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

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


Let's start with some music: http://www.youtube.com/watch?v=EEB6bX35aHk
H/T to t.j greene @greentak : Gipsy Kings - Duende

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


Of Fratres in us all… and science-linked, too: Nothing - emotively or nostalgically - comes close to seeing the Earth from outer space… and this photograph from July 19, 2013, the wide-angle camera on NASA's Cassini spacecraft, showing Saturn's rings and our planet Earth and its moon in the same frame does the job superbly:
http://www.nasa.gov/mission_pages/cassini/multimedia/pia17171.html#.Ue7tE2SglF_

Art merged with (sort of) science, or may be with just raw (accident-driven) curiosity?
http://www.wired.com/rawfile/2013/07/who-knew-golf-balls-could-be-so-arty/?viewall=true
Images are stunning. My favourite?
http://www.wired.com/rawfile/2013/07/who-knew-golf-balls-could-be-so-arty/#slideid-27451
and

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


"The robots are even more baffled by Bernanke than the humans" - yes, I know - this is 'zero economics' post… but this is very, very good...
http://qz.com/108089/the-robots-are-even-more-baffled-by-bernanke-than-the-humans/
Need I to say that at a higher level - more 'Earth from Saturn' of a vantage point - Bernanke is baffling to humans too. But that has more to do with my Impossible Monetary Dilemma (you can search my blog for that to read my musings, or one of the summaries is here).


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

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

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

You can see more of his work here: http://www.simonnorfolk.com/burkenorfolk/photos.html

His other work - equally stunning:

Oak trees at Blenheim Palace, copyright Simon Norfolk. Read more: http://www.bjp-online.com/british-journal-of-photography/project/1650104/simon-norfolk-trees-blenheim-palace#ixzz2a5qMQuuV


Science and art: take a fixed spot in the sky. Take a shot every 10 seconds. Form a day-long movie of these shots. One movie per day over 360 days. Combine. Get: http://apod.nasa.gov/apod/ap130724.html Creative, imaginative, structured, replicable, not confirmable. Science and art. I loved this.


And then, take the most sacred in science (speed of light) and freeze it:
http://www.newscientist.com/article/dn23925-light-completely-stopped-for-a-recordbreaking-minute#.UfITIWSglF9
"While light normally travels at just under 300 million metres per second in a vacuum, physicists managed to slow it down to just 17 metres per second in 1999 and then halt it completely two years later, though only for a fraction of a second. Earlier this year, researchers kept it still for 16 seconds using cold atoms."


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

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

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

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

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

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


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

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

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

One of the organisations, responsible for shaping policy and assessing effectiveness of all of these and other 'platforms' is Forfas - a state body in charge of economic policy supports. You can read all the glorious descriptions of what Forfas does here: http://static.rasset.ie/documents/news/forfas-annual-report-2012.pdf

And this week, RTE reported the following nice stats about this beacon of knowledge and research (full article here: http://www.rte.ie/news/2013/0724/464489-forfas-pension/?goback=%2Egde_2825341_member_260797418)

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

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

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

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

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

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

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

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

Per charts above,

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

Looking at the 'Impossible Monetary Policy Dilemma':

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

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

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

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

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

25/7/2013: Entrepreneurship in Ireland, 2012

Here's a recently published report on entrepreneurship in Ireland (data through 2012):  http://www.enterprise-ireland.com/EI_Corporate/en/Publications/Reports-Published-Strategies/GEM-Report-2012.pdf

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

"Less positive trends…….

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

More positive trends…..

• Successful entrepreneurs continue to be well considered in Irish society, and success at entrepreneurship is considered to confer considerable status.
• There is a growing general perception of supportive coverage by the media of entrepreneurs and their activities.
• The educational attainment level among early stage entrepreneurs in Ireland is one of the highest internationally.
• More than half of all early stage entrepreneurs are focused on overseas markets and many expect a significant number of customers to be from overseas markets.
• The growth expectations among women entrepreneurs have considerably increased and there is no longer a significant gender gap in this area.
• The prevalence of owner managers of established businesses in Ireland is higher than it is across the OECD and EU.
• The level of growth expectation among early stage entrepreneurs remains at a high level."

Another point of interest: "Early stage entrepreneurship is higher among immigrant groups (7.2%) than it is among the non-immigrant population (5.8%) (Table L). This is the case in the other EU-15 countries, with the exception of the Netherlands. Immigrant early stage entrepreneurs are typically motivated by opportunity (73%), which is also the case for non-immigrant entrepreneurs (70%). More specifically, a higher percentage of first generation (3.0%) and second generation immigrants (2.9%) have recently started a business in Ireland, compared to the non-immigrant population (2.2%)."

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

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

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

Some summary stats:

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

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

 Both via Ioan Smith @moved_average.

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

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

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

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

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

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

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

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

Another interesting link on income inequality data 

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

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

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

I wrote about these here: http://trueeconomics.blogspot.ie/2013/07/2272013-g20-spells-out-squeeze-on-tax.html and http://trueeconomics.blogspot.ie/2013/07/272013-sunday-times-june-23-2013-g8-and.html

and http://trueeconomics.blogspot.ie/2013/02/1822013-oecd-on-corpo-tax-havens-for-g20.html

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

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

Some highlights:

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

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

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

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

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

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

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

For now, however, my feeling is that the yields are close to fundamentals-determined equilibrium.

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

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

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

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

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

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

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

Top-line conclusion: RPPI is struggling to lift up above the flat trend despite the unprecedented level of prices collapse to-date.

Chart to illustrate the above trends:

Apartments drove the overall index up on a m/m basis and largely accounted for much of change y/y. The problem is that apartments index is based on thin data, so it is subject to much volatility.

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

Chart below illustrates Apartments and Houses indices trends:

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

Dublin RPPI:

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

Chart to illustrate:

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

How significant was the skew in All Properties RPPI due to movements in Apartments? Very significant. 

• All RPPI was up 1.2% y/y in June 2013
• National Houses RPPI was up 0.9%
• National Apartments RPPI was up 5.3%
• Ex-Dublin, All RPPI was down -1.0%, Ex-Dublin Houses RPPI was down 0.9% (close to All RPPI ex-Dublin)
• Dublin All RPPI was up 4.2% with Dublin Houses RPPI up 3.6% and Dublin Apartments RPPI up 9.7%.

Hence, overall RPPI was strongly pushed up by Apartments and Apartments index was pushed up by Dublin Apartments.

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

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

Source: the original from World Bank, 2012.

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