21/11/2014: Irish Property Markets: Not in Rude Health, Yet...

Four slides from my ICA presentation today, covering construction sector and property market in Ireland:

20/11/2014: Oil Prices: Supply and Demand Drivers

An interesting BofE note on links between commodities prices & UK inflation: http://www.bankofengland.co.uk/publications/Documents/inflationreport/2014/ir14nov4.pdf

A key chart - from global perspective - is this one:

Main points are:

1. 2014 demand growth is way down, driven primarily by contracting demand in the OECD economies (advanced economies rot) and to a lesser extent relatively flat (compared to 2000-2007) growth in non-OECD economies.
2. Supply from non-OPEC sources is way up, while OPEC is cutting back. Net effect - growth in supply is way above 2000-2007 average.

This suggests that OPEC will have little room to cut continued growth in supply, while some restoration in demand should take place if the OECD economies post more robust growth in 2015. Still, it is hard to see how the above dynamics can support oil prices in USD100+/b over the next 12-15 months.

19/11/2014: Two articles on Russian economy and reforms

Two important articles on Russian economy and policy via Bloomberg:

• Putin Said to Stun Advisers by Backing Corruption Crackdown: http://www.bloomberg.com/news/2014-11-18/putin-said-to-back-crackdown-on-corruption-as-sanctions-bite.html and
• Russia Braces for 'Catastrophic' Drop in Oil Prices: http://www.bloomberg.com/news/2014-11-14/putin-says-russia-preparing-for-catastrophic-oil-slump.html

19/11/2014: Irish Patents Filings: Q3 2014

As a taster for my Friday presentation at the ICA, here's a slide from my deck on Ireland and our challenges and opportunities forward:

Note: data plotted is via @newmorningip .

And here is monthly data:

One major point to be made on the above data: Irish patent filings are still falling below 50% of all filings, while Irish acedemic filings are still running at around 8% of the total. The gap between foreign and domestic filings has fallen to 73:100 in Q3 2014 from 82:100 in Q2 2014.

18/11/2014: Commodities-linked Currencies and Ruble

Good chart plotting side by side all commodities-linked currencies relative to USD (via @auaurelija) :

Above suggests that Ruble devaluations from September 1 to-date are somewhere around 3/10th part due to same effects that impact other major commodities producers. Given Russian energy exports exposure to European markets, the effect might be as large as 3/7th.

17/11/2014: Central Bank Strategic Forecasting

"In most of the literature on transparency it has been standard to assume that central banks release truthful information when communicating with the public. However, the monetary policymaker may act strategically and misrepresent private information intending to reduce economic volatility by manipulating inflation expectations. We set up a simple model which includes misrepresentation as a possible action for the central bank and derive some testable implications. The empirical evidence from the analysis of inflation forecasts of six central banks (Brazil, Canada, England, Iceland, New Zealand, and Sweden) is consistent with the existence of strategic forecasting."

Italics are mine. The quote is from Gomez-Barrero, Sebastian and Parra-Polania, Julian A., "Central Bank Strategic Forecasting" (October 2014). Contemporary Economic Policy, Vol. 32, Issue 4, pp. 802-810, 2014. http://ssrn.com/abstract=2483502

Nothing else to add, other than that the guardians of data, the supervisors of the financial system, the enforcers of rules and regulations are… crooked when it comes to the forecasts they lavish on the unsuspecting journos and public.


H/T to CeBaSCo @cebastcom

17/11/2014: All the years draining into banking cesspool...

So the tale of European banks deleveraging... record provisions, zero supply of credit for years, scores of devastated borrowers (corporate and personal), record subsidies, record drop in competition, rounds and rounds of 'stress testing' - all passed by virtually all, the Banking Union, the ESM break, forced writedowns in some countries, nationalisations, various LTROs, TLTROs, MROs, ABS, promises, threats, regulatory squeezes ... and the end game 6 years into the crisis?..

Per Bloomberg Brief, the sickest banking system on Planet Earth is... drum roll... Wester European one.

It is only made uglier by all the efforts wasted.

H/T for the chart to Jonathan. 

17/11/2014: G20 and Russia: G19+1 or G20-8?..

My comment for the Portugal's Expresso on the G20 summit in the context of the Russia-West relations: http://expresso.sapo.pt/g20-quer-acelerar-crescimento-com-mais-investimento-em-infraestruturas=f898435

16/11/2014: The Sunny Side of the Stormy Irish Recovery

My article on the state of the Irish economy published by the ZeroHedge: http://www.zerohedge.com/news/2014-11-13/irish-eyes-are-smiling-should-they-be

16/11/2014: America's Scariest Chart...

Yes, US unemployment is declining. Yes, US economy is adding jobs. Yes, the crisis is… almost over… Except…

Except that is:

• Average duration of unemployment rose in October (the latest we have data for) and
• Average duration of unemployment remains totally out of touch with previous recessions.

Now, note the following regularity:

• After 2001 recession, average duration of unemployment never returned to pre-recession levels;
• The same has happened in the recession of 1990-1991.

In other words, so far in all three most recent recessions there was a permanent increase in unemployment duration over and above pre-recessionary average.

Every time this happens in the economy the following takes place: some of those who were long term unemployed during the recession become permanently unemployed. And every time this happens, the jobs being created in a recovery are by-passing those who have been long-term unemployed.

Now look back at the current crisis running stats. Average time it took unemployment duration to fall back to pre-crisis levels in all previous recessions is 61 months. We are now into 77th month of unemployment duration staying above pre-recessionary levels. And counting. By length of the crisis to-date, this is the third worst recession in post-war history.

We are also at the duration levels vastly in excess of those recorded in all previous recessions. By this matrix, the US is in its worst recession in post-war history.

Here is the raw data:

While the US economy might be generating jobs, it is not generating enough of the jobs to shift the long-term unemployed, and it is not generating the types of jobs that can get this massive army of people forced to rely on unemployment benefits back into productive employment.

15/11/2014: Emerging Markets Rot Drives Russian Economic Uncertainty

Some interesting data from the Policy Uncertainty Index for Russia (see http://www.policyuncertainty.com/russia_monthly.html). I traced out the main news markers over the period covered by the index (click on the chart to enlarge):

Note: higher values of Index, greater attention to the domestic economic and economic policy uncertainty in the media.

There is a clear pattern of rising policy uncertainty from, roughly speaking, early 2008, with both geopolitical risks (Georgia conflict) and economic risks (the 2009 recession) as well as internal political risks (2012 elections) all coincident with amplification in uncertainty. Ukraine crisis period is clearly only comparable in uncertainty with the last Yeltsin elections (which almost lost to the Communist Party candidate).

Volatility in uncertainty has also been on the rising trend, since, roughly, 2009 (note: the chart below is plotting 24mo MA):

However, it is worth correcting in the above data for the general global changes, not just Russia-own trends. To do so, let's take a look at Russia's Policy Uncertainty Index relative to the average of the same indices for China and India:

Notably, Russia's relative uncertainty has peaked around April-May 2014 and then subsided despite the fact that Ukraine conflict remains active. This suggests that post-May 2014, the acceleration in the rising trend in Russian economic and policy uncertainty is driven more by the general rot setting in in the Emerging Markets, and less by the geopolitical crisis.

Here is a chart plotting Policy Uncertainty Indices for the U.S., Russia, China and India:

This further confirms the above proposition: China is now showing levels of policy uncertainty on par with those in Russia. Geopolitics take a back seat to economics of the Emerging Markets slowdown.

14/11/2014: Irish Construction Sector PMIs: A Bit Bubbly, A Bit Bonkers…

Ulster Bank and Markit published Construction PMI for Ireland, and the numbers signal huge uplift in activity across all sub-sectors, excluding Civil engineering. However, Civil Engineering post an above 50 reading (albeit consisted with virtually no growth) for the first time since Q1 2006.

So here we have it:

Total Activity PMI for Construction sector in Ireