19/10/2013: WLASze Part 2: Weekend Links on Arts, Sciences and zero economics

This is the second post of my WLASze: Weekend Links on Arts, Sciences, and zero economics for this week.

Enjoy and be warned, I do stray into 'some' economics (but only as 'science') in this one...


"By discovering a new set of solutions to the famous Maxwell equations governing electromagnetism, Hridesh Kedia of the University of Chicago and his colleagues have shown that light can be tied up in knots. Here the purple and gold cords represent the twisted magnetic field lines of knotted light." Ughh?.. No, really cool - read more here: http://www.scientificamerican.com/article.cfm?id=tying-light-in-knots-slide-show

And… "The same University of Chicago lab, led by William Irvine, also recently discovered a way to tie water up in knots. This photograph shows a basic knotted shape called a trefoil knot made of water, imaged by light scattering off tiny gas bubbles in the liquid."

Question for scientists… can anyone untie the knots of Irish policymakers' ideas? Like the following conjecture: to deal with the effects of the property bubble collapse, Budgets 2010-2014 introduced series of property markets tax incentives… Bet that'll be harder than Maxwell's equations…


But this is WLASze, so let us not dwell too long on matters of Irish policies. Even if for the purpose of advancing the science of the bizarre…

So back to sciences: "Society's techno-social systems are becoming ever faster and more computer-orientated. However, far from simply generating faster versions of existing behaviour, we show that this speed-up can generate a new behavioural regime as humans lose the ability to intervene in real time."

Ok, this is potent stuff. And where better to look for such 'machine outpaces mankind to defeat the entire purpose of the human-made system' than in financial markets (I can't shake off this year's 'Nobel' in Economics)… So: "Analyzing millisecond-scale data for the world's largest and most powerful techno-social system, the global financial market, we uncover an abrupt transition to a new all-machine phase characterized by large numbers of subsecond extreme events. The proliferation of these subsecond events shows an intriguing correlation with the onset of the system-wide financial collapse in 2008. Our findings are consistent with an emerging ecology of competitive machines featuring ‘crowds’ of predatory algorithms, and highlight the need for a new scientific theory of subsecond financial phenomena."

Here's the full article: http://www.nature.com/srep/2013/130911/srep02627/pdf/srep02627.pdf

Wanna see something really scary?

Or in different visualisation:

Ok, now that I am onto Financial Markets and their 'efficiency' - a compendium of links explaining this year's Nobel Memorial Prize in Economics. No commented from me:

• http://asociologist.com/2013/10/14/you-cant-beat-the-market-but-the-market-can-beat-you/
• http://delong.typepad.com/sdj/2013/10/a-note-on-the-2013-nobel-like-prize-in-economics.html
• http://afinetheorem.wordpress.com/2013/10/14/a-brief-word-on-the-2013-nobel/
• http://noahpinionblog.blogspot.ie/2013/10/lars-peter-hansen-explained-kind-of.html
• http://krugman.blogs.nytimes.com/2013/10/14/the-nobel/?_r=1
• http://johnhcochrane.blogspot.kr/2013/10/gene-famas-nobel.html
• http://blogs.ft.com/ft-long-short/2013/10/14/fama-shiller/
• http://simplystatistics.org/2013/10/14/why-did-lars-peter-hansen-win-the-nobel-prize-generalized-method-of-moments-explained/

Now I've done it… this was supposed to be WLASze and it is now more Finance & Economics than Arts or Sciences…

I recently wrote about the determinants of what makes content go viral on social networks (see link here). The study was based on Google+ - a network that Google seems to think is a major one, yet everyone else seems to think of as a 'may be one day' contender. Now, more real viral propagation visualisation via twitter:

Link: http://blogs.hbr.org/2013/08/visualizing-how-online-word-of/


As Apple is pushing ahead with the meat (USD5 billion) plan for new HQs in Cupertino, CA, here's an overview of the project: http://www.dezeen.com/2013/10/16/fosters-apple-campus-unanimously-approved-by-cupertino-city-council/

Yes, buildings of this scale are a challenge. Yes, aesthetics of the corporate identity at this scale are a challenge. Yes, Apple is strongly 'impositional' organisation with emotional attachment to 'eco-sthetics' and reality of a massive Death Star orb floating in alien space… so then, yes, the plans are perfectly befitting the client…

As a life-long fan of Apple (I still have a working-order first marketed laptop by the company in my collection and our household has a pile of interconnected Apple devices) all I can say is, sadly, with the shift in Apple's fortunes, the company is now running out of ideas… But wait, I am not alone: http://www.dezeen.com/2013/09/13/apple-has-reached-creative-saturation-says-steve-jobs-colleague-hartmut-esslinger/


On a beautiful side (to round off this week's WLASze): Gagosian Gallery is hosting a Willem De Kooning Ten paintings show, comes November 8:
http://www.gagosian.com/exhibitions/willem-de-kooning--november-08-2013

De Kooning is a master of light and contrast, depth and balancing extremal abstract expressionism with minimalism. His work is stark, striking, bright with simplified, distilled essence of countering colour and movement and space. These are his later works, right before his death in 1997.

The middle image above is taken from the coverage of the MoMA retrospective of de Kooning's works back in 2011.

It was not always thus, as you can see from his earlier works, such as Gotham News, 1955:

You can see more of de Kooning's works here: http://www.benditz.de/ and here: http://theartstack.com/artists/willem-de-kooning

Enjoy. De Kooning is a great master with deep, often disturbed depth of psychological insight alternating with organic capacity to surprise, to open up that momentary window into viewer's own imagination...

19/10/2013: WLASze Part 1: Weekend Links on Arts, Sciences and zero economics

This is the first post of my WLASze: Weekend Links on Arts, Sciences, and zero economics for this week.

Enjoy.


Today is the birthday of one of my favourite Italian futurists: Umberto Boccioni, born this day in 1882. Here's his brilliant painting from the States of Mind series: The Farewells, 1911

Boccioni's page on ArtStack: http://theartstack.com/artists/umberto-boccioni


Great slideshow giving an insight into the world of trespassers' photography:
http://www.theatlantic.com/infocus/2013/10/adventures-of-a-serial-trespasser/100604/

This is not quite art, but there is some sense of raw force driving us, as people, to pushing the limits of 'normality'. And that force is well-represented in these photographs… almost voyeuristic, half creative and half inquisitive - the borderline of learning self and expressing self...


Via http://www.saatchionline.com/koenlybaert works of a Belgian painter Koen Lybaert:

Evocative of (if not outright 'borrowing from) Gerhard Richter's works.
http://www.gerhard-richter.com/art/
http://theartstack.com/artists/gerhard-richter


An interesting report about the research into behavioural, emotional and mental activity of dogs, suggesting that the caudate region activity in dogs' brains is proximate to human and indicates that dogs: http://www.nytimes.com/2013/10/06/opinion/sunday/dogs-are-people-too.html?pagewanted=1&_r=1

Some select quotes: "Although we are just beginning to answer basic questions about the canine brain, we cannot ignore the striking similarity between dogs and humans in both the structure and function of a key brain region: the caudate nucleus."

"Do these findings prove that dogs love us? Not quite. But many of the same things that activate the human caudate, which are associated with positive emotions, also activate the dog caudate. Neuroscientists call this a functional homology, and it may be an indication of canine emotions. The ability to experience positive emotions, like love and attachment, would mean that dogs have a level of sentience comparable to that of a human child. And this ability suggests a rethinking of how we treat dogs."

Not only an amazing set of studies, but also a promise of serious ethical and even legal implications, were the findings to continue expanding our insight into the emotional, cognitive and psychological existence of our extended family members…


A brief note: http://classic.slashdot.org/story/13/10/07/2352217 with huge implications. This marks the first time that a fusion reactor was able to generate more energy than it consumed. Full report here: http://www.bbc.co.uk/news/science-environment-24429621


An absolutely stunning breakthrough in mapping out the future of mathematical theory:
http://blogs.scientificamerican.com/guest-blog/2013/10/01/voevodskys-mathematical-revolution/
The implications of this thinking are so far reaching out only to the issue of how we write proofs (the topic of the article), but far beyond that, the removal of the heavy burden of proof formulation and verification will enable mathematics to move onto the core purpose of the field of any inquiry - derivation of questions and formulation of propositions. Here's a direct link to Voyevodsky's work on Univaliant Foundations: http://www.math.ias.edu/~vladimir/Site3/Univalent_Foundations.html and his lecture introducing the topic: http://video.ias.edu/univalent
Marvellously put…

For those of you who took my course in Investment Theory this week at Trinity College, I referenced this work in the last lecture, talking about the advancements in computing and data analytics / strategy formation nexus.


And from the future of mathematics to the past of the power that drives all inquiry: humanity. The origins of our beginnings must be rethought now... thanks to the latest fossil discovery...
http://www.theguardian.com/science/2013/oct/17/skull-homo-erectus-human-evolution?CMP=twt_gu


Enjoy and stay tuned for more WLASze...

17/10/2013: Customer-Activated Enterprise: External & Internal Influencers

In the previous post I covered a few quick ideas that stemmed from the recently published IBM's Institute for Business Value CxO-level study: "The Customer-activated Enterprise: Insights from the Global C-suite Study" (available here: http://public.dhe.ibm.com/common/ssi/ecm/en/gbe03572usen/GBE03572USEN.PDF).

As I noted - this is an absolutely 'a must' read for anyone interested in the future directions for interactions between customer-driven value added activities and enterprise structures and strategies. It subtly, quietly punches beyond the 'ritualistic' tech-saves-us-all hype and into the deeper thinking inhabiting today's C-level offices. This is good. Very good. Less brand futurism, more future-focused pragmatism.

So another fascinating insight (my judgement, of course, as are the comments presented here).

Based on this guide: Chief Executive Officers (CEOs), Chief Finance Officers (CFOs), Chief Human Resources Officers (CHROs), Chief Information Officers (CIOs), Chief Marketing Officers (CMOs), Chief Supply Chain Officers (CSCOs), let's re-weight by removing 'own' functions of the CxOs:

1) Technology Factors (ex-CIOs) score 11 points
2) Market Factors (ex-CMOs) score 8 points
3) Macro-economic Factors (ex-CFOs) score 19 points
4) People Skills (ex-CHRO) score 26 points
5) Regulatory Concerns (ex-CSCOs) score 20 points
6) Socio-economic Factors (ex-CMOs) score 35 points
7) Globalisation (ex-CEOs) score 37 points
8) Environmental Issues (ex-CMOs) score 36 points
9) Geopolitical Factors (ex-CEOs) score 41 points.

So re-weighted prioritisation is:
Top tier priorities:
Top 1: Market Factors (ex-CMOs) score 8 points - Second Priority for CEOs
Top 2: Technology Factors (ex-CIOs) score 11 points - First Priority for CEOs
Top 3: Macro-economic Factors (ex-CFOs) score 19 points - Third Priority for CEOs
Second tier priorities:
Top 4: Regulatory Concerns (ex-CSCOs) score 20 points - Fifth Priority for CEOs
Top 5: People Skills (ex-CHRO) score 26 points - Fourth Priority for CEOs

The CEO position (2013) overlap is provided directly from the chart below:

Note that the CEOs priorities are not that distant from the priorities of the overall CxO suite priorities once we remove actual direct stakeholders in each priority area.

Also note that top 5 priorities today (as outlined in top 2 tiers above) are consistent themes from at least 2006 survey on. This is aligned, in my view, with the shifting nature of strategic transformation drivers and the input of external sources into strategic influence formation at the C-level:

Notice that C-suite influence is proximate in importance to Customers input and Board input. In the future, with partnerships and networks of value-added expected to both expand and deepen, including growth in customer-partnership models, this is likely to change. We can expect more heterogeneity in perceived influencing factors across the C-suite and the rise of key external business partners and non-executive senior leadership roles in contributing to strategic influence formation. I suspect the C-level and Board inputs will be downgraded.

Something to watch… but here's a suggestive sub-trend:

Can you open up the structures without bringing up the roles of key partners and internal non-execs? I don't think so...

17/10/2013: Customer-Activated Enterprise Research: Partnerships & Value-Added

I recently wrote about the upcoming publication of the IBM's Institute for Business Value CxO-level study: "The Customer-activated Enterprise: Insights from the Global C-suite Study" - the link to the original post is here: http://trueeconomics.blogspot.ie/2013/09/592013-ibm-64-of-global-cmos-want-to.html

Now the study is out and available here: http://public.dhe.ibm.com/common/ssi/ecm/en/gbe03572usen/GBE03572USEN.PDF

Some interesting insights from it will be forthcoming over the next few days as I slowly digest the paper (slowly - due to time constraints and not due to the nature of this superb piece of research).

First instalment a chart plotting CxOs' view of major changes in the business landscape in the next three to five years.

Note the emphasis on (opinions and views are my own - on foot of my interpretation of the data presented):
1) Bigger partner network is seen as a crucial trend changer by 73% of CxO executives - which is inherently driving the strategic focus of the enterprise development toward more diversified base of partnerships and networks.
2) Social and digital interactions are displacing face-to-face interactions and this implies that social and digital platforms will have to become also key tools for development and deployment of partnerships. End result of this (1) and (2) nexus is that business models will have to expand horizontally and beyond traditional nodes of corporate management and control. Risk will rise, uncertainty will rise both in scope and complexity.
3) This is supported by the shift in the partnerships nature: from lower emphasis on efficiency-driven partnerships toward more value-adding partnerships. In other words, not sub-contracting to specific tasks, but expansion of R&D, strategy and value-adding chains beyond the bounds of the traditional enterprise. This is very exciting, but adds even more complexity and uncertainty as well as more disruption to traditional (vertical or hierarchical) enterprise structures.
4) Focus on customer as individuals focus shift suggests that the era of Big Data will be moving toward the era of Small Data - greater granularity to follow with greater customisation. These can only be delivered via fluid, dynamic, non-contractual partnerships arrangements. Networks, not managerialism.
5) Not surprisingly, operational control weakens, organisational openness rises.

Much of the same that I have been talking about at TEDx Dublin and more recently at Alltech's Presidents Club meeting. You can also see my ideas on MNCs-led partnerships by searching this blog.

17/10/2013: Budget 2014 Missing the Targets: Sunday Times, October 13

This is an unedited version of my Sunday Times column from October 13, 2013.


Recent events have led to a significant reframing of the Budget 2014. With these, the Government is now actively signaling a more accommodative stance on next year's cuts. Alas, the good news end there and the bad news begin. Any easing on austerity in 2014 will be unlikely to produce a material improvement in household budgets. In return, the Government will be placing huge hopes on robust growth returning in 2014. If this fails to materialise, lower austerity today will spell more pain in 2015. Like a dysfunctional alcoholic, unable to stop binging at closing time, we ignore tomorrow’s hangover.


A combination of the latest IMF report on the Irish economy and the outcome of the Seanad abolition referendum have settled the debate on the scale of adjustment to be taken on October 15th. Embarrassing defeat in the referendum has meant that the continuation of Taoiseach's leadership required some symbolic gesture toward the electorate. Lowering the 2014 cuts targets on October 15th can serve the purpose for a few crucial months until the New Year.

Meanwhile, ambiguity-embracing IMF lent a helping had. The IMF repeated its insistence on EUR5.1 billion combined 2014-2015 cuts in the latest assessment of the Irish economy. Yet, the IMF avoided specifying the breakdown of these adjustments between 2014 and 2015. This has given the Government confidence to argue the case in favour of partially delaying 2014 adjustment in front of the EU overseers of our budgets.

Immediately after the IMF report publication, Irish media was promptly fed the rumors that the Minister for Finance was seeking a reduction in the level of budgetary cuts. This week Minister Noonan said that the 2014 adjustment will be EUR600 million lower than EUR3.1 billion originally agreed with the Troika. The savings will amount to 0.37 percent of our GDP: a small boost for the Irish economy, but a massive splash in the PR spin terms for the Government.

With some cuts delayed to 2015, Ireland’s debt sustainability and deficit targets now hinge on the Government’s forecasts for growth materializing over the next twelve months. The risks to these are non-negligible. Last week IMF lowered Irish GDP growth forecasts for every year from 2013 through 2018. Compared to the forecasts released in June this year, October forecasts for inflation are also down. This implies that nominal growth – the source of budget deficits and debt dynamics – is expected to be even slower. If back in June this year IMF expected Irish economy to be at EUR205.8 billion by 2018, now the fund is projecting it to hit EUR201.7 billion. Cumulated forecast nominal GDP for 2013-2018 is EUR15.6 billion lower in October report than in June assessment.  Even before Minister Noonan’s latest reductions in fiscal adjustment for Budget 2014, IMF projected worsening of Irish deficits in 2014-2018.

Department of Finance forecasts, released this week and underpinning the Budget 2014 calculations are more optimistic on nominal growth, expecting higher inflation and anticipating more domestic consumption and investment than the IMF. If the Department gets its forecasts wrong, we will pay 2015 for the delays in cuts planned for the next year.



Flying on hopium of rosy growth expectations is a risky proposition for the Exchequer especially ahead of our drawing down the final tranche of the Troika funding. For this risk, the savings to be delivered in the Budget 2014 are likely to be insignificant from economy’s point of view.

Given the precarious position of the Government in public opinion polls, it is a safe bet to assume that the coalition will be putting the money to ‘work’ as an investment stimulus and a cushion against cuts to social welfare and health.

New building programmes in the more sensitive constituencies hold some serious political capital. But planning allocation of large sums to new investment is a lengthy process before construction jobs actually materialise. Growth impact of these measures in 2014 is unlikely to be significant.

But the thrust of 'savings' is likely to go to the second option. Doing as little as possible for yet another year in structurally altering the way we spend on social supports and healthcare will mean that the budgetary changes to health spending in 2014 will likely be identical to those undertaken in the past. Expect more cost shifting to private insurance, more sabre-rattling over cost overruns and more imaginary gains in productivity. Social welfare ‘cost containment’ measures will continue to rely on 'demand attrition' - the declines in demand due to unemployment benefits expiration and emigration. This means zero impact on growth in 2014.

Meanwhile, revenue side of the budgetary equation will keep pressuring the economy.

Fine Gael's side of the Coalition is promising us that the Budget will contain no new taxes. Alas, in Ireland we have a very narrow definition of both terms: 'new' and 'taxes'. In 2014 we will be facing a full annual Property Tax bill, which is expected to take out additional EUR250 from the average household income. The Budget will also likely raise charges on families to fund education and healthcare. The Irish Government is saying these are not new taxes. Anyone expected to pay them would disagree.

Last year, PRSI changes and reduction in child benefits were not identified as 'new taxes' either. These cost an average working family with two children some EUR494 per annum – an involuntary reduction in family income.

Per research note published by Grant Thornton two weeks ago, a family on EUR80,000 with two earners with two children saw their tax bill rise by 54 per cent since 2008. Their disposable income is now down a massive EUR6,132 per annum. Only a small fraction of these were officially recognised as new tax measures.

Meanwhile, the same families have also seen the costs of basic services provided by the state agencies and enterprises, or controlled by the state regulators and heavily taxed, rise dramatically over the course of the crisis. On average Irish consumer prices fell 1.6 percent between August 2008 and August 2013. Health insurance costs more than doubled over the same period, education costs inflated by 29 percent, bus fares have gone up over 46 percent, and motor tax went up 27 percent. Increases in core public services costs have taken out close to EUR3,500 annually out of the pockets of an average Irish family. These came on top of the Grant Thornton tax cost estimates cited above.

What is the opportunity cost for the families of the losses brought about by the fiscal crisis? For an average family with expected working life of 25 years, the above costs of austerity are equivalent to around EUR111,000 in foregone pensions savings. This excludes costs of the same measures continuing beyond December 31, 2013 and the new measures yet to come in 2014-2015.

The devastation of the above financial arithmetic is even more apparent when we realise that we are far from completing the full set of fiscal adjustments needed to restore our public finances to health. Medium-term Government fiscal consolidation forecasts confirmed by the IMF last week, envision total fiscal consolidation for 2014-2015 to be EUR5.1 billion. Of this, new revenue measures for 2014-2015 are to be set at EUR1.5 billion against carry forward measures of EUR0.3 billion. Current spending cuts are set at EUR3.2 billion. These adjustments translate into additional fiscal burden of EUR3,300-3,500 per annum for an ordinary family.

The hope is that the general economic recovery will mop up the household finances blood spilled by the fiscal crisis.  This rosy expectation is in turn driven by Minister Noonan’s worldview in which Irish trade partners are expected to also grow faster in years ahead. Alas, this Tuesday, IMF cut its global growth forecasts for both 2013 and 2014.


Forecasts aside, today, Ireland has run out of the road on tax hikes and revenue raising measures.

Instead of hiking tax rates, the Government is expected to widen the tax base in Budget 2014. The most efficient way for doing so would be to close loopholes on income exemptions. Less efficient, will be to lower income threshold at which upper marginal tax rate kicks in. Middle and upper-middle class families will pay in either scenario, but the costs to them will be higher in the latter.

In addition, the Government has been briefed on the potential for hiking PRSI for self-employed, while opening up access for this category of workers to social security net. Conditions for accessing cover will be so onerous, few self-employed will ever be able to qualify, but the hike will be politically acceptable. Currently, a self-employed person earning the equivalent of minimum wage pays almost six times as much tax and PRSI as an employee. Few interest groups so far have taken up a challenge of pointing this fact out.

Reality is, Ministers Noonan and Howlin have hit the brick wall. All the low-hanging fruit of marginal tax hikes and revenues extraction schemes has been picked. What's left now are two possible options. Option one: cut social welfare and health. Option two: delay adjustments and hope that comes Budget 2015 day, growth will pick up, unemployment assistance costs will fall, and Brussels will be happy enough reveling in the euro recovery to let things slip a bit on targets in Dublin. No prizes for guessing which option the Coalition will pursue comes next Tuesday.

Source: Department of Finance

BOX-OUT:

This week, the IMF published an assessment of the impact of the monetary policies deployed since 2008 by the ECB, the US Fed and the Bank of England. These unorthodox measures ranged from outright quantitative easing to lowering of the key interest rates to direct lending to the banks against riskier collateral. These monetary interventions, it has been argued in the media and by the majority of analysts, helped to ameliorate euro area sovereign crises. Per conventional wisdom, as the result of the central banks interventions, and particularly those carried out by the ECB, government bond yields and borrowing costs declined post-2011 across the euro area periphery. In addition, supporters of these policies have suggested that unconventional MPs were responsible for increasing equity funding in the real economies, thus supporting the recovery.

Rejecting the mainstream claims, the IMF researchers found that over 2008-2012 various monetary policies had zero statistical impact on the sovereign bond yields in Ireland, Portugal, and Greece. The policies have let to a moderate reduction in Italian Government bond yields, and a weak reduction in Spanish yields. In the case of Ireland, the IMF found no benefits to sovereign bond flows or prices that can be associated directly with the ECB interventions. Furthermore, ECB interventions were associated with outflows of liquidity from Irish equity funds. In contrast, Fed and Bank of England interventions resulted in net inflows of funds into Irish equities.

The paper clearly suggests that the ECB has not done enough to support recovery in sovereign debt and equity markets in the euro periphery.

17/10/2013: To Deal or Not To Deal? ESM and Irish Banks

Few interesting signals coming out of Europe in recent days. All relate to the fallout from the German elections.

I suggested that the outcome of the German elections will result in coalition talks in which Ireland's bailout (or rather the feasibility of our ex post bailout unloading of banks legacy debts onto the ESM or some other European fund) will be demoted (link here: http://trueeconomics.blogspot.ie/2013/10/8102013-german-voters-go-for-status-quo.html). Further more, I recently wrote about the pressures building up in Germany and the ECB on this issue as well (link here: http://trueeconomics.blogspot.ie/2013/10/11102013-whats-new-in-german-coalition.html )

Now, another set of pronouncements on the same topic.
1) German finance minister Wolfgang Schäuble restated German opposition within the Euro finance ministers meeting to using the ESM fund to directly recapitalise Irish banks. link: www.irishtimes.com/business/sectors/financial-services/schäuble-pours-cold-water-over-idea-of-esm-relief-for-ireland-1.1561748

2) In a separate report, the Irish Independent reported that SPD - Germany's second largest party and one currently acting as a king-maker in coalition talks with Angela Merkel - staunchly opposes banks recapitalisation roll over from Ireland to ESM and continues to insist that Ireland must raise corporate tax rate. Link here: www.independent.ie/business/irish/germanys-coalition-talks-snagged-on-irish-issues-29658771.html. Do note, the statement is about raising the actual rate, not closing off the loopholes.

Not exactly encouraging, eh?..

But never mind, Minister Noonan thinks none of the above counts for much: http://www.irishtimes.com/news/politics/noonan-insists-esm-money-for-banks-still-possible-1.1562772 I mean, why on earth would anyone listen to anything that Schäuble or Draghi or Merkel or SPD or leaders of CDU/CSU or Asmussen or the Dutch, Austrian, Finnish governments or anyone else for that matter has to say on the topic?

Run by me this: if Minister Noonan is so certain he can get the ESM to pay us cash for banks equity we hold, then:

• Why do we still talk about 'regaining our independence'? Seems like Minister Noonan already has loads of it - enough to tell Schäuble to pack it; and
• Why don't we have the ESM 'deal' yet? Who's holding it up? Surely not Mr Schäuble who's opinion doesn't quite matter...

Of course, there is a major problem in Minister Noonan's selective referencing of memory. As I recall, the reductions in our interest rates or the extensions to maturity of our debt were granted to us because Portugal demanded them on foot of Greece receiving its own bailouts. As per Minister Noonan's claim on the Promo Notes debt swap 'deal', may be it was made possible by the fact that it wasn't much of a 'deal' in the end? We gave up quasi-sovereign debt for full-blown sovereign debt and got few shillings up front in cash flow relief... The equivalent of such a 'deal' for banks would be what? Allowing to repo our banks equity at the ECB for more loans?..

I am uncertain as to whether any ESM deal on retrospective recapitalisation of Irish banks via European funds is possible or not. It might be or it might be not. I am uncertain as to whether such a deal is even desirable, since we do not know the feasible terms and conditions of the deal. All I know is that over two years of negotiations and seismic announcements behind us, Minister Noonan so far:

• Has not a single open supporter of the idea of Ireland getting such a deal anywhere in the EU's upper echelons of power; 
• Has secured not a single open supporter for such a deal in the EU Parliament or the Commission (it seems that folks from Ballyhea-Charleville SaysNo campaign got more mileage on this); and
• Has plenty o very weighty opponents to such a deal all on public record.

I am sure Minister Noonan is working very hard attempting to secure a good deal for us with ESM. I hope he succeeds.


Updated: A related set of news out of Germany: http://www.spiegel.de/politik/deutschland/macht-der-eu-kommission-widerstand-gegen-merkels-europa-plaene-a-928918.html
In basic terms, Merkel is pushing for more oversight over national budgets for Europe... which, of course, means it is a good thing that Angela is such a close friend for Minister Noonan, right?

13/10/2013: Predictably, Russia pushes on toward ruble free float

One interesting note on Russian economy from recent news flow: the push toward free float for ruble continues, with the Bank Rossiy under new stewardship predictably continuing with the old policy objectives (as I predicted back in March: http://trueeconomics.blogspot.ie/2013/03/1432013-comment-of-appointment-of-new.html):

Latest news is that Bank Rossiy (Bank of Russia) broadened the band for interventions in ruble exchange rates to 3.1 rubles for euro/dollar basket - trippling the previous targets. The plan is still to get rid of the bands by 2015. Thereafter, inflation targeting (possibly with broader growth metrics in mind too) will be the main target. Side effect - expect dollar (and euro) reserves to rise on this move as interventions become less frequent.

13/10/2013: Yields, Prices and Damn Splits in Office Property Markets...

Few days back I highlighted the CBRE Q3 2013 research on Irish office and retail property markets. Here's food for thought in a related spectrum. Is Dublin office space still overpriced?

The above is taken from Q3 report on European markets from Cornerstone. Here's what they have to say on this: "On the supply side, local vacancy rates vary considerably – from around 5% in Paris CBD and central London to in excess of 20% in Dublin and Athens. Where vacancy levels are lowest, the recovery in average rents will tend to be faster. However, the lack of new development in recent years means that shortages of Grade A accommodation already exists in an increasing proportion of markets. The probability of rental growth, particularly on a net effective basis, at the top prime end is thus
growing."

Which suggests the markets in the likes of Dublin and Athens are bifurcating - demand for quality outstripping supply of quality and this means aggregate yields (inverse of prices) are not reflective of underlying market dynamics. Instead - new properties are finding buyers and seeing appreciation, older / existent properties are setting into stagnation before the onset of continued decline (as/when supply of new properties improves). It might be fine to think of the property prices as rising, unless you own the properties that are not fitting the rising demand for quality... God forbid, with leverage on top of ownership...

13/10/2013: On Taxes, Debt & Equity

EU Commission published some interesting research into Tax Reforms across the EU. The paper is available here: http://ec.europa.eu/economy_finance/publications/european_economy/2013/pdf/ee5_en.pdf

One interesting topic covered relates to the substitution away from equity in favour of debt funding in corporate capital investment. A chart to start with:

Now, per above, the disincentives to equity investment and incentives in favour of debt seem to be the lowest (in euro area) in Cyprus and Ireland. Note that these countries are associated with aggressive brass-plating (Luxembourg) are distinct from countries with aggressive tax arbitrage activities (Cyprus and Ireland). And thus, behold the skew in the EU Commission analysis: MNCs investing into these countries do not use debt on-shoring (US MNCs do not borrow in these countries), but use registry of equity there (for example, in Irish case - due to FDI-booked investments, or equity investment by IFSC companies, ditto for old Cypriot banking system vis Russian corporates).

The EU admits almost as much:
"There is also evidence that the tax advantage of debt fuels international profit-shifting activities as
rules on interest deductibility differ between countries and there are mismatches in decisions on which instruments are considered debt financing. Several studies analyse the debt financing of multinationals with either parent companies or subsidiaries in the United States, Germany, Canada and the EU. The results of these studies suggest that firms use intra-group loans to adapt their financial structure and minimise their overall tax burden. By shifting debt to an affiliate located in a high-tax country, corporate groups are able to deduct interest payments against a higher statutory tax rate while the interest received by the lending affiliate is taxed at a lower rate. Taking data from 32 European countries between 1994 and 2003, Huizinga et al. (2008) find that a 10 % increase in the tax rate increases leverage by 1.8 %. The authors also show evidence of debt-shifting as, for multinationals with two equal-size establishments in two countries, a 10 % increase in the tax rate in one country leads to an increase in leverage of the company located in that country by 2.4 % and a decrease in leverage in the affiliated foreign company by 0.6 %."

However, overall the tax rates also play the role in this debt-shifting: "Two recent meta-studies by Feld et al. (2013) and de Mooij (2011a) review the existing empirical studies and find that ... a one percentage point higher CIT rate is associated with a 0.27 percentage point higher debt-asset ratio."

Two more major points raised in the paper:

1. Welfare costs: "The tax bias towards debt financing also creates welfare costs. Weichenrieder and Klautke (2008) estimate this cost at between 0.08 % and 0.23 % of GDP, while Gordon (2010) estimates it at about 0.25 % of GDP. As pointed by de Mooij (2011b), these estimates ...fails to take into account the heterogeneity of responses and hence the additional welfare costs due to misallocations. Existing studies also fail to include the larger welfare costs of the negative externalities of using debt, such as systemic risk, the probability of default and the social costs of business cycle fluctuations. Finally, they do not take into account the distortions created by debtshifting activities and misallocation due to international tax arbitrage and administrative and compliance costs (de Mooij, 2011b). Consequently, the welfare impact of the debt bias can be assumed to be higher than what has been found in the literature so far."
2. Banking Systems and Debt Shifting: "Keen and de Mooij (2012) ...show that taxes influence the capital structure of banks and that, despite capital requirement constraints, the size of the effects of corporate taxation on the financial structure of banks is close to those for non-financial firms." In other words: capital rules do not induce any significant changes in banks behaviour when it comes to funding of banking activities: debt incentives still drive leverage up. Furthermore, "Hemmelgarn and Teichmann (2013) have found that bank leverage, dividend payouts and earnings management (in terms of loan loss reserves) react to changes in the domestic statutory CIT (corporate income tax) rate. ...In the three years after a tax increase by 10 percentage points, the results predict an increase in leverage of 0.98 percentage points or a relative increase by about 1.1 % (in relation to the equity ratio it would mean a notable relative decrease, of 8.9 % of equity)." Core conclusion: "These results suggest that a reduction in the preferential treatment of debt would result in a significant decrease in bank leverage. In addition, the results also show that regulatory capital requirements in the banking sector alone do not seem to be a prime determinant of financial structure. ... the effect of taxation conflicts with the aim of current regulatory reform to increase capital in the context of Basel III."

12/10/2013: WLASze Part 2: Weekend Links on Arts, Sciences and zero economics

My first WLASze: Weekend Links on Arts, Sciences and zero economics focused on sciences, so now is the time to switch over to the other side: arts.

Enjoy.


SaatchiOnline is profiling an excellent new talent: Jessica Kirkpatric
http://www.saatchionline.com/profile/153958

Superbly technical work merging compositional competence, deconstructing and altering the reality to create new representations of space and objects. Almost story-telling like quality of change in subtextual.

Hockneyesque geometry of inanimate spaces meets Dutch masters-evoking colour and light tonalities?..


On a similar note of space and emptiness, but with much more distilled sense of void and air, and more direct colours: Matt Phillips' work:
http://www.theartcollective.com/artists/matt-phillips/

Technically more devolutionary than Kirkpatric's work, and very different compositionally and tonally, but still, to me - very proximate in overall semiotics of space and geometry's dominance over the landscape.


And for a light-hearted moment to rest on:

Via M&C Saatchi Milan: video http://www.mcsaatchi-milano.com/
Full project here: http://www.protectyourlife.it/


MART of Bolzano, Italy is co-hosting a retrospective of Fortunato Depero's work in Barcelona: http://www.mart.tn.it/mostre.jsp?ID_LINK=682&area=137&id_context=4312
Depero is one of the core masters of Futurismo - a powerful pre-cursor to much of the modern art that emerged in the 20th century. Here's one his graphic design examples:

And another one - still alive today (actually MrsG has couple bottles still in the fridge…)

More classic work:

Beautiful example of architecture organically included in the landscape without the need to camouflage the building:
http://www.dezeen.com/2013/10/08/holiday-house-vindo%CC%88-by-stromma-projekt/

The point of the house geometry is to stretch the space along the horizontal lines to subtly position it within the vertical space of the forest and to float it above the rock formation. I love the simple elegance of devoting the view to the forest, and air and light flow of the house. It is elegant precisely because it strikes the balance between being organic to the site, yet not having to be obscure. Reminds me of the classic 'dacha' elegance of the old summer houses in Russia.


From strong imagery to weak content: as the BusinessInsider review aptly puts it, "Banksy's oeuvre has ceased to be groundbreaking or unique".
Read more: http://www.businessinsider.com/acclaimed-street-artist-banksy-has-completely-run-out-of-things-to-say-2013-10#ixzz2hFgN5837
Favourite quote: "His stale images of monkeys, gas masks, bobbies, shopping carts, and rats are now so ubiquitous they've lost all meaning.  Similarly, his medium of public graffiti no longer carries any significant risk since his brand of 'vandalism' is widely applauded and serves to actually increase property values.  ... Banksy's popularity endures simply because he's preaching to the choir."

Boom! Exploded. My personal view - the more I think, the more I agree with the reviewer. An artist cannot be simply tied to the audience nor can the artist be defined to be just a rubble-rouser. The artist must create the audience. Joseph Brodsky said that poetry is the process of creating an alternative world. In contrast, Banksy is simply depicting the perceived world of his audience. That is equivalent to taking endless pictures of ones' self reflected in the mirror and posting them all over the public domain… tedious even for a Flickr amateur…


To round off on a positive note… Russian Aeroflot launched a new 'budget' airline, called Dobrolet. Dobrolet comes with a hugely important brand name pedigree in art, being a trade name of the airline that once flew back in the 1920s as the precursor to Aerflot… Here are some images from Dobrolet graphic designs by Alexander Rodchenko:

For those unfamiliar with Rodchenko's work:
http://theartstack.com/artists/alexander-rodchenko
http://theartstack.com/artists/alexander-rodchenko-1


And for a smile… with some serious side to it too:
http://the-dimka.livejournal.com/6645.html
Just read the description and enjoy… H/T to MrsG.

12/10/2013: WLASze Part 1: Weekend Links on Arts, Sciences and zero economics

This is the first WLASze: Weekend Links on Arts, Sciences and zero economics for this weekend. The first instalment is on sciences, so a bit heavy on some topics. Enjoy.


Starting with a very very old stuff: according to the Russian researchers, the meteorite that exploded above a Russian city of Chelyabinsk (and on youtube screens) in February was about 4.56 billion years old, or as old as the Solar System itself.
http://en.ria.ru/science/20131004/183951992/Russian-Meteorite-as-Old-as-Solar-System--Scientist.html
Infographic with some details on meteorite impact is available here: http://en.ria.ru/infographics/20130215/179495177/Meteorite-Fragments-Hit-Russia.html


A cool, quick (and simple) list of top 5 most important physics discoveries of the last 25 years via BusinessInsider… oh and they throw in 5 future discoveries that are likely to change the world too:
http://www.businessinsider.com/top-5-modern-physics-discoveries-2013-10
My personal favourites: measuring the neutrino mass using Japan's Super-Kamiokande neutrino detector… archi-cool… and from the futures list - quantum computing…

While on physics and sciences - Nobel Prizes this year:
Chemistry: http://physicsworld.com/cws/article/news/2013/oct/09/chemistry-nobel-honours-trio-who-combined-classical-and-quantum-physics
Physics: http://physicsworld.com/cws/article/news/2013/oct/08/englert-and-higgs-bag-2013-nobel-prize-for-physics
Physiology or Medicine: http://www.theguardian.com/science/2013/oct/07/nobel-prize-medicine-cell-transport-vesicles
All worthy, in my view, unlike this year's Nobel Peace Prize. Peace Prize 2013 is a bit of a dodo, to be honest, just like some previous ones: http://www.businessinsider.com/12-worst-nobel-peace-prize-winners-2013-10. In this category in general, the Nobels are often given for uninspiring, bizarre reasons.
Literature Prize: also too often given for political reasons or for the reasons of obscure complexity and academism - was given this year to seemingly a worthy recipient: http://www.nytimes.com/2013/10/11/books/alice-munro-wins-nobel-prize-in-literature.html?_r=0

We are obviously holding our breath for Economics 'Nobel' - to be announced comes Monday. My best are in with a number of news outlets, but I'd rather keep them off the blog, as I generally prefer to avoid making predictions...


On a lighter (only slightly) scale of things: for aspiring physics fans: Physics World at 25 puzzle page: http://blog.physicsworld.com/category/physics-world-at-25-puzzle/


In continuation of the links I posted last week on the merger of materials sciences, human-tech interfaces and new tech development, here's an article about the latest discoveries in the metal composition are, showing shape-changing properties of metal crystal: http://www.bbc.co.uk/news/science-environment-24400101
And while on it: an article on 'smart' fabrics: http://www.bbc.co.uk/news/technology-20799344
And wearable tech: http://news.bbc.co.uk/2/hi/technology/7241040.stm
See my original links on the topic of 4D printing here: http://trueeconomics.blogspot.ie/2013/10/4102013-wlasze-part-1-weekend-links-on.html
These have now been incorporated into my talk about Human Capital-centric world and technological enablement which I will be delivering next comes early Monday at the Economic Forum / The Gathering-linked event in Ireland, hosted by the Irish-American biotech company, Alltech.


Talking of Irish researchers, we had some brilliant news out of TCD recently: http://www.belfasttelegraph.co.uk/news/local-national/republic-of-ireland/irish-scientists-in-solar-storms-breakthrough-29641467.html#sthash.p2oewCS2.BzoMB1YE.uxfs Basically, Trinity College researchers "have shown -- for the first time -- a direct link between solar storms, caused by explosions on the sun, and solar radio bursts, which cause the potentially dangerous communications disruptions on Earth."


The complex inter-relationship between observations, data collection and data analytics exemplified by TCD research mentioned above is, however, much more manageable than the data conundrums presented by ever-growing social data flows. Here is an excellent exposition of the problem http://www.wired.com/wiredscience/2013/10/topology-data-sets/
The problem is not the size of the data we are getting, but the "the sheer complexity and lack of formal structure". Put differently, and in comparative to physics: "“In physics, you typically have one kind of data and you know the system really well,” said DeDeo. “Now we have this new multimodal data [gleaned] from biological systems and human social systems, and the data is gathered before we even have a hypothesis.” The data is there in all its messy, multi-dimensional glory, waiting to be queried, but how does one know which questions to ask when the scientific method has been turned on its head?"

And a related article: http://www.wired.com/wiredscience/2013/10/big-data-science/

Stay tuned for arts posting later today.

11/10/2013: Euromoney Credit Risk Analysis: Q3 2013

The Euromoney Country Risk survey results are out for Q3 2013 and here is some analysis with a comment from yours truly. As usual, emphasis is mine:

"Some 101 of the 186 countries surveyed have succumbed to lower ECR scores (increased risk) since June, which, with 17 unchanged, leaves just 68 safer, according to the views of global economists and other country-risk experts surveyed during the third quarter."

Core global drivers:

• US federal shutdown & looming debt-ceiling deadline 
• Concerns about monetary tapering, and 
• Europe’s fiscal problems.

"... the shake-out that occurred in the wake of the collapse of Lehman Brothers in September 2008 has still left the majority of sovereigns – some 75% in all – with vastly increased risk levels than before the crisis; in the case of the eurozone periphery - Cyprus, Greece, Ireland, Italy, Portugal and Spain – an astonishing 25 to 50 points each."

Notice that in the above, Euro area shows the highest rate of deterioration of any region, save the CIS, and CIS deterioration is in part driven by links to the Euro area.

Per ECR: "US causing fewer flutters for G10 risk profile than Europe’s problems."

"Within the G10 group of leading industrialized nations, the US is not considered a particularly riskier prospect in spite of its latest political troubles. The world’s biggest economy has slipped to 17th in the rankings, but its score is still higher than at the start of the year."

In the case of Europe, core downward pressure drivers are:

• "The unwillingness to see the euro weaken", 
• "A banking sector still in need of repair",
• "Weak political resolve on budget issues"and 
• "Individual country economic prospects heading in different directions.”

Per ECR: "Indeed, greater concerns are reserved for 21st-placed France, with its fiscal targets missed and the economy remaining sluggish, as well as for Aaa-rated Sweden, in fifth spot, where a moribund economy and a government relaxing fiscal policy with tax cuts ahead of next year’s parliamentary election are gnawing away at the sovereign’s gold-plated creditworthiness."

"Both countries have seen their scores slip the most (by 0.7 points each since June), within a group where Germany is flat-lining as it awaits the formation of a new government..."

"In the European Union, 17 of its now 28 member states are riskier, whether compared with June or since the end of last year..."

"Remarkably, in spite of the recoveries witnessed in some of the bailout countries, notably Ireland and Portugal, the eurozone crisis is continuing to cause ripples, with no fewer than 10 of the 17 member states still succumbing to lower scores during Q3. This comes amid weak economies, excessively high unemployment rates, spikes in political risk, trade-weighted appreciation of the euro, and Greek borrowing concerns re-emerging to keep the region’s worst performer grounded on 34 points."

Notice Ireland's strong position second to Austria in terms of overall gains in the risk scores (lower risk).

"Constantin Gurdgiev, another ECR contributor, based in Dublin, says: “The changes in risk assessments broadly reflect improved sentiment across the euro area, consistent with both improved global growth outlook and internal regional stabilization in the wake of protracted sovereign debt and growth crises.

“[However] structural weaknesses and risks remain, with France presenting significant long-term risk due to the complete absence of serious efforts to reform the labour markets and address a chronic lack of investment in new enterprises formation.

“The US debt-ceiling uncertainty also presents a lower risk to the euro area economies than the longer-term upward pressure on US yields. As benchmark yields for the US and Germany deteriorate into 2014, there will be renewed pressure on funding excessive debt levels across the majority of the euro area economies, most notably for Greece, Italy, Portugal, Spain and Ireland, but also for Belgium and the Netherlands.”"

Apologies for shameless self-promotion... :-)