23/10/2014: Irish Residential Property Prices: Q3 2014 data

Latest data for residential properties price index for Ireland is out, covering September. Instead of repeating all the analysis provided elsewhere, here is a look at quarterly data series and longer-term comparatives.

Firstly, on quarterly basis, Q3 2014 ended with index averaging at:

• 79.1 in Dublin, up strongly on Q2 2014 reading of 72.0. This brings property prices to the levels of Q2 2010 or on pre-crisis comparative basis close to Q4 2002 (80.8).  Year on year prices in Q3 2014 stood 23.9% above Q3 2013 reading, which is a modest increase on Q2 2014 y/y increase of 21.2%.
• Outside Dublin, index read 71.4 in Q3 2014, marking a rise of 5.8% y/y. In Q2 2014, y/y increase was 2.2%. Outside Dublin prices are currently trending at the levels comparable to Q1 2012 (71.2) and on pre-crisis basis - at the levels between Q2-Q3 2001
• National prices index is at 76.9, up 14.4% y/y and this compares to a rise y/y of 10.6% in Q2 2014. National prices levels are around Q2-Q3 2011 averages and on pre-crisis basis these are up at the levels of Q2-Q3 2002.

Chart to illustrate:

Rates of growth in prices are worrying, as they were for some time now. Chart below shows y/y increases in price indices for quarterly averages:

The chart above clearly shows that Dublin price increases have been running well above the historical averages for the main periods since Q1 2000. Q3 2014 marks full year since price appreciation in Dublin market has risen above sub-period (2013-present) average and this now becoming a serious issue.

At the same time, long-term level indices suggest that prices remain below historical trends:

So once again, data is showing troubling developments in the rate of price increases in Dublin and below-trend price levels. Based on historical evidence, real price bubble concerns are still outside the scope of index readings by some 25-30 percent. But we are closing that gap very fast.

23/10/2014: BlackRock Institute Survey: EMEA, October 2014

BlackRock Investment Institute released the latest Economic Cycle Survey results for EMEA:

"The consensus of respondents describe Russia, Croatia, Egypt and the Ukraine in a recessionary state, with an even split of economists gauging Hungary and Turkey to be in a recessionary or contraction phase. Over the next two quarters, the consensus shifts toward expansion for Egypt and Turkey"

Red dot represents Czech Republic, Kazakhstan, Israel, Poland, Slovenia and Slovakia

"At the 12 month horizon, the consensus expecting all EMEA countries to strengthen or remain the same with the exception of Russia and the Ukraine."

Global: "respondents remain positive on the global growth cycle with a net 43% of 37 respondents expecting a strengthening world economy over the next 12 months – an 7% decrease from the net 50% figure last month. The consensus of economists project mid-cycle expansion over the next 6 months for the global economy"

Previous month results are here: http://trueeconomics.blogspot.ie/2014/10/6102014-blackrock-institute-survey-emea.html


Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

23/10/2014: Euromoney Country Risk survey results Q3 2014

Euromoney Country Risk survey for Q3 2014 is out:
http://www.euromoney.com/Article/3392195/Euromoney-Country-Risk-survey-results-Q3-2014-Looming-China-crisis-adds-to-eurozone-and-emerging.html

Euro area risks are down, but starting to regain upward momentum in recent weeks. Meanwhile, BRICS are struggling, Russia risks deteriorating and overall global environment is not encouraging.

21/10/2014: Two Articles on Ukrainian Conflict

Two items relating to Ukrainian crisis worth noting today.

First an English version of the earlier De Spiegel article on German federal authorities concluding that it was likely that MH17 was shot down by the Eastern Ukrainian separatists using the BUK launcher they obtained from the seized Ukrainian military base: https://uk.news.yahoo.com/malaysia-airlines-mh17-rebels-shot-down-plane-seized-111727238.html#vzXgemW Note: this is still speculative, in so far as we do not have conclusive evidence as to where the BUK came from, nor in fact do we have full evidence on the rest of the event.

Second, Human Rights Watch issued a report: http://www.hrw.org/news/2014/10/20/ukraine-widespread-use-cluster-munitions that provides evidence that Ukrainian Government used cluster munitions against civilians in East Ukraine. The report also references on several occasions the potential use of such munitions by the separatists, although in all cases, HRW does qualify such references as not being confirmed. What is confirmed, however, is that Kiev forces used cluster munitions.

21/10/2014: Of Statistics: Ireland and ESA2010

Eurostat released a handy note showing revisions to euro area debt and deficit figures that arose as the result of conversion to ESA2010 methodology (yes, yes, that infamous inclusion of illicit trade and re-classification of R&D spending as investment, and much more).

You can read the full note here: http://epp.eurostat.ec.europa.eu/portal/page/portal/government_finance_statistics/documents/Revisions-gov-deficit-debt-2010-2013.pdf

And the effects are:

Government deficit revisions:

Click on chart to enlarge

One clear outlier in the entire EU28 is... Ireland. We had the largest, by far, downward revision in our deficit/GDP ratio of some 1.5 percentage points, pushing our deficit down from 7.2% of GDP (ESA95) to 5.7% of GDP (ESA2010) overnight. No austerity, just accounting.

We were similarly 'fortunate' on the debt calculations side:

Click on chart to enlarge

While revised actual debt levels rose, under new rules, the revised debt/GDP ratio fell due to GDP push up under the new rules. Lucky charms...

Per note, relating to deficit revisions: "Ireland (-3.1pp for 2010, -0.1pp for 2011, -0.1pp for 2012 and +1.0pp for 2013): the 2010 and 2011 deficits were  revised mainly for other reasons (than ESA 2010 introduction) and the 2012 and 2013 deficits mainly due to  introduction of ESA 2010. The deficit for 2010 was increased mainly due to reclassification of the capital injection  to AIB and the deficit for 2011 due to various reasons such as an adjustment to accrual calculation for PRSI,  health contribution and National Training Levy. The revisions in the deficit for 2012 and 2013 are mainly due to  the classification of the Irish Bank Resolution Corporation Limited (IBRC) to the central government. " 

Per note, relating to debt revisions: "Ireland (+12.2pp for 2011, +10.3pp for 2012 and +7.2pp for 2013): the revisions in the debt are mainly due to  introduction of ESA 2010: the classification of the Irish Bank Resolution Corporation Limited (IBRC) to the central  government as it became a government controlled financial defeasance structure in 2011."

So our actual debt rose. But our debt/GDP and deficit/GDP ratios fell:

Enron would be proud...

21/10/2014: Russian Gas, European Deliveries, Ukrainian Blackmail?

Over recent days there have been plenty of statements about the winter supplies of Russian gas to Europe. Majority of these fall to one side of the argument, alleging that Russia is likely to cut off gas shipments to Europe via Ukraine.

Here are the facts, strongly indicating an entirely different possibility.

Fact 1: Allegations. At the end of August, Euractive reported that "Europe faces the increasing threat of a disruption to gas supplies from its main provider Russia this winter due to the crisis in Ukraine." (link)

But when you read beyond the headline, you get something entirely different. "Ukrainian Prime Minister Arseny Yatseniuk said today (27 August) Kyiv knew of Russian plans to halt gas flows this winter to Europe. "We know of Russia's plans to block [gas] transit even to European Union countries this winter, and that's why their [EU's] companies were given an order to pump gas into storage in Europe as fully as possible," he told a government meeting, without disclosing how he knew about the Russian plans."

So Yatsenyuk presented a conjecture - that incidentally boost his own agenda. Media reported it with zero questioning. Meanwhile, Russian officials denied the possibility of such disruption: "It's unlikely that Russia would cut gas supplies. Ukraine will start siphon off it itself, as it has been the case in the past," a senior source at the Russian Energy Ministry said."

We have set the stage: Ukraine says Russia may disrupt supplies. Russia says Ukraine may siphon off gas destined for other buyers in order to satisfy its own needs.

Fact 2: Historical Precedents. As Euractive reports: "Russian gas flows to Ukraine have now been halted three times in the past decade, in 2006, 2009 and 2014, due to price disputes between Moscow and Kyiv, and flows to the EU were disrupted in 2006 and 2009 after Ukraine took some of the gas intended for the EU to meet its own winter demand."

In other words, Ukraine stole (as in appropriated without a payment and beyond its contracted power) Russian gas destined for European customers. This, presumably is Russian fault, as it is Russia that is being blamed for the disruptions.

So we have it: Ukraine steals, Russia gets blamed.

Fact 3: Counter-accusations. Official Russian position on supplies of gas to Europe: "Russian Energy Minister Alexander Novak refuted the claim by Ukrainian Prime Minister Arseniy Yatsenyuk that Russia is planning to halt gas transit to EU member states. “Specific comments by Ukrainian politicians on alleged Russian intentions to stop gas transit to EU countries are puzzling. We can qualify them only as absolutely baseless speculations aimed at confusing or deliberately misinforming of European consumers of Russian gas”, said Alexander Novak."

Now, you can possibly say there is risk of Novak lying. Or you can say there is risk PM Yatsenyuk is lying. Remember: Yatsenyuk made a statement of claim unbacked by any evidence (Fact 1 above). Novak made an official statement on the record. Yatsenyuk has an incentive to push European member states to take a tough stance on Russia in brokering a gas deal between Russian and Ukraine. Russia does not have such an incentive. Yatsenyuk is actively campaigning for an outright re-writing of Russian-European contracts for gas supply to suit Kiev interests (read below). Russia does not have such an incentive.

So who is the beneficiary of all these conjectures about Russia 'cutting gas supplies to Europe'? Why, it is Ukraine.

Fact 4: In his own words. On October 17 Itar Tass (link) claimed: "Europe should respond to a statement by Ukrainian Prime Minister Arseniy Yatsenyuk that Ukraine can give no guarantees for safe Russian natural gas transit to Europe, Gazprom Deputy CEO Alexander Medvedev said on Friday. “Yatsenyuk said yesterday that Ukraine will not be able to ensure the safety of gas supplies from Russia to Europe,” he said."

So did Yatsenyuk say this? He did. His statement is supported by his own actions tracing back to end of July / beginning of August.

Fact 5: In his own deeds. Let's go back to August 8th, when Yatsenyuk threatened sanctions to cut off all transit of Russian gas: "Ukraine may impose sanctions against any transit via its territory, including air flights and gas supplies to Europe, Prime Minister Arseniy Yatsenyuk said Friday." (link confirmed by Bloomberg here and the Wire here).

So real was this threat, Germany had to step in to put PM Yatsenyuk back into his place (link). And European buyers continued to pump up storage facilities not because of a Russian threat, but because of the Ukrainian actions.

Things got comical: Naftogas - a Ukrainian state-owned gas company - said back in August it was prepared to bypass its own Government-imposed restrictions on transit (link). So even Naftogas was aware that it was Kiev, not Moscow, who planned the cut off.

20 days after Yatsenyuk backed out the first threat, "Ukrainian Prime Minister Yatsenyuk pushed a bill through the Verkhovna Rada that …would permit the transit of natural gas to be blocked." Source (link). In other words, on August 28, Yatsenyuk pushed through a law that legalises Ukraine's power to shut down transit.

Ukraine was no longer speaking about shutting down Russian gas transit. It actually set legal grounds for acting on doing so.

On September 23rd, Kiev backed out of the month-old stand and committed itself to allowing transit (link). Strangely, the article does not really try to explain why PM Yatsenyuk had to commit to such an act, if it was Russia that was a threat of disrupting gas flows.

Conclusions: Now, we can think of a straight logic implying that actually it is Ukraine that is a threat point replete with threat --> act --> deny chain of events. But the Western media continues to insist that it is all down to Russia's bad politics.

This week (link) Ukraine is again refusing to guarantee uninterrupted transit to Europe unless it gets all Russian-European contracts renegotiated on its own terms. These terms are: Ukraine gets full control over actual gas transiting over its territory and gains a de facto veto power on any contract any European buyer signs with a Russian supplier.

Again, who is the attempting to hold European gas supplies hostage to its own political agendas?

20/10/2014: Ruble: Poisoned, a Touch Less Than Real or NZ Dollar?

Two days ago I wrote about the pains of Ruble devaluations (http://trueeconomics.blogspot.ie/2014/10/18102014-latest-news-on-russian-economy.html) and here is an interesting new set of data courtesy of @ReutersJamie which shows positioning in the FX markets. All bearish, except USD, and bearish on Ruble too, but what is interesting is that Brazil Real and NZ Dollar are more bearish... And Ruble, for all its problems is positioned pretty close in line with Euro, which, apparently has no problems (remember, ECB refuses to call this a currency crisis, insisting first it was a debt crisis, now a structural growth crisis, next probably a milk quota crisis):

20/10/2014: Jean Tirole: Master Of Incentives, Risks and Contracts

Last week's Nobel Memorial Prize award in economics went to Jean Tirole. Here are some of my thoughts on his tremendous legacy: http://blog.learnsignal.com/?p=90. 

19/10/2014: IFSC: Down, Down and Down It Goes...

This data has been crowding my desktop for some time now, so might as well post it. In September this year, the new rankings of Global Financial Centres (http://www.longfinance.net/images/GFCI16_22September2014.pdf) came out for the second half of 2014. Dublin slipped to a rather less than honourable 70th place, down 4 ranks from march 2014 and 14 ranks from September 2013.

Here's the chart showing the sorry state of decline in Irish Financial Services prime centre in global position (these are primarily IFSC-linked):

So may be, just may be, having the chair of IFSC going around talking about everything political and EU is not exactly what drives excellence in the international financial services? Any ideas?..

19/10/2014: Dublin: Just 24th in the Global Centres for Talent Rankings

You know the mythology: despite 55% upper marginal tax rate in exchange for nearly zilch in public services, despite the need to pay consultants' fees and private insurance just to get basic medical care, and despite the fact that childcare runs a cost of the second mortgage, Dublin (nay, rest of Ireland too) is a great location for human capital-rich expats, especially if they command high salaries...

And now, we have:

Dublin ranks 24th in the world amongst the locations 'most appealing' for expats.

Never mind, we already have the best educated workforce in the world, so be jealous you London, NYC, Paris, and all the rest of ye in the 23-losers lot.

Source: http://www.citylab.com/work/2014/10/the-new-global-centers-for-talent/381487/

19/10/2014: Chart of the Week: Japanising Europe

A chart of the week, courtesy of @Schuldensuehner

10 year benchmark bonds: Japan for 1987-2004 period of decline and stagnation and Germany for 2004-present period of decline and ... oh, well... Japanisation of Europe is still ongoing, but it goes without saying: lower yields are not conducive to economic recovery. Or as @Schuldensuehner  noted:

Everything is going according to script...

Now, check out why Germany's lower borrowing costs mean preciously nothing when it comes to the hopes of Keynesianistas around the world for more German borrowing: http://trueeconomics.blogspot.ie/2014/10/13102014-germany-too-old-to-read-paul.html

19/10/2014: A New Cold War is a Bilateral Culpability

A well-balanced review of history that has led Russia and the West to the current confrontation: http://www.ecfr.eu/content/entry/commentary_the_origins_of_russias_new_conflict_with_the_west330

Select quotes:

"In Putin’s world national “sovereignty” is a central principle – but just a few countries can claim sovereignty and, therefore, have the right to a sphere of influence. Russia is one of those chosen few – historically, and because Putin stands ready to fight for his nation’s sovereignty in a world where Might means Right."

"In the twenty-first century, the West responded, all nations are equal and each country is sovereign. This sounds like a wonderful world – except that this does not seem to be the world of the US-led policy of humanitarian intervention, peace enforcement, taking sides in other nations’ domestic conflicts, and killing the forces for evil on behalf of the forces for good. Putin saw this as an argument that his world of Might means Right was real: America could pursue such policies because it was powerful and sovereign."

"The current confrontation between Russia and the West is a move back to a cold war design: Russia as “another world” isolated by the US-led West. Russia’s world today is limited to just itself with no socialist camp around it, and the West has the potential of pushing Russia deeper into a crisis, both economic and political. Unlike the Soviet meltdown that had numerous internal causes, but is blamed on the West by Russian conspiracy theorists, this crisis will truly be precipitated by the West."