16/9/2013: More pesky stuff on PMIs v Reality...

Readers of this blog would know that I have been skeptical about the Purchasing Manager Indices capacity to accurately track changes in the economic output, especially during the times of unstable trend or trend shift. The latest on the topic was recently covered here: http://trueeconomics.blogspot.ie/2013/09/1092013-pmi-and-real-economy-goldman.html

And here's the handy chart from Pictet neatly highlighting the same problem:

Not being a conspiracy theorist, I would not suggest that latest changes in Markit reporting of PMIs - and in particular dramatic shift away from actually providing broader public and analysts community with some hard numbers and in favour of providing more 'interpretations' of the data plus often unreadable charts has anything to do with the breakdown in PMIs correlations with actual activity... but it would be nice to have more accurate and data-focused releases.

Note: full Pictet note on industrial production in the euro area is here: http://perspectives.pictet.com/2013/09/13/euro-areas-industrial-production-data-back-to-reality/

16/9/2013: Call me, once granny kicks the proverbial...

Structural slowdown? What structural slowdown... not in France and in particular not in the French traditional way of making the living... by inheriting it...

The chart above comes from one of the leading researchers on income and wealth distributions, Thomas Piketty. The key to reading this chart is that as a fraction of total disposable income, inheritance flows are now back at the levels last seen in and around WW1 period. The good old days of the 19th century when landed gentry and hereditary wealth class were all the rage is back in the Liberte, Egalite, Fraternite dreamland of France. Or put in more brutish, American terms - work? why bother, when inheriting things is so much more fun than earning them by merit.

16/9/2013: Bigger Question than Answers: Euro Area Banks Funding

An interesting chart from Credit Suisse (h/t to Fabrizio Goria ‏@FGoria) on marginal funding costs of Euro area banks:

Four points to note:

1. Marginal funding costs are now in line (albeit with a bit of volatility) with the costs in 2004-2006 period. This should be good, right?.. But
2. Source of marginal funding is now exclusively CDS-backed as opposed to Euribor, and
3. Spread over the repo rate is still consistent with the 2008 and 2011 spikes and is not getting any better with recent rate cuts
4. LTROs helped, but their effect is no longer present and since late 2012 we are seemingly in a 'long-run' trend pattern or in an 'absent catalyst' base?

Question one is, if base rate creeps up, what will happen to funding costs? Question two is, if the US base creeps up, what will happen to euro area funding costs?

The latter is non-trivial: we've heard of the emerging markets rot on foot of 'tapering' talks...

16/9/2013: A Liquidity Slush or an Equity Switch?

Three more charts from BIS Quarterly (http://www.bis.org/publ/qtrpdf/r_qt1309a.pdf), showing the switch of liquidity out of the Emerging Markets into Advanced Economies...

 And then from the Advanced Economies bonds into Advanced Economies equities with a small bounce up on Emerging Markets equities side too...

Two thoughts:

1. There is no yield-driven bounce anymore, so pricing is not a huge help in this process; and
2. Is this the end of the debt bubble and the start of the equities rise (structural, not nominal rise, driven by shift in corporate funding models) or is this a temporary slush of liquidity?

16/9/2013: Don't chill that champagne, yet... Irish Agri-food Exports

Here's one of the core reasons as to why agricultural exports are booming in Ireland:

Or more precisely, implied profit margins on sales:

So in basic terms: global food inflation is driving Ireland's agri-food exports since ca Q1 2010, while profitability improvements are contributing to the same since ca Q4 2011. The former is obviously not due to our competitiveness gains or efficiency improvements or great business strategies or policies. The latter is, err... not that much either, as costs continued to inflate since Q4 2011, albeit slower than output prices. In other words, our improved profit margin in the agri-food sector are also due to someone, somewhere on the Planet having to pay more for food.

16/9/2013: Some scary charts from BIS: Yields Blowing Up & Leverage Climbs

BIS Quarterly (http://www.bis.org/publ/qtrpdf/r_qt1309a.pdf) has some interesting analysis of the US yields:

"An examination of the rise in US bond yields between May and July reveals as a key  driver the uncertainty about the future stance of monetary policy. The sell-off mainly shifted bond yields at long maturities, while the short end of the yield curve remained anchored by the Federal Reserve’s continued low interest rate policy."

"In addition, the federal funds futures curve also shifted upwards, signalling market perceptions that a policy rate exit from the current 0–0.25% band had become quite likely to occur as early as in the second quarter of 2014."

"A model-based decomposition of the  10-year US Treasury yield, which sheds light on the various drivers of these shifts,  indicates that the recent yield spike was largely the result of a rising term premium. This is consistent with markets reacting to uncertainty about the extent to which an improving economic outlook would affect future policy rates. It is also consistent with uncertainty as regards the impact that a reduction in the Federal Reserve’s purchases of long-term Treasuries would have on these securities’ prices."

"In comparison, the bond market sell-offs in 1994 and 2003–04 were different in  nature. During those episodes, long-term nominal yields rose together with policy rates or on the back of expected increases in future real interest rates and inflation. By contrast, inflation expectations were largely unchanged in the second and third quarters of 2013."

