13/6/2014: January-April Trade in Goods: Ireland

Some quick stats on trade in goods data out today:

First up: aggregates:

Core points:

1. Aggregate exports are down once again in 2014: off 1.8% for the period January-April
2. Much of this is down to pharma and organic chemicals, but declines overall were registered in 4 out of 9 categories, while four categories posted increases in exports.
3. Trade surplus declined again, this time by 11.1%. Trade surplus dropped y/y in 6 out of 9 categories.
4. Trade surplus dropped by a total of EUR1.357 billion, while exports declined by EUR527 million.
5. The summary of sectoral contributions is provided below

Geographic breakdown of changes in exports and trade surplus is provided in the table below:

The above shows geographically wide-ranging declines in exports and trade surplus.

12/6/2014: Chart of the day: Fed vs ECB balance sheets

Today's chart of the day, via Pictet:

Take pre-crisis swing to crisis to the swing to post-crisis (2013-on)... any wonder euro area growth is 0.2% and we call it 'recovery'?.. ECB balance sheet approximately doubled since 2007, Fed's one more than quintupled... pair this with toxic loans deleveraging (the two are obviously linked via funding) and you have the euro system loaded with private sector weaknesses and US system loaded with forward pain of deleveraging the Fed...

10/6/2014: Credit to Irish Households: Q1 2014

Having recently posted miraculous recovery in terms of yet another quarter of declines in lending to Irish private sector enterprise (see: http://trueeconomics.blogspot.ie/2014/06/662014-credit-to-irish-resident.html) repaired/restored/reformed Irish banking system coughed out another set of 'encouraging' data points… today's one coming on the side of credit advanced to Irish private [assuming this excludes Irish public - aka celebrity economists et al] households. And guess what… the aforementioned repaired/restored/reformed Irish banking system is shrinking in terms of household credit too, still…

Chart to start with:

And the above shows:

• Total credit extended to Irish households falling 2.62% in Q1 2014 compared to Q1 2014 and down 0.54% q/q
• Credit advanced for house purchases is down 1.21% y/y and basically flat (-0.03%) q/q.
• SVR mortgages volumes are up (arrears restructuring and new mortgages extended adding to the pile of soon-to-be even more expensive loans, as the banks re-engage in margins rebuilding post-ECB rate cut); Trackers are down; Up to one year fixed rates mortgages are up, Fixed rate mortgages are down;
• Other personal loans are down whooping 9.98% y/y and are down 5.82% q/q (with both Finance for investment and Finance for other purposes sub-categories down by more than 5% q/q).

Meanwhile, deposits (remember our 'gargantuan' savings rates that worry everyone from ESRI to DofF) well… deposits are down 1.78% y/y and down 0.14% q/q.

Remember our Government's talk about repairing the banking system? One of the core metrics for this was loans/deposit ratio. Chart below shows evolution of this:

Observe one interesting regularity: since Q4 2011, loans-deposit ration in terms of Irish households' balance sheets averaged 114.7% and in Q1 2014 this ratio was… err… 114.2%. In other words, things have not been improving when it comes to loans/deposit ratio for some 10 consecutive quarters now…

Since we are onto the topic of 2011, recall that in H1 2011 we have recapitalized Irish banks, which, ever since that time, been on a steady path of recovery. Even Wilbur Ross says as much, let alone our Ministers and Senior Officials. Numbers confirm… the opposite story: compared to H1 2011, q1 2014 levels of households' credit in the economy was down massive 18.2%, credit for house purchase down massive 15.5%, credit for other purposes down gargantuan [truly] 30.9%, while deposits are down 1.82%.

Clearly things have to be looking sunnier some day soon... of Wilbur will have to come back to help us repair the banking system once again...

10/6/2014: In Irish Press: Wilbur and Electricity Taxes

In Irish news today, one dominant story is that of BofI investor, Wilbur Ross moving on off 'Ireland Corp' team and into the not-too-shallow Government's Christmas Cards list. The US billionaire is cashing in his chip at the Irish Banks Casino and there is no end to glowing reviews of his legacy.

Per RTE report: "Mr Ross said he believes the bank is "on the right track". This is "definitely not a negative comment on BoI or Ireland. Both are clearly on the right track," Mr Ross said in an emailed message after Deutsche Bank announced it was to sell his stake." Naively, RTE could not fathom an idea that Mr Ross might be speaking in marketing mode - he is selling the stake in a bank, so hardly can be expected to make any comments adverse to his own interest of talking up the said bank.

But never mind, the really grotesque bit of the story is at the bottom, where our Government and State officials pour praise all over Mr Ross. Now, Mr Ross made a nice profit having taken some risk. No problem there. A slight blemish on his investment strategy in Ireland is the fact that much of this return was down to taxpayers taking on the bank recapitalisation burden. Slightly more of a blemish is the fact that during his tenure as a major shareholder and board member, the Bank became synonymous with playing the hardest ball with those borrowers who fell onto hard times. Still, let us not begrudge him in his success.

But the glowing and even slavish praise being heaped onto him makes one wonder if there is still a gas station somewhere on, say, N3 or N7 left unnamed? Is it time for a 'Wilbur Ross Plaza' replete with convenient Centra and washing facilities?

In a related bit of the story, we have projected valuations of the stake. Updating the above report from RTE, latest information we have is that he is selling the stake for EUR0.26-0.27 per share, a discount of up to 8.5% on yesterday's price. This is an impressively shallow discount (my expectation was closer to 10-12%), but still a discount. Some years ago, when Mr Ross just bought into BofI, I suggested that any exit will require a discount. A couple of Ireland's illustrious Stockbrokers came out of the hedges to bite me, claiming that actually Mr Ross can sell at a premium, as there can be a great demand around the world for BofI shares in a strategic package volume. Ooops...

Never, mind, however, the illustrious Stockbrokers are back at it, now lauding the virtues of 'increased free-float' of BofI shares in the wake of Mr Ross' exit as a major support for the stock. By said logic, BofI should just quadruple numbers of shares in the market, to gain even more 'support'.

On a related side, Reuters reported that "Ireland's Finance Minister Michael Noonan in December said that while the government had no interest in running banks long term, it was under no financial or political pressure to sell." (link here). Of course, this is the same Minister Noonan who's standard answer to virtually all questions about Irish Government involvement in managing strategic or operational aspects of individual banks it owns is: 'We have no control over what they do' and who's voting record as shareholder is about as 'activist' as that of the Anglo shareholders back in 2005.

A far less-dominant story also in the news today is that Irish Government is raising by a whooping 50% tax on domestic electricity. This is covered here. Per report: "Householders will be charged €66.55 a year in the PSO levy, up 47pc. When valued added tax (VAT) is added the annual cost on each household bills will go to €75.42." 

Irish Independent politely calls this a 'sneaky tax'... sneaky, presumably, because it is dressed up as a 'Public Service Obligation' - a levy designed to subsidise renewables energy companies and peat-burning stations. Which makes it more subtle than just bludgeoning taxpayers in dark alleys for their spare change.

At the end of 2013, Ireland had the fourth highest levels of electricity taxes and electricity prices in the EU27 and posted between the fourth and the fifth highest rate of increases in taxes and levies for electricity in EU27 (depending on annual consumption levels for households). Here is some additional background on how Irish Government has been extracting cash out of financially strained households via electricity supply systems.

9/6/2014: Reversal of Human Capital Flows

An interesting post on reversals of old patterns in human capital flows: http://www.project-syndicate.org/commentary/mohammed-bin-rashid-al-maktoum-highlights-the-success-of-some-developing-countries-in-reversing-the-outflow-of-their-most-talented-people

that gels well with my speech on same topic here: http://trueeconomics.blogspot.ie/2013/11/14112013-human-capital-age-of-change.html

9/6/2014: Some Unorthodox Thinking About Europe's & Irish Recessions...

A decade-old classic paper, "Structural Traps, Politics and Monetary Policy", by Robert H. Dugger and Angel Ubide (International Finance 7:1, 2004: pp. 85–116 link here) provides a framework for understanding why in structural crises, monetary easing might be not only ineffective, but actually harmful to the recovery.

Now, recall that we are in a structural recession, in Ireland and across the euro area, and before us, Japan was in the same boat and, by me assessment, still is there.

Dugger and Ubide introduced "the concept of structural trap, where the interplay of long-term economic development incentives, politics, and demographics results in economies being unable to efficiently reallocate capital from low- to high-return uses." From Ireland's point of view, there are three sources of potential trap:

1. The obvious one: construction and property investment sector - where a lot of resources were trapped in the 2000s in a low-return (long-term) activities and these resources, currently idle, cannot be re-allocated to other sectors of economy due to lack of skills, debt anchors, and frankly put, lack of other sectors to which they can be re-allocated; and
2. Less obvious: MNCs-led activities. Sure, these are high-return activities from the aggregate economy point of view. But from indigenous economy vantage point, this conjecture may not be true. Some MNCs (notably in manufacturing) engage in both, tax optimisation and value-adding here. But these are dwindling in numbers and activities here. Many services MNCs add a lot of value elsewhere and book it through Ireland to far-flung tax havens.  The end point is that here too productive resources (human capital) are trapped in low-return (from indigenous economy) activity without being able to flow to other, higher return sectors (problem is, again, where are these sectors in Ireland's indigenous economy), and
3. Less talked about: public sector and semi-state companies.

Per Dugger and Ubide, "the resulting macroeconomic picture looks like a liquidity trap – low GDP growth and deflation despite extreme monetary easing." So far - on the money for euro area and Ireland. The kicker is next: "But the optimal policy responses are very different and mistaking them could lead to perverse results. The key difference between a liquidity trap and a structural one is the role of politics."

Dugger and Ubide show "how, in the Japanese case, longstanding economic incentives and protections and demographic trends have resulted in a political leadership that resists capital reallocation from older protected low-return sectors to higher-return newer ones." Wait, is not the same happening in Ireland? Incentives to boost property of late? Incentives to preserve capital (and employment) in public sectors? Incentives and direct power to protect and increase resources in semi-state sectors? Do you remember the days when Irish media was praising ESB for 'investing' in the economy amidst worsening recession and on foot of higher consumer charges? Do you recall when Irish media was singing 'Nama investment needed' songs?

"If the Japanese case is instructive, in a structural trap, extremely loose monetary policy perpetuates deflation and low GDP growth, because unproductive but politically important firms are allowed to survive and capital reallocation is prevented." Irish Water anyone? Or ESB? Or DAA? Or HSE? Or sprinklings of weaker universities & ITs? Keep going… 

"By preventing the needed reduction in excess capacity, a structural trap condemns reflationary policies to failure by making the creation of credible inflation expectations impossible. Faced with a structural trap, an independent central bank with a price stability mandate should adopt a monetary policy stance consistent with restructuring. If political resistance is high, monetary policy decision makers will need to keep nominal rates high enough to ensure that capital reallocation takes place at an acceptable pace."

Thought provoking, no?

9/6/2014: 2 charts, 2 markets, same nagging sensation...

Two charts worth paying close attention to:

The first one from Deutsche Bank:

The above is showing ratio of S&P500 Price/Earnings ratio to VIX (quarterly) volatility indicator. Recent uplift in the series is down to simultaneously:

• Rising equity price relative to earnings, and
• Falling markets volatility

The second one is via TestosteronePit, showing the first bit: rising equity prices relative to falling earnings, except not for S&P, but for European equities:

Care to draw any conclusions as to rational expectations vs short-term profit chasing?..

9/6/2014: ESRI Consumer Confidence Indicator Moderates in May

Some hopium going out of the market in Ireland: ESRI Consumer confidence for May moderated from sky-high 87.2 in April to 79.4 in May, bringing the series slightly closer to reality mapped by Retail Sales data on the ground:

3mo MA for the series is now at 83.2, virtually flat on 3mo MA through February 2014, and on 6mo MA of 83.3. In other words, the series trending flat over 6 months, and are sitting at still sky-high levels. Meanwhile, volumes of retail trade (core, ex-motors) are rising along a decent trend, but value of retail sales is showing barely perceptible upward momentum.

Note, seasonally, for May, there is no established momentum in the series either up or down.

9/6/2014: ECB Will Still Need Outright QE...

My comments on ECB policy moves last week and what awaits euro area in terms of monetary policies in the near future is on Expresso website (Portuguese) : http://expresso.sapo.pt/bce-pode-estar-a-alimentar-duas-bolhas-financeiras=f874782 and a longer version in English here: http://janelanaweb.com/novidades/constantin-gurdgiev-ecb-will-need-further-measures-including-an-outright-qe/

Needless to say, no one in the Irish mainstream media asked for my two-pence.

8/6/2014: Piketty - briefly...

It's a lazy man's way out, but given all the 'Piketty-Smiketty' debates raging on about his errors and errors of those who find errors, I am simply not in the mood for deep commenting on the infamous book. So here is my earlier exchange on twitter with @DrKeithRedmond  on Piketty's core theses:

7/6/2014: Ireland's Questioned Tax Regime & Taoiseach's Magnets

Two articles this week highlight the on-going saga of Irish corporation tax regime:

1) One covering California's Governor comments made to our Taoiseach: http://www.independent.ie/irish-news/politics/california-would-be-an-independent-state-if-it-had-irelands-tax-regime-30336242.html

2) And another covering the EU probe being launched: http://www.businessweek.com/news/2014-06-05/eu-said-to-decide-next-week-on-probe-of-irish-dutch-tax-breaks

The topic is of huge importance to Ireland and I covered it on the blog continuously over the years, so no comment from me on these.

One quick point. In the Irish Independent report, there is a quote from our Taoiseach Enda Kenny that strikes me as absolutely out of touch with reality. Taoiseach said that Dublin is "becoming a magnetic attraction for young people from all over the world".

Granted, he said Dublin, not Ireland, but… the bit of facts in order: based on CSO data (latest through April 2013, available here: http://cso.ie/en/releasesandpublications/er/pme/populationandmigrationestimatesapril2013/#.U5Npz5SwJ9k), in 2011, 2012 and 2013 the largest group with net emigration from Ireland was… the young people: those of age 15-24, in 2009 and 2010 the largest group was 'youngish' people - aged 25-44 (same group was the second largest source of net emigration in 2011, 2012 and 2013.

So, dear Taoiseach, it might be worth revisiting that high school physics class where you were (presumably) taught about magnetic force and polarity...

6/6/2014: The King of Scariest Charts is Dead... Long Live the King...

Over recent years, I occasionally returned to the famous CalculatedRisk chart plotting jobs recovery in the Great Recession against the record of post-war US recessions. At last, today, the US economy has completed the arduous task of getting back to the pre-crisis level of employment.

The chart is completed:

The job is done. 76 months - longer than 46 months in the previous record-busting recession of 2001 - it took for the US economy to regain the pre-crisis milestone.

But the lessons are yet to be learned. Since 1981 recession, every recession has been worse and worse in terms of speed of jobs recovery. Why?

Since 1981 recession, the US deployed ever increasing firepower to fight off adverse effects of recession on jobs markets. And the task is not getting easier. Why?

And finally - a scary chart to replace the above scary chart: duration of unemployment in the US has been on a massive upswing during the current Great Recession and it is yet to yield its highs:

Scary charts do go away... but this one is likely to stay with us for some time... most likely - till the next recession hits...