05/11/2011: Patents and 'sticky' ROI on academic investment

In the previous post I covered some interesting data on hotspot universities (high impact academic institutions) around the world based on OECD data for 2009. Here is the data on high impact patents (EPO top 1 percent) through 2005 against data for the same through 2000.

About the only interesting trend in the above data, other than the one that reinforces the trends highlighted in the previous post is that there is tremendous 'stickiness' or resilience or historical dependence in the data. In other words, there is a 0.994% positive correlation between past performance in terms of highly cited patents and the later performance.

The above trend is of interest because it suggests that overall, league tables changes are difficult to achieve over the shorter period of time and also that ROI in academic research is itself relatively 'sticky', stretched over time.

The good news is that for the two periods, Irish patents applications have increased from 5 in 1996-2000 to 14 in 2001-2005 - a rise of 180%. The bad news, the average for 36 most advanced economies is 226% improvement over the same period of time.

05/11/2011: Universities & Research: Europe v ROW

OECD recently released an interesting database on research and universities impact for 24 countries. Here are some insights.

First from the top, the US retained its absolutely dominant position in terms of high impact universities. The EU comes in as the second. The relationship between two in terms of specific categories of high impact instituions ('hot-spots') is plotted below:

Aggregating Medicine, Human Sciences and Sciences and plotting them against Social Sciences clearly shows that world-wide (within sample) and even excluding the US, there is a very strong positive correlation between the quality of Science-focused high impact academic centres and Social Sciences centres.

In fact, correlation between Sciences and Social Sciences hot spots numbers is 0.97 for full sample and 0.91 for sub-sample excluding the US. However, excluding UK and US, the correlation drops to 0.59. In my opinion, this strongly suggests that our policies, aiming at focusing in terms of building capacity in 'hard sciences' alone - the EU-wide and certainly Ireland-own agendas for research and development frameworks - is a misguided approach that ignores the important inter-links between two fields.

EU overall results in the charts above are significantly driven by the UK academic performance. Excluding UK from the EU numbers dramatically alters EU standing relative to the US:

Thus, overall, ex-UK, EU falls to the third place in global rankings in terms of hotspots, were it to be ranked as a singular country.

Here are some more detailed plots of sub-indices by more granular division of research areas:

05/11/2011: Profit margins in Ireland: October 2011

Derived profit margins have continued to deteriorate in both manufacturing and services based on my analysis of the PMI data for October.

Per chart below:

• Profit margin conditions in Services sector posted slower rate of deterioration with differential between output and input prices moving to -15.38 in October from -18.52 in September. The differential averaged -17.2 in 12 months through October and -16.2 in 3 months through October. In 3 months through July 2011, the average differential was -17.4 and 2010 average for 3mos through october was -8.1 against 2009 same period reading of -5.6.
• Profit margins in Manufacturing have accelerated downward in October, reaching -10.87 differential against September -9.67. 12mo average through October was -19.6 and 3mo average through October was -13.4 against 3mo average through July of -19.7. 2010 average for 3mos though August was -16.4 and 2009 same period average was -11.5.

04/11/2011: October PMIs - risk of recession rising

Continuing with the analysis of the latest PMI figures for October 2011 for Ireland, this post is looking into the relationship between employment, PMIs and exports-led recovery both over historical horizon and the latest performance. The previous two posts dealt with detailed data on Manufacturing (here) and Services (here).

Manufacturing PMI posted a rise from 47.3 to 50.1 between September 2011 and October 2011, moving above 50 reading for the first time in 5 months. However, as explained in previous post this increase does not signal expansion, as 50.1 is statistically insignificant relative to 50. At the same time, employment sub-index for Manufacturing PMI remains in contraction at 47.1 (statistically significantly below 50) for the second month in a row.

Services PMI posted a slight improvement in the rate of growth at 51.5 in October, up from 51.3 in September, but once again, given the volatility in the series, these readings are not statistically different from 50 (no growth) mark. Meanwhile, Employment sub-index of Services PMI remains below water at 46 - same reading for both October and September.

Charts below show two core trends:

The trends are:

• Both manufacturing and Services PMIs are flatlining around 50 mark, signaling stagnation
• Both in Manufacturing and Services, there are no signs of easing in jobs destruction

Consistent with these trends, overall Services sector has moved from the position of relative jobless recovery signalled at the beginning of 2011 to border-line recession and jobs destruction in October. Manufacturing sector has moved from the optimal growth area (jobs creation and recovery) in the beginning of 2011 to a recession in October 2011.

In addition to weaknesses in employment and overall PMIs, October figures show deterioration in exports growth, with Manufacturing New Export Orders sub-index at 49.8 and below 50 for the second month in a row (note that 49.8 is statistically not significant compared to 50) and Services New Export Business sub-index at 50.1 (down from 53.1 in September). Both sub-indices show stagnant exports performance in the sectors. Chart below shows that we are now in a recession (albeit border-line) - vis-a-vis exports-led recovery in Manufacturing and are getting close to a recession in Services.

04/11/2011: PMI for Services: October

NCB Services sector PMI data is out today and as in the case of Manufacturing earlier last week (see details here), we have an effectively flatline economic activity in the sector. Here are the details.

Overall business activity index reading improved marginally from 51.3 in September to 51.5 in October. 3mo average through october is now at 51.3 against the 3mo average through July 2011 of 51.5. Year-to-date 2011 reading is 51.9 and same period 2010 reading was 51.0 with same period 2009 reading of 39.7. In other words, all data falls within the range of statistically indistinguishable from 50. Chart below illustrates.

The snapshot chart below shows the shorter-range PMI for Services plus the core driving constituent of activity - New Business sub-index. Worryingly, the latter remained in contraction territory at 49.7 in October, for the 6th month in a row. Year-to-date average is at 49.5, again signaling contraction, and 3mo through october average is 48.4 against 3mo through July average of 48.9. So things are getting worse, not less worse on a smoothed trend. Year-to-date period in 2010 saw average New Business sub-index at 50.2.

Profit margins (chart below) are moving in the wrong direction as well. Output prices sub-index remains at extremely rapidly falling 44 in October, same rate of contraction as in September. 3mo average is at 43.8 and year-to-date is 44.2. Last time output prices were expanding was in July 2008. Meanwhile, Input prices sub-index continues to signal inflation in intermediate and raw materials inputs at 52 in october on the back of 54 in September. Year-to-date average is 53.8 and 3mo through October average at 52.2 virtually identical to 52.4 average for 3 months through July. More on profit margins in a follow up post which will cover profits conditions in both manufacturing and services.

 Profitability sub-index (as per above discussion), illustrated in chart below remains under water. However, Business Confidence Index posted another 'we don't want to face reality' expectation reading, showing robust expectations of economic expansion from services providers. The sub-index rose to a massively expansionary 63.4 in October from 59.5 in September and the longer term trends are consistent with this reading. Of course, I have shown previously that Business Confidence component of the PMI has virtually nothing to do with the real performance metrics as measured by PMIs - the new orders and employment sub-index. This conclusion was based on econometric analysis performed on the entire time series for the data and tested for lags and directional causality.

Worryingly, New Exports Orders sub-index moved from expansionary 53.1 reading in September to virtually stand-still at 50.1 in October. This compares unfavorably against the 53.0 average for year-to-date and even against 3mo average of 51.2 through October. The above, alongside with 3mo average of 52.4 in 3 months through July suggests downward trend in overall growth in exports-related services.

 Lastly, employment in the sub-sector continued to contract. October reading of 46 was identical to September reading and signals significant contraction. The story is virtually identical to Manufacturing and will be subject of mored detailed discussion in the following post.

So on the net, there as flat-line performance across the sector in October, with majority of trends in sub-indices pointing to contraction in months ahead. Not good news, I am afraid, despite the 51.5 reading on overall PMI Services Business Activity index.

03/11/2011: ECB rate cut

ECB decision to reduce rates by 25bps today has led to a dramatic reduction of the ECB overall rate premium over the basket of advanced economies rates as shown below. With today's decision, the ECB premium declines from 16.73% in October to 1.21% in November (barring any change in the BofE rate later).

This move, however, directly contradicts ECB mandate for price stability with inflation for October anchored at 3.0%:

03/11/2011: Another shallow rise in unemployment

The Live Register figures are out for October with standardized (LR-implied) rate of unemployment inching up to 14.4%. Here are the details.

Live Register-implied Standardized Unemployment Rate (SUR) rose from 14.3% in September to 14.4% in October, matching the levels in July and August. 14.4% is the highest level SUR reached in 10 months through October 2011 and the third highest since the crisis began (note that 14.4% SUR was recorded in 4 months since the crisis began). October 2011 SUR is now identical to that recored in October 2010Chart below illustrates.

Overall, seasonally-adjusted LR rose to 447,100 in October 2011, up 2,700 on September 2011. year on year, LR fell 300 (-0.07%). In September 2011, LR declined 4,300 mom and fell 5,400 yoy (-1.2% yoy). 3mo average through October 2011 is down 0.31% yoy. As shown below, we have a virtually flat trend.

Seasonally-adjusted LR numbers for those 25 years of age and older rose 2,100, from 364,000 in September to 366,100 in October. Year on year the number of 25 years and older workers on LR is up 2,600 (+0.72%) and 3mo average through October is 1.4% above the same period yoy. The numbers of under 25-yo workers on LR increased 500 (+0.62%) from 80,400 in September to 80,900 in October 2011. However, year on year, the number of young workers on LR fell 5,700 (-6.6%) - a shallower fall than in September 2011, but a significant decline. Overall, this suggests that younger workers exits into education, emigration and general falling out of the benefits net can be a significant source for moderating trends in LR figures overall in recent months.

Casual and part-time workers counts on LR rose 1,012 (+1.2%) from 84,017 in September to 85,029 in October 2011. 3mo average through October is now 9.1% above the same period in 2010 and year on year October reading is 7,105 (+9.1%) ahead of October 2010 level. Chart below illustrates.

Numbers of non-nationals on LR fell 384 in October to 75,037 - a decline of 0.51% and are up year on year by 402 (+0.54%). Numbers of Irish nationals on LR declined 6,625 mom (-1.83%) and are up 477 yoy (+0.13%). For both series there were small (less than 0.22%) declines in 3mo average through october, yoy. Please remember - these are not seasonally adjusted.

Per CSO release, "in October 58.2% (250,659) of all claimants on the Live Register were short term claimants. The comparable figure for October 2010 was 65.6% (281,945)." The annual fall of 31,286 (-11.1%) was recorded in the number of short term claimants. "The number of long term claimants on the Live Register in October 2011 was 179,773", up  32,165 (+21.8%) yoy. "This rate of increase in long term claimants has been slowing through the year with an annual increase of 57,597 (55.9%) having been recorded in January 2011."

The rate of increase, however, can be slowing due to several factors not mentioned by the CSO, such as draw down in LR numbers due to training programmes participation, emigration and dropping out of unemployed second earners from the labour force and LR benefits.

02/11/2011: A DofF note on Anglo Bonds Repayments

Here's the bull***t that passes for 'advisory analysis' for politicians - the copy of the note sent out to Government TDs from a specific party based on the Department of Finance information. I am publishing it here without any specific comments - judge for yourselves reading it - my only general comment is that it is uses a number of deceitful tricks, false juxtapositions and selective omissions to present the case for repaying unsecured unguaranteed bondholders in Anglo Irish Bank / IBRC.

(You can click on the pages to enlarge the text. I am publishing it without an explicit HT so as not reveal my source).

01/11/2011: Manufacturing PMI for October

NCB Manufacturing PMI for Ireland is out this morning with some surprises to the positive side of things. Let's start from the top:

• Irish manufacturing production rebounded in October with new orders increasing for the time since May. The rebound was extremely shallow with PMI reaching just 50.1 (barely above 50 mark that denotes expansion). PMI reading has improved dramatically, however, rising from 47.3 in September. 12mo average remains above current levels at 52.0, 3mo average is however below at 49.0. Previous 3mo average was 49.9. 2010 average for the 3 months through October was 50.1. 
• It is worth noting that with the historical standard deviation of 4.6 and standard deviation for the crisis period of 5.9, the current expansion reading is really statistically meaningless. 

As chart above further highlights:

• Output expanded strongly to 52.7 in October, up from contractionary reading of 49.8 in September. The latest reading compares favorably against 3 mo average of 51.6 and is statistically significant for the entire history of the series, but is not statistically significant for the crisis period data. 
• New orders posted an expansion of 51.4 up from September contractionary reading of 45.8 - a considerable increase in mom terms, pushing the series well ahead of 3mo average of 48.3, but still below 52.7 12mo average. However, the new reading remains statistically insignificantly different from 50 both in historical terms, in terms of data since January 2000 and in terms of data for the crisis period (since January 2008). The increase in total new orders growth was solid, and the fastest since April.
• New export orders posted a slight slowdown in the rate of contraction moving to 49.8 in October from 49.2 in September. Obviously, both readings are not statistically significant from 50 as new exports sub-index is more volatile than majority of other components of PMIs. However, the new reading is still below 12mo average of 55.2, below 3mo average of 50.8 and below 3mo average through October 2010 of 53.0.
• The surprising factor here is that the overall PMI in manufacturing is now moving in the opposite direction to New Export Orders. According to NCB: "Anecdotal evidence suggested that uncertainty surrounding the eurozone had a negative impact on new business from abroad. Conversely, there were some reports that favourable exchange rate movements had helped to stimulate demand."

Chart above shows that profit margins have continued to shrink in October (more on this later in the week once we have Services PMI data as well). The contraction in profit margins was driven by significant increase in inputs price inflation and continued deterioration in output prices. stock of purchases and stocks of finished goods continued to contract.

Crucially, per chart above, employment sub-index posted another contraction in October at 47.1 against 46.5 in September. The index 12mo average is now at 50.5 and 3mo average through october is 48.2. 3mo average for the period to July 2011 is 49.1 and the current contraction is statistically significant.

So on the net - the slightly positive news on overall PMI and new orders fronts are clearly offset by negative readings on new exports orders, profit margins and employment. These suggest that we might be witnessing a 'dead cat bounce' effect. If the new trend toward cautious growth were to be supported by data, we need couple more data points to see this.

31/10/2011: IRL5 banks - no signs of real improvements in September

Few posts back I looked at the latest data for Irish banking system stability from the CBofI. Here, I complete my analysis by focusing on 5 covered institutions or IRL 5 (previously known as IRL 6 before the merger of Anglo & INBS into IBRC).

Here's the data:

• Borrowing from the euro system by IRL5 has risen from €68,430mln in August to €70,340mln in September. Year on year, this is still down 4.73% or €3,489mln, but at that rate of unwinding IRL6 liabilities to euro system will take, oh, some 20 years (!)... Mom, the increase in borrowing from the euro system was €1,910mln or more than 50% of the reductions achieved yoy.
• Deposits from Irish residents in IRL6 were up from €192,431mln in August to €193,929mln in September, prompting cheers from the Irish Times and Department of Finance, among others. Mom rise of 0.78% or €1,498mln contrasts a 22.22% decline yoy in very same deposits or €55,393mln loss. In other words, to get us back to September 2010 levels (not exactly healthy ones) at current rate of mom increase would take 37 months. In the last three months, on average, deposits were down €26,337mln compared to 3 months through June 2011 (-12.05%).
• The mystery of rising deposits is explained easily by looking at their composition: Monetary and financial institutions (aka other banks) have seen their deposits in IRL5 rising €1,298mln in September (+1.47%) mom, although these deposits are down €32,308mln or -26.53% yoy. This explains 87% of the entire increase in the overall deposits.
• In addition, General government deposits also rose €333mln in September (+16.28%) mom, explaining the remainder of the rise in overall deposits, heralded by our Green Jerseys as 'signs of improvement/stabilization' in Irish banks.
• In contrast to the above two sub-categories, private sector deposits in Irish banks (IRL 5) have shrunk in September by €133mln (-0.13%) mom and are down 18.12% (-€22,589mln) yoy. September marked 5th consecutive month of declines in private sector deposits, which have shrunk by €6,135mln since April 2011.

As mentioned above, borrowings from the euro system have gone up in September. In contrast, as shown in the chart below, total borrowing from the ECB & CBofI have declined slightly in September to €123,596mln from €124,379mln in August (a mom drop of 0.63%). Year on year, the borrowings are still up massive €28,572mln or 30.7%. Over the last 3 months (July-September), average borrowings from the euro system and CBofI declined 1.39% or €1,748mln compared to 3 months from April through June.

Loans to irish residents have contracted once again in September, reaching €294,224mln against August levels of €294,503. The declines were accounted by drops in loans to MFIs and increases in loans to the General Government (+€58mln) and Private Sector (+€95mln). hardly anything spectacular.

Now to the last bit - recall that the comprehensive reforms of the Irish banking sector envision deleveraging Irish banks to loans-deposits ratio of 125.5%. These targets were set in PCARs at the end of March 2011. back in march 2011, LTD ratios stood at 143.25% for all of the IRL6/IRL5 and 173.71% for private sector LTD ratio only. Since then, if anything was going up to the CBofI / Government plans, we should have seen at least some reductions in LTDs.

As chart above illustrates:

• Overall LTD ratio for IRL5 at the end of September 2011 stood at 151.72% - below August reading of 153.04%, but well ahead of March 2011 reading of 143.25% and certainly much ahead of the target of 125.5%.
• For private sector loans and deposits, LTD ratio was 174.61% in September - ahead of 174.29% in August and still above 173.71% back in March.

And the summary is: there's no real stabilization or improvement I can spot in the above for IRL5.

31/10/2011: Bailout-3: The Gremlins Rising premiers

What a day this Monday was, folks. What a day. Just 4 days ago I predicted that the latest 'Bailout-3: The Gremlins Rising' package by the EU won't last past January-February 2012. And the markets once again cabooshed my perfectly laid out arguments squashing my prediction.

As of today we had:

• Italian bonds auctioned last week at 6.06% yield for 10 year paper, the most since 1999. The yield was up from 5.86% at the auction a month ago which marked the previous record high. For Italy, given its growth potential and debt overhang, yields North of 5.25-5.3% would be a long-term disaster. Yields close to 6.1% are a disaster! But things were worse than that last Friday: the Italian Treasury failed to fullfil its borrowing target of €8.5bn to be sold. Instead, the IT sold only €7.9bn worth of new paper. Boom - one big PIIGSy gets it in the 'off-limits' region!
• Also on Friday, Fitch issued a note saying that 'voluntary' haircuts of 50% on Greek debt will constitute... eh... a default / credit event (see report here). Which kinda puts a boot into the softer side of the 'Bailout-3' deal. Boom - Greece gets it in the gut!
• Today, Belgians went to the bond markets and got rude awakening: Belgium placed €2.155bn worth of bonds along 3 maturities: 2014, 2017 and 2021. The country wanted to raise €1.7-2.7bn (with upper side being more desirable), so there was a shortfall on allocation. 10 year bond yields for September 2021 maturity are at 4.372% against 3.751% for those issued in September 2011. Belgium is yet to raise full €39bn planned for 2011 as it has so far covered €37.517bn in issuances to-date. it will be a tough slog for the country with revised deficit of 5.3% of GDP in 2012 (assuming no new austerity measures) and debt/GDP ratio of 94.3% expected in 2012. Boom - a non-PIGSy gets a kick too.
• Also today, Germany marched to the markets with €1.933 billion in new 12-month bubills at a weighted average yield of 0.346% and the highest accepted yield of 0.354%. On September 26th, Germany sold same paper at an average yield of 0.2418%. Today, Germans failed to allocate €67mln of bills despite an increase of 40% in yields in just 5 weeks. Big Boom - the largest Euro area economy gets smacked!
• And for the last one - per reports (HT to @zerohedge : see post here): Europe, hoped to issue €5 billion in 15 year EFSF bonds. Lacking orders, it cut issuance volume by 40% to €3bn and the maturity by 33% to 10 years. As @zerohedge put it: "But so we have this straight, Europe plans to fund a total of €1 trillion in EFSF passthrough securities.... yet it can't raise €5 billion?" Massive Boom, folks - mushroom cloud-like.

So here we have it, a nice start for the first week post-'Bailout-3: The Gremlins Rising'...

31/10/2011: Euro area Consumer Sentiment & Expectations: October 2011

In line with the latest inflation data (see the previous post), latest data for EU27 and Euro area consumer expectations continued to move in the direction of further weaknesses.

Data for October shows that for EU27:

• Consumer confidence fell from -19 in September to -20 in October, the lowest level since July 2009. A year ago, Consumer Confidence index stood at -12.
• Financial Situation sentiment for the last 12 months period remained at -18 in October, same as in September, down from -17 in August. A year ago, sub-index stood at -14.
• Financial Sentiment expectations for 12 months ahead has also remained at -9 in October, same as in September and down on -8 in August. In October 2010 the sub-index was at -5.

 As chart below illustrates:

• General Economic Situation perception index for next 12 months fell to -29 in October from -27 in September. The sub-index is now at the lowest level since May 2009 an is down on -12 reading in October 2010.
• Unemployment Expectations over the next 12 months sub-index rose from 32 in September to 36 in October - the highest level since March 2010. A year ago, sub-index stood at 26.

Euro area data was showing similar weaknesses to EU27:

• Consumer confidence fell from -19 in September to -20 in October, the lowest level since August 2009. A year ago, Consumer Confidence index stood at -11.
• Financial Situation sentiment for the last 12 months period improved to -16 in October, from -17 in September, but still down down from -15 in April-August. A year ago, sub-index stood at -14.
• Financial Sentiment expectations for 12 months ahead has also remained at -9 in October, same as in September and down on -7 in August. In October 2010 the sub-index was at -6.

• General Economic Situation perception index for next 12 months fell to -29 in October from -27 in September. The sub-index is now at the lowest level since May 2009 an is down on -10 reading in October 2010.
• Unemployment Expectations over the next 12 months sub-index rose from 30 in September to 33 in October - the highest level since May 2010. A year ago, sub-index stood at 22.

Much of this evidence is consistent with the latest unemployment figures reported today with Euro area unemployment up to 10.2% in September (EU27 figure at 9.7%) up from 10.1 in August 2011 (9.6% for EU27).