4Q 2016 readings. Despite the moderation, overall European policy uncertainty index in 1Q 2017 was still ahead of the levels recorded in 1Q 2016 (221.76).

• German economic policy uncertainty index averaged 247.19 in 1Q 2017, up on 239.57 in 4Q 2016, but down on the 12-months peak of 331.78 in 3Q 2016. However, German economic uncertainty remained above 1Q 2016 level of 192.15.
• Italian economic policy uncertainty index was running at 108.52 in 1Q 2017, down significantly from 157.31 reading in 4Q 2016 which also marked the peak for 12 months trailing period. Italian uncertainty index finished 1Q 2017 at virtually identical levels as in 1Q 2016 (106.92).
• UK economic policy uncertainty index was down sharply at 411.04 in 1Q 2017 from 609.78 in 4Q 2016, with 3Q 2016 marking the local (12 months trailing) peak at 800.14. Nonetheless, in 1Q 2017, the UK index remained well above 1Q 2016 reading of 347.11.
• French economic policy uncertainty rose sharply in 1Q 2017 to 454.65 from 371.16 in 4Q 2016. Latest quarterly average is the highest in the 12 months trailing period and is well above 273.05 reading for 1Q 2016.
• Spain's economic policy uncertainty index moderated from 179.80 in 4Q 2016 to 137.78 in 1Q 2017, with the latest reading being the lowest over the five recent quarters. A year ago, the index stood at 209.12.

Despite some encouraging changes and some moderation, economic policy uncertainty remains highly elevated across the European economy as shown in the chart and highlighted in the chart below:

Of the Big 4 European economies, only Italy shows more recent trends consistent with decline in uncertainty relative to 2012-2015 period and this moderation is rather fragile. In every other big European economy, economic uncertainty is higher during 2016-present period than in any other period on record. 

13/7/16: Xenophobic Britain, Good Europe Mythology

You know the shrill of the deeply wounded 'Remain' supporters from the UK Referendum that did not go their way? Ah, yes: "Older Britain, that won, is xenophobic, racist, anti-migrant. And the young Britain, that lost, is the opposite of that."

Ok, there are stereotypes. And then there are stereotypes. The 'old Britain' that is allegedly such a terrible place is the one that built one of the most multicultural societies in the world. That's right: the young Britain was not even born when that happened.

But never mind history, here's the most current (1Q 2016) data on attitudes to multiculturalism from the not-so-pro-Brexit source, PewResearch:

By opposition to multi-ethnic society, the UK ranks 5th in the group of these countries, tied with on-so-progressively-liberal Germany, and better than core-European-values Italy and Holland, ahead of the beacon of European democracy Poland. By actual support for multi-ethnicity in society, the UK ranks third, ahead of all other European countries in the survey other than Sweden.

Of course, the U.S. leads all the countries in terms of support for multi-ethnic society. Not surprisingly.

Here's another interesting snapshot from the same study:

So if we are to look at the Left-Right gap, the UK is at the widest differential in opinions on diversity in Europe. But, and here is a major but, with 27% of Conservatives (Right) supporting diversity, it has the most 'liberal' Right in Europe after Sweden. Oh, and notice the little blow up for the 'xenophobic Republicans in the U.S.' meme - that too is absolute bullshit, since U.S. conservatives are more supportive of ethnic diversity liberal / Left Europeans except those in Sweden and the UK.


You can glimpse few more insights into the Pew survey here: http://www.pewresearch.org/fact-tank/2016/07/12/in-views-of-diversity-many-europeans-are-less-positive-than-americans/.

4/5/16: Canaries of Growth are Off to Disneyland of Debt

Kids and kiddies, the train has arrived. Next stop: that Disneyland of Financialized Growth Model where debt is free and debt is never too high…

Courtesy of Fitch:

Source: @soberlook

The above in the week when ECB’s balancehseet reached EUR3 trillion marker and the buying is still going on. And in the month when estimates for Japan’s debt/GDP ratio will hit 249.3% of GDP by year end

Source: IMF

And now we have big investors panicking about debt: http://www.businessinsider.com/druckenmiller-thinks-fed-is-setting-world-up-for-disaster-2016-5. So Stanley Druckenmiller, head of Duquesne Capital, thinks that “leverage is far too high, saying that central banks and China have allowed for these excesses to continue and it's setting us up for danger.”

What all of the above really is missing is one simple catalyst to tie it all together. That catalysts is the realisation that not only the Central Banks are to be blamed for ‘allowing the excesses of leverage’ to run amok, but that the entire economic policy space in the advanced economies - from the central banks to fiscal policy to financial regulation - has been one-track pony hell-bent on actively increasing leverage, not just allowing it.

Take Europe. In the EU, predominant source of funding for companies and entrepreneurs is debt - especially banks debt. And predominant source of funding for Government deficits is the banking and investment system. And in the EU everyone pays lip service to the need for less debt-fuelled growth. But, in the end, it is not the words, but the deeds that matter. So take EU’s Capital Markets Union - an idea that is centred on… debt. Here we have it: a policy directive that says ‘capital markets’ in the title and literally predominantly occupies itself with how the system of banks and bond markets can issue more debt and securitise more debt to issue yet more debt.

That Europe and the U.S. are not Japan is a legacy of past policies and institutions and a matter of the proverbial ‘yet’, given the path we are taking today.

So it’s Disneyland of Debt next, folks, where in a classic junkie-style we can get more loans and more assets and more loans backed by assets to buy more assets. Public, private, financial, financialised, instrumented, digitalised, intellectual, physical, dumb, smart, new economy, old economy, new normal, old normal etc etc etc. And in this world, stashing more cash into safes (as Japanese ‘investors’ are doing increasingly) or into banks vaults (as Munich Re and other insurers and pension funds have been doing increasingly) is now the latest form of insurance against the coming debt markets Disneyland-styled ‘investments’.

7/9/2014: Scotland's Financial Services and the UK

Here is an interesting tweet on the size and inter-links between Scottish Financial Services and the UK:

But here are some other facts:

• Financial Services contributed £8.8bn to the Scottish economy in 2010 or over 8% of Scottish onshore economic activity.
• Financial Services direct supported 85,000 employees and indirectly provided jobs for 100,000 more, accounting for around 7% of total employment.
• Banking, as a sub-sector of the Financial Services is the largest contributor to the Scottish economy adding over £4bn, or nearly half of the total financial services contributions.
• Adding to the financial services the associated professional services combined broader financial services sector employs a total of 148,600 people, or 6.1% of total Scottish employment, contributing over £14bn to the economy, 13.1% of Scottish GDP.
• More than 40% of Scottish postal services & almost 30% of Scottish accountancy services are sold to the Scottish financial sector. Almost 19.4% of all 'other business services' in Scotland are supplied to the financial services contractors, 18.7% of all advertising, 18.2% of computing services, 18.1% of real estate services, 17.6% of printing and publishing, 20% of research services, 16.3% of legal activities, 16% of telecommunications, and 13.4% of air transport services.
• The Scottish banking sector (a subset of Financial Services sector) is huge. The assets of the whole UK banking sector (including Scotland) are ca 490-500% of UK GDP. Scottish banks assets total around 1,254% of Scotland’s GDP, not counting any effects on the GDP from a vote for independence. In comparison, at the end of 2007, Icelandic banks had assets were around 800% of GDP, while Cypriot banks assets amounted to around 700% (450% for domestic banks). Irish banking system reached around 894% of GDP at the peak of pre-crisis boom.
• Scottish banking system is heavily concentrated (a factor that played significant role in the Cypriot banking crisis): the two largest banks – the Bank of Scotland and the Royal Bank of Scotland (RBS). As the UK Government report (see link below) of May 2013 notes, "There could be questions about an independent Scotland’s ability to stabilise its banking system in the event of a future financial crisis. In 2008, the UK Government spent £45 billion recapitalising the RBS in order to protect the deposits and savings of households and small business. In addition, the bank received £275 billion of guarantees through the UK Government’s Asset Protection Scheme. This combined support from the UK Government to RBS is equivalent to some 211 per cent of Scottish GDP in 2008." The later accounts for Scotland's geographical share of North Sea oil revenues.
• Quoting from the same report: "The Scottish financial services industry estimates that 90 per cent of its customers are located in the rest of the UK, and the market is highly integrated for most financial products. For example, 89 per cent of stocks and shares Individual Savings Accounts (ISAs) provided by Scottish firms are sold to customers based in the rest of the UK, and 33 per cent of the Individual Savings Accounts (ISAs) opened by Scottish consumers were with non-Scottish firms."
• Two main banks in Scotland control 70% share of the market for SMEs lending in 2011, Lloyds: 36% and RBS 34%.

On the opposite side of trade: 

• 70 per cent of all pension products bought by Scottish consumers are from firms based in the rest of the UK.
• 48 per cent of adults in Scotland currently have an ISA, which attract UK tax relief. Per UK Government report: "ISAs would cease to be available in the current form if Scotland separated from the rest of the UK."
• 24 per cent of employment in the UK life and pensions sector is based in Scotland, but 91% of pensions products originating in Scotland are for non-Scottish residents.
• Funds management is a big business in Scotland, with an estimated £750bn of assets under management and an estimated 3,600 people employed (directly and in related services). The Scottish share of the UK asset management sector was 6.4% in 2010. Two of the UK’s top 10 asset management firms: BlackRock International Ltd (the largest in the UK) and Standard Life Investments (the ninth largest) were based in Scotland.
• 90% of Scottish Financial Services customers reside in the rest of the UK. 84% of mortgages issued in Scottish institutions are to customers outside Scotland. 
• 58% of total exports and 71% of total imports in Scotland are with the rest of the UK.

More analysis and facts on the interlinks between the UK and the Financial Services in Scotland available here:
https://www.gov.uk/government/publications/scotland-analysis-financial-services-and-banking

7/9/2014: What do PMIs Signal on Global Growth?..

Here's an interesting point raised recently by @phil_waechter: the global growth that is supposed to accelerate in H2 2014 is really not happening and worse, compositionally, the prospect of such growth is heavily reliant on one country's fortunes: the U.S.

Things are not pretty, but they are not as ugly as the above chart shows, at least in the short run of the last 2 months. Here are the summaries for global growth by index:

In Services, there is weakening growth, but still levels are relatively robust, with New Business accelerating, marginally, while Future Activity expectations moderating.

And in Manufacturing, there is marginally stronger growth, with new orders slipping by just 0.1 points.

Composite indicator shows some pressures to the upside in growth forward: backlogs indicator showing a rise, new orders similarly showing some very modest support up.

Emerging markets are generally improving in August, with exception of Brazil. Russia breaking downward trend, but this remains to be confirmed in September-October before any serious turnaround can be called. South Africa is weak, Brazil weak, although net is still more positive than in May-July:

So the longer term trends are weak, when it comes to the likes of the euro area, but are reasonably ok. The real weakness is in the euro area. Here is the summary of just how much the euro area performance across all PMIs is weighing down on the global growth:

Just another reminder, this is supposedly the European Century...

Шотландский Выход: Финансовый Риск для Великобритании

Here is a handful of edited notes relating to my interview this week on BBC Russian Service. In Russian.

These cover the topic of financial costs and risks to the UK from potential Scottish Independence vote.

Возможность выхода Шотландии из валютной системы Великобритании и создания собственной валюты несомненно представляет серьезные проблемы не только для Шотландской экономики, но и для Великобритании. 

В первую очередь, проблема для Великобритании будет заключаться в том каким образом долгосрочные финансовые контракты - страховые, пенсионные и инвестиционные контракты - будут расчитываться в новой валюте. Просто перевести их по начальному обменному курсу в Шотландский фунт будет слишком рисковано. Если в будущем Шотландия проведет девальвацию валюты, эти контракты понесут реальные потери. Каким образом риск таких потерь может быть покрыт на балансовых счетах банков и инвестиционных и пенсионных фондов в Сити - это не понятно. При этом, Английским банкам и банкам других стран придеться покрыть такие риски с момента изменения валюты. Это потребует серьезных средств и поглотит большой обьем капитала банков. Что может привести к новому финансовому кризису.

Один вариант - это создать еффективно две валюты: одну валюту непосредственно привязанную к фунту стерлингу, другую - независимую от фунта стерлинга. Первая валюта покроет существующие контракты, вторая будет работать в экономике. В этом случае, Шотландия примет весь риск перехода на новую валюту на себя. Однако, банкам за пределами Шотландии да и международным банкам работающим в Шотландии все равно придется искать новый капитал что бы покрыть уменьшенный риск девальвации и более высокий риск дефолта. 

Ну и, конечно, Шотландия окажется на финансовом тонком льду - Ллойдс и РБС имеют настолько гигантские активы, что Шотландия, как независимое государство, мгновенно превратиться в Новую Исландию. С рыбой и какой-то нефтью, но без вулканов и дешевой энергетики. Иначе говоря - потенциальным банкротом. А это означает еще более высокий риск дефолта и серьезные вопросы сможет ли Шотландская валюта перенести финансовый кризис и поддержать Шотландскую банковскую систему.

Опять же, вопрос не теоретический с точки зрения Сити и всей остальной Великобритании: риск дефолта в Шотландии - это риск дефолта на облигации и активы и депозитивы Шотландских банков. Цепочка финансовых контрактов и их подписчиков тянется далеко за пределы Эдинбурга.

Один пример: во время последнего финансового кризиса, Ллойдс поглотил 20.5 миллиардов капитала, предоставленного Банком Англии. Банковская группа РБС поглотила 46 миллиардов фунтов. Где Шотландия сможет найти такие деньги если будет новый кризис? Сможет ли страна с 130 миллиардами валового дохода буквально напечатать 67 миллиардов фунтов новой валюты только для того что бы покрыть риск двух банков?

Конечно нет! А значит все контракты переводимые в новую валюту будут оцениваться значительно ниже чем их оригинальная, начальная оценка в фунтах стерлинга.

Практически, переход на новую валюту это проблема новых рисков и старых долгов. Вспомните хорошо известное выражение: если вы должны банку 10,000 это твоя проблема. Если вы должны банку 10 миллионов, это уже проблема банка. Шотландская банковская система имеет активы в 12.5 раз превышающие валовой продукт страны. А Лондон практически банкир Шотландской банковской системы... Разве приходиться удивляться тому что Сити сегодня очень обеспокоен возможностью того что Шотландия выйдет из системы стерлинга?

28/7/2014: Western Banks Exposures to Russia

Last week I posted two charts detailing largest FDI exposures to Russia. Here is a chart, courtesy of Bloomberg, showing banks exposure to Russia by country:

14/6/2014: BlackRock Institute Survey: N. America & W. Europe, June 2014

In the previous post (http://trueeconomics.blogspot.ie/2014/06/1462014-blackrock-institute-survey-emea.html) I covered EMEA results from the BlackRock Investment Institute latest Economic Cycle Survey. Here, a quick snapshot of results for North America and Western Europe

Per BI:

"This month’s North America and Western Europe Economic Cycle Survey presented a positive outlook on global growth, with a net of 67% of 86 economists expecting the world economy will get stronger over the next year, compared to net 84% figure in last month’s report. The consensus of economists project mid-cycle expansion over the next 6 months for the global economy.

Note: Note: Red dot denotes Austria, Canada, Germany, Norway and Switzerland.

At the 12 month horizon, the positive theme continued with the consensus expecting all economies spanned by the survey to strengthen with exception of Switzerland which is expected to stay the same.

Eurozone is described to be in an expansionary phase of the cycle and expected to remain so over the next 2 quarters. Within the bloc, most respondents described Greece and Italy to be in a recessionary state, with the even split between contraction or recession for Portugal, Belgium and Ireland.

Over the next 6 months, the consensus shifts toward expansion for Greece and Italy.

Over the Atlantic, the consensus view is firmly that North America as a whole is in mid-cycle expansion and is to remain so over the next 6 months."


Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

14/2/2014: BlackRock Institute Survey: N. America & W. Europe, February

BlackRock Investment Institute released its latest Economic Cycle Survey for EMEA region was covered here http://trueeconomics.blogspot.ie/2014/02/822014-blackrock-institute-survey-emea.html

Now, on to survey results for North America and Western Europe region. Emphasis is, as always, mine.

"This month’s North America and Western Europe Economic Cycle Survey presented a positive outlook on global growth, with a net of 65% of 110 economists expecting the world economy will get stronger over the next year, (18% lower than within January report).

The consensus of economists project mid-cycle expansion over the next 6 months for the global economy."

First, 12 months ahead outlook: "At the 12 month horizon, the positive theme continued with the consensus expecting all economies spanned by the survey to strengthen except Norway and Denmark, which are expected to remain the same."

Note that Ireland has moved closer to Eurozone average, away from 1st position in the chart it occupied in 2013.

Now, for 6 months outlook: "Eurozone is described to be in an expansionary phase of the cycle and expected to remain so over the next 2 quarters. Within the bloc, most respondents expect only Greece to remain in a recessionary phase at the 6 month horizon. Over the Atlantic, the consensus view is firmly that North America as a whole is in mid-cycle expansion and is to remain so over the next 6 months."

Note: Red dot denotes Austria, Norway and Switzerland.

Notable changes on previous: Greece position is much improved compared to 2013 when it occupied the North-Eastern most corner. Denmark is now in a weaker outlook position than Greece with higher expectations of a recessionary phase 6 months out. Ireland is bang-on on 10 percent assessing current state of economy as recessionary and same percentage of analysts expecting economy to be in a recession over the next 6 months. Coverage for Ireland is pretty solid in terms of number of analysts surveyed, so the above, in my opinion, shows that analysts consensus expects economy to strengthen over the next 6-12 months with strong support for a modest uplift.


Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

17/1/2014: BlackRock Institute Survey: N. America & W. Europe, January

BlackRock Investment Institute released its latest Economic Cycle Survey for EMEA region was covered here: http://trueeconomics.blogspot.ie/2014/01/1712014-blackrock-institute-survey-emea.html.

Now, on to survey results for North America and Western Europe region. emphasis is always, mine.

"This month’s North America and Western Europe Economic Cycle Survey presented a positive outlook on global growth, with a net of 83% of 109 economists expecting the world economy will get stronger over the next year, marginally higher than 81% reported in December. The consensus of economists project mid-cycle expansion over the next 6 months for the global economy."

"At the 12 month horizon, the positive theme continued with the consensus expecting all economies spanned by the survey to strengthen except Portugal, which is expected to remain the same."

Of note:

• Ireland is now moved into the middle of 'growth distribution' from previous position firmly ahead of the entire region. Italy and Spain are now posting stronger expectations than Ireland.
• Eurozone expansion expectations are still lagging those of the UK and the US.
• Germany continues to lead the Eurozone expectations.

Out to 6 months horizon: "Eurozone is described to be in an expansionary phase of the cycle and expected to remain so over the next 2 quarters. Within the bloc, most respondents expect only Greece to remain in a recessionary phase at the 6 month horizon."

"Over the Atlantic, the consensus view is firmly that North America as a whole is in mid-cycle expansion and is to remain so over the next 6 months."

Red dot denotes Austria, Germany, Norway and Switzerland



Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

12/12/2013: BlackRock Institute Survey: N. America & W. Europe, December 2013

BlackRock Investment Institute released its latest Economic Cycle Survey for EMEA region was covered here: http://trueeconomics.blogspot.ie/2013/12/12122013-blackrock-institute-survey.html.

Now, on to survey results for North America and Western Europe region:

"This month’s North America and Western Europe Economic Cycle Survey presented a positive outlook on global growth, with a net of 71% of 115 economists expecting the world economy will get stronger over the next year, (6% higher than within the October report)."

Forward outlook:

• "The consensus of economists project a shift from early cycle to mid-cycle expansionary over the next 6 months."
• "At the 12 month horizon, the positive theme continued with the consensus expecting all economies spanned by the survey to strengthen except Norway, where we currently have a low participation rate."

Euro area: "The consensus outlook for the Eurozone continued to improve, where the 6 month forward outlook shifted from 87% to 90% expecting the currency-bloc to move to an expansionary phase. Within the bloc, most respondents expect only Greece to remain in a recessionary phase at the 6 month horizon."

North America: "Over the Atlantic, the consensus view is firmly that North America as a whole is in mid-cycle expansion and is to remain so over the next 6 months."

Note Ireland's position: vis-à-vis euro area (weaker) in the first chart and overall (strong) in the second chart.

 Note: Red dot denotes Austria, Canada, Germany, Norway and Switzerland.

Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

11/10/2013: BlackRock Institute survey: N. America & W. Europe: October 2013

BlackRock Investment Institute Economic Cycle survey for North America and Western Europe is out and here are core results (emphasis is mine):

"This month’s North America and Western Europe Economic Cycle Survey presented a positive outlook on global growth, with a net of 65% of 113 economists expecting the global economy will get stronger over the next year. (6% lower than within the September report).

At the 12 month horizon, the positive theme continued with the consensus expecting all economies spanned by the survey to strengthen or remain the same except Sweden. 

The consensus outlook for the Eurozone was also strong, with 87% of economists expecting the currency-bloc to move to an expansionary phase over next six months. The picture within the bloc was not uniform however, with most respondents expecting only Greece to remain in a recessionary phase and an even mix of economists expecting Portugal and Belgium to be in an expansionary or recessionary phase at the 6 month horizon (and similarly so for Sweden, outside of the currency-bloc). 

With regards to North America, the consensus view was firmly that the USA and Canada are in mid-cycle expansion and are expected to remain so through H2 2013."

Note that this correlates well with my own outlook: http://trueeconomics.blogspot.ie/2013/10/9102014-businessinsider-most-important.html

Also note: the above views do not reflect BlackRock own views or advice. 

Two charts as usual:

Note that in the chart above, Ireland now firmly converged with the Euro area. This is a very strong move compared to September survey: http://trueeconomics.blogspot.ie/2013/09/1292013-blackrock-institute-survey-n.html And the above is confirmed by the overall comparative expectations forward:

So on the net - good result for Ireland and positive outlook for Euro area as a whole.

12/9/2013: BlackRock Institute survey: N. America & W. Europe: September 2013

BlackRock Investment Institute released its latest Economic Cycle Survey for North America and Western Europe region for September 2013.

Per summary: "This month’s North America and Western Europe Economic Cycle Survey presented a positive outlook on global growth, with a net of 71% of 119 economists expecting the global economy will get stronger over the next year. (1% higher than within the August report). 

At the 12 month horizon, the positive theme continued with the consensus expecting all economies spanned by the survey to strengthen or remain the same. 

The consensus outlook for the Eurozone continued to improve, where the 6 month forward outlook shifted from 75% to 86% expecting the currency-bloc to move to an expansionary phase. The picture within the bloc was not uniform however, with most respondents expecting Portugal, Greece, Belgium and the Netherlands to remain in a recessionary phase over the next 2 quarters. 

With regards to the US, the consensus view firmly that North America as a whole is in mid-cycle expansion and remaining so through H2 2013."

September improvement for the global outlook was much shallower than a 10 point jump in August. Ditto for Eurozone outlook: this rose from 57% in July to 75% in August to 87% in September. Italy outlook seemed to have improved quite markedly, however.

Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

Two charts as usual:

Ireland continues to lead expectations, just as it did in previous 3 months.

In global expectations there were some notable movements in analysts' replies. 6% of analysts expected global economy to get a lot stronger over the next 12 months back in August, and this declined to 2% in the current survey. 69% expected it to get a little stronger in August and this proportion rose to 76% in September. 5% expected the global economy to get a little weaker in the next 12 months back in August, which in September rose to 6%. 

In Ireland's case, in August zero percent of analysts expected the economy to get a lot stronger over the next 12 months and this remained unchanged in September survey. All analysts (100%) expected the Irish economy to get a little stronger over the next 12 months in September survey - same as in August. 57% of analysts expected the economy to be in an early-cycle recovery over the next 6 months back in August, and this fell to 50% for September survey. There was significant rise (from 0% to 17% between August and September surveys) in the proportion of analysts expecting Irish economy to be in mid-cycle expansion over the next 6 months period. The number of analysts expecting the economy to be in a late-recession over the next 6 months dropped from 43% in August to 33% in September.

6/9/2013: BlackRock Institute survey: North America & Western Europe: August 2013

BlackRock Investment Institute released its latest Economic Cycle Survey for North America and Western Europe region.

Per summary: "This month’s North America and Western Europe Economic Cycle Survey presented an improvement in the outlook for global growth over the next 12 months – the net proportion of respondents with a positive outlook increased to 70% from 60% last month. 

The consensus outlook for the Eurozone was particularly positive, where the 6 month forward outlook shifted from 57% to 75% expecting the currency-bloc to move to an expansionary phase. 

The picture within the bloc was not uniform however, with most respondents expecting Portugal, Greece, Belgium and the Netherlands to remain in a recessionary phase, while the consensus has shifted to expect expansion for France, Spain, Finland and Ireland over the next 2 quarters. An even mix of economists expect Italy to be expansionary or recessionary at the 6 month horizon (and similarly so for Norway, outside of the currency-block). 

With regards to the US, the proportion of respondents expecting recession over the next 6 months remain low, with the consensus view firmly that North America as a whole is in mid-cycle expansion and remaining so through H2 2013."

Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

Here are two summary charts:

16/6/2013: Euromoney Country Risk Scores Update

Some updates from Euromoney Country Risk (ECR) reports. First a summary of latest credit risk assessment scores moves:

And on foot of Russia's score move, a related story on Russian government delaying issuance of much expected sovereign bond. Via Euroweek:


"Russia is likely to wait until autumn before bringing its mandated sovereign bond, said analysts. Forcing through a $7bn bond in one deal might also be unwise, but demand is deep and the sovereign could spread its funding plan out across separate transactions, said bankers... Investors have already priced in a large sovereign issue and Russia would not struggle to drum up demand, he added. But the problem is price."Everything is 100bp wider than a month ago and so the sovereign will hope things calm down and allow them to issue closer to the historic tights they were looking at just a few weeks ago," said another syndicate banker."

28/4/2013: That German Miracle...

Germany... the miracle economy of Europe:

Let's do some growth facts. recall that G7 includes such powerhouses of negative growth as Japan and Italy, and the flagship of anemia France.

1) Germany vs G7 in real GDP growth:

From data illustrated above:

• In the G7 group, Germany ranked 6th in growth terms over the 1980s, rising to 5th in the 1990s and 2000s, and, based on the IMF forecasts, can be expected to rank 4th in the period 2010-2018. In simple terms - Germany ranked below average in every decade since 1980 through 2009 and exact average in 2010-2018 period.
• On a cumulated basis, starting from 100=1980, by the end of this year, judging by latests IMF forecast for 2013, Germany would end up with second slowest growth in G7, second only to Italy. 
• On a cumulated basis, starting from 100=1990, by the end of this year, judging by latests IMF forecast for 2013, Germany would end up with fourth fastest growth in G7. Ditto for the basis starting from 100=2000.

2) Germany vs G7 in annual growth rates in GDP based on Purchasing-power-parity adjustment (PPP) per capita to account for exchange rates and prices differentials:

From data illustrated above:

• In the G7 group, Germany ranked 5th - or below average - in PPP-adjusted per capita growth terms over the 1980s and the 1990s, rising to 4th - group average - in the 2000s, and, based on the IMF forecasts, can be expected to rank 3rd - slightly above average - in the period 2010-2018. In simple terms - Germany ranked below or at the average in every decade since 1980 through 2009 and one place ahead of the average in 2010-2018 period.
• Note: Germany is the only G7 country with shrinking overall population, that peaked in 2003 and has been declining since, thus helping its GDP (PPP) per capita performance.

Here's the chart summarising Germany's rankings in G7 in terms of two growth criteria discussed:

Germany might have been performing well in 2006 and 2011 (when it ranked 1st in real GDP growth terms) and really well in 2007-2008 and 2010 when it ranked 2nd, but other than that, it has been a lousy example for any sort of a miracle.

30/7/2012: Euro Area forecast by Standard and Poor

S&P's note on euro area crisis is a rather entertaining read, if you are into the sort of 'entertaining' a la mode of Quentin Tarantino... The note is The Curse Of The Three Ds: Triple Deleveraging Drags Europe Deeper Into Recession, authored by EMEA Chief Economist: Jean-Michel Six.


Snapshot of views (emphasis mine):

• A combination of public, household, and bank deleveraging are stifling growth in most European economies. [Now, I've been saying all along that we cannot ignore household debts, yes so far, European and National policymakers are utterly hell-bent on saddling indebted households with the bills for indebted states and banks. Just look at Ireland, where the banking sector is now outright moving into enslaving households by dictating to them how much they should spend on food & clothing so they can maximize extraction of mortgages repayments. And the Irish Government only eager to lend their support to the banks.]
• This is also limiting the effectiveness of the European Central Bank's efforts to support the financial sector and eurozone economies. [Not really, folks. You might missed it, but European 'leaders' are heavily taxing economy already to subsidize insolvent banks and sovereigns. Alas, the room for more taxes is limited in Europe not by household debt - about which the respective National Governments give no damn - but by the fact that Europe already has some of the highest income taxes in the world.]
• Subsequently, the S&P is cutting their base-case growth forecasts for the eurozone and U.K. economies for 2012 and 2013. See two tables below

• S&P also see a 40% chance that downside risks could push European economies into a genuine double-dip recession in 2013 (second table above).

So risk-weighted expected growth is now forecast, for the Euro area to be -0.76 in 2012 and -0.08 in 2013. If we take potential growth at 1.5%, this would imply an opportunity cost of over 3% in 2012-2013 to the Euro area economy.

And the core downside risks are:

• A hard landing in some emerging markets, delaying the recovery in world trade;
• The prospect of one of the main eurozone countries losing access to capital markets for a prolonged period; and
• A more pronounced retrenchment in consumer demand, especially in the core countries.

Key changes to previous forecasts:

• "We have cut our forecast for GDP growth in France to just 0.3% this year and 0.7% in 2013, from 0.5% and 1%, respectively, in our previous forecasts. 
• "We've also revised downward our GDP projections for Italy to negative 2.1% for 2012 and negative 0.4% in 2013. 
• "In the case of Spain, we now forecast GDP will decline by 1.7% this year and that it will be negative 0.6% next year—a cut from our previous forecast declines of 1.5% and 0.5%. 
• "For the U.K., we have revised our 2012 estimate to 0.3% this year. Yet, the provisional GDP estimate released on July 25 by the U.K. statistical office for the second quarter of negative 0.7% makes our full-year forecast more uncertain. If confirmed, this result would most likely lead to zero or slightly negative growth this year."

22/6/2012: Deleveraging of Households US v UK, Spain

An interesting chart from McKinsey today updating deleveraging process for household debt in the US, Spain, and the UK:

Nothing new here (I have been saying the US is ahead of Europe on deleveraging, if only due to speedier foreclosure actions - which are slowing down due to legal challenges etc). And, unfortunately, the chart is very limited as to the scope of countries represented... but it does show how unrealistic are Spanish current expectations when it comes to how much more debt repayment would have to be generated to even get close to a more benign debt crisis in Sweden in the 1990s.

10/2/2012: Few thoughts on the global policy crisis

What makes me really concerned nowdays is not the ongoing crisis, but the logical and numeric impossibility of the mounting policy "solutions' to the crisis. Here's a quick synopsis. Take a look around the world:

• Bank of England repeated QE rounds in the face of £1 trillion+ debt pile is a strategy for growth via debasement of the currency
• Fed's continued unrelenting QE is much the same
• ECB has been debasing any real connection between banks, real economy and banks profits via uninterrupted injection of cash into banks - giving a license to earn free profits on interest margins while monetizing already excessive Government debts. Real economy, of course, gets hammered by sterilization via reduced real credit flows. The end game - moral hazard of massive proportions in the financial sector across Europe
• EU itself is hell-bent on debasing real incomes and wealth of its citizens by implementing the Fiscal Compact as the sole policy tool for dealing with the crisis
• Obama Administration is debasing, in contrast with EU, the future generations' wealth and income by continuing to spend Federal dollars like a drunken sailor arriving in a casino
• Ireland's Government is actively debasing the entire domestic economy, oblivious to the reality that households and businesses deleveraging is being prevented by banks and Government deleveraging - all for the sake of grand posturing of "We will pay all our debts" variety
• Japan is engaged in an active pursuit of debasing Government balancesheet as the debt bubble spreads to Japanese Government bonds - now in negative yields
• China is debasing its monetary and fiscal policies to deliver a 'soft landing' to the massive train wreck of its vastly bubble-like property and banking sectors

Close your eyes and think - how will the world be able to reverse out of these disastrous desperate policies in years ahead without completely shutting off growth via high interest rates, destabilized savings-investment links and in the presence of ever-rising public, private and corporate debts? What levels of inflation will be required to 'inflate' out of this mess? What degree of real wealth destruction has to be imposed on the ordinary people to sustain these gambles without a structured, orderly and coordinated restructuring of debts? What asset class and geography hedge can protect you from this avalanche of disastrous policy choices by the Western leaders?