Basically, as we all know  by now, current yields have nothing to do with inflation and are solely priced by reference to expected liquidity conditions. Or put differently, nothing but printing press matters. So much for monetary policy-real growth links...


And BIS does deliver a nicely focused warning: "Their recent spike notwithstanding, bond yields in mature markets remained low by historical standards. For one, the yields on sovereign bonds in the largest world economies had been on a downward trend since 2007. And investment grade spreads in the United States, the euro area and the United Kingdom declined respectively by 75, 110 and 190 basis points between May 2012 and early September 2013, falling past their earlier troughs in 2010 and reaching levels last seen at end-2007. The evolution of the corresponding high-yield bond indices was similar, with spreads declining by 230 to 470 basis points over the same period."

Go no further than the second chart above: reversion to the mean is going to be brutal. And this brutality will only be reinforced by the fact that quietly, unnoticed by most, leverage has returned: overall share of leveraged and highly leveraged loans in total syndicated loan signings is now at all-time high.

Starting with page 6 (above link), the quarterly is a must-read as it exposes growing problem with high risk debt accumulation by investors and that amidst the historically low rates. The system is back at end-of-2007 levels of credit underpricing. The big difference today in contrast with 2007 is that no one has any bullets left to fight the bear, should one appear on the horizon.

15/9/2013: A Surging... Floater...

You've seen the 'Euro area economy is surging ahead' headlines on foot of recent PMIs... and you have seen warnings on the accuracy of the indices (see http://trueeconomics.blogspot.ie/2013/09/1092013-pmi-and-real-economy-goldman.html)... but what about levels?

Ugh... 'surging'?.. or maybe 'barely floating'?

15/9/2013: BIS Quarterly: a tale of two banking systems

Two hugely revealing charts from the BIS Quarterly Review, September 2013 (http://www.bis.org/publ/qtrpdf/r_qt1309e.pdf) show exactly the remaining adjustments yet to be undertaken by the banking sector in Europe, compared to the US.

Here they are:

 and

 
note how European banks lag US banks in assets deleveraging, and in raising capital, and are slightly lagging in terms of changes in the ratio of risk-weighted assets. In risk-weighted capital ratios, the european banks are about 1/3rd of the way shy of the US, and in terms of capital, roughly 1/2 of the adjustment to the US levels is still required.

And per operational weaknesses of the European banking system? Next we have a table:

Although different across periods, the divergences between the European and US banks are still qualitatively the same for pre-crisis and crisis periods. In particular, US banks operate at higher cost than European ones, but generate more interest income and other income.

15/9/2013: WLASze Part 2: Weekend Links on Arts, Sciences and zero economics

Due to time constraints of yesterday's TEDx talks (http://www.tedxdublin.com/), I had a shorter version of WLASze: Weekend Links on Arts, Sciences and zero economics. As promised, more is now following in part 2…



15 dynamic images of changes in the demographics across 15 countries around the world from today through 2100: http://www.businessinsider.com/15-countries-in-2100-2013-9
Very interesting changes. As a teaser: "The year 2020 will be a seminal one for Japan, with the country's capital home to the 31st Summer Olympiad and adult diapers set to outsell their baby counterparts." Just think about that line for a second… I will be posting tomorrow night my Sunday Times article from last Sunday which covered the figment of imagination that is our unwavering belief in some 'demographic dividend' for Ireland. The article addresses the question 'What happens when Germany get older, while Ireland stays younger?'


A superb article from The Atlantic on the effects that our education system's obsession with regurgitation of facts has on our ability to think:
http://www.theatlantic.com/education/archive/2013/09/when-memorization-gets-in-the-way-of-learning/279425/
This is a neat extension point to something I have been talking about in my TEDx Dublin talk earlier today - the fact that our education systems are innately incapable of producing the human capital that we will need for the future. I wrote about the related deficiencies in education systems here in my earlier Sunday Times column, with unedited version available here: http://trueeconomics.blogspot.ie/2013/08/2182013-irelands-potemkin-village.html


From the sciences side of things:
http://www.redorbit.com/news/video/the-daily-orbit/1112946481/moon-water-origins-hint-at-early-earth-091213/
We normally hear about extraterrestrial origins of things found on Earth. How about terrestrial origins of things found elsewhere in the solar system? Hm… And the daily Orbit  presentation style… double hmmm…


Extraterrestrial is the best way to describe some of the DesignJunction pop-ups at the London Design Week:
http://www.dezeen.com/2013/09/13/pop-ups-at-designjunction-next-week/
Need proof?

Or how about the Digital Sunrise (it appears to be a rug, but feel free to guess):

On the serious side of things: the rest of DesignJunction is corporate and boring… no, really, see for yourselves: http://thedesignjunction.co.uk/virtual-showroom/


From the series of accidental art:
IMAGE: russian-skywalking-photographers-european-skyscrapers-designboom-10
"russian photographers and daredevils vadim mahora and vitaly raskalovym travel europe with a clear purpose -- to illegally climb to the highest point of the city's main attraction, hang off its edge, and capture their extraordinary viewpoint" via http://www.designboom.com/art/russian-skywalkers-photograph-european-buildings-from-the-air/

The thing is: to be consistent the duo must take pictures from all cities visited. Problem is: once you confine yourself to such a commitment, art becomes secondary to pursuit of locations, and as such, purely accidental. As the show linked above clearly shows, not all (by far) images are even close to possessing properties of artistic inquiry or discovery, let alone aesthetic completion and compositional integrity. Hence, accidental nature of art… Still, impressive!


http://www.art-moscow.ru/ is opening on the 18th of September. The show will feature special exhibition Russian Avant-Garde 1910-1930 with some rare paintings by less-known artists: http://www.art-moscow.ru/2642.html
Whimsical and yet somehow infused with challenges and questions work of Grigori Mayofis: http://www.art-moscow.ru/2701.html will also be on show:

In the week when Harvard awarded its annual Ig Nobel Prizes - the spoof prizes for idiotic  research, it is only worth running few links on that:
http://www.cbc.ca/news/technology/shrew-eating-penis-amputation-studies-earn-ig-nobel-prize-1.1828634
http://rbth.co.uk/arts/2013/09/13/six_ig_nobel_prize_awards_received_by_russians_29823.html
And the 2013 awards summary: http://www.policymic.com/articles/63697/10-weirdest-ig-nobel-prize-winners-this-year


This weeks Part 2 is turning out to be quite a Russia-fest - not by design, just as an accident… so to conclude it - an images gallery from Kamchatka Peninsula: http://rbth.co.uk/multimedia/pictures/2013/09/11/going_to_kamchatka_to_get_a_glimpse_of_the_moon_29721.html

Enjoy the links!

14/9/2013: IMHO signs agreement with Alsop Space Ltd

Irish Mortgage Holders Association have signed an agreement with Alsop Space Ltd that ensures that Alsop Space Ltd will not undertake auctions of repossesses Irish primary residences.

Keep an eye out for more details: https://www.mortgageholders.ie/

13/9/2013: WLASze Part 1: Weekend Links on Arts, Sciences and zero economics

Due to time constraints of tomorrow's TEDx talks (http://www.tedxdublin.com/), this is a shorter version of WLASze: Weekend Links on Arts, Sciences and zero economics. More to follow in part 2 later, so enjoy the eclectic mix…


Let's start with the truly 'first' for humanity. This week, Nasa announced that "Voyager 1 has entered interstellar space. The NASA spacecraft, which rose from Earth on a September morning 36 years ago, has traveled farther than anyone, or anything, in history".
http://www.youtube.com/watch?v=cHsdOU9biAU&feature=youtu.be
Read about it here: http://voyager.jpl.nasa.gov/
What a fantastic achievement. A long leap for a piece of by-now-outdated technology, and a giant laps for mankind!

The taxonomy of space traversed by Voyager 1 is explained here: http://www.jpl.nasa.gov/spaceimages/details.php?id=PIA17460 with a handy graphic. And here is the hero itself, as spotted by earth-based radio telescopes back On February 21, 2013,

For large numbers lovers: the spacecraft, launched in 1977, is currently nearly 12 billion miles (19 billion kilometers) away from the sun. The picture shows Voyager 1 at 11.5 billion miles (18.5 billion kilometers) away. This was the stuff that Konstantin Tsiolkovsky (who's 156th birthday will come September 17th), Hermann Oberth and Robert H. Goddard dreamed about.


Skies, space, time still fascinate us today. On a smaller scale of achievement, but stunningly beautifully executed, here are the Ethereal Landscape Photo Manipulations by Polish photographer, Michal Karcz:
http://emorfes.com/2013/09/08/ethereal-landscape-photo-manipulations-by-michal-karcz/
His website: http://www.michalkarcz.com/
Of space:

And time:

While on concept of time, here's a shot from the past - a long mis-identified van Gogh
http://www.nytimes.com/2013/09/10/arts/design/new-van-gogh-painting-discovered-in-amsterdam.html?_r=0&hp=&adxnnl=1&adxnnlx=1378732079-VxsU8Azzq08ccDgxBuLvEw
All handy-dandy, art prices etc, but The Onion take is as usual - priceless (yes, the discovery is significant enough to make it into The Onion)…
http://www.theonion.com/articles/heartless-dutch-curators-put-deranged-scrawlings-o,33803/
Here are two highest resolution images I could find:

From things filling us with wonder and amazement to dumbing down. The former are of art, the latter is of science… or rather the study of humanity... even worse, humanity linked to politics (now the standard is set at absolute zero):
http://www.motherjones.com/politics/2013/09/new-study-politics-makes-you-innumerate
Absolutely fascinating, until you recognise that majority of economists are mathematically more numerate and politically more dogmatic than your average educated person. Which, of course, just confirms the study results... by not even being an exception to the rule…

13/9/2013: Ireland's risk ratings steady: ECR

Quick updates on country risk scores from Euromoney Country Risk surveys:

Higher scores imply lower risk. For comparative, Ireland currently is at 57.81. The global heat-map is:

You can click on image to enlarge.

And Ireland's risk assessment summary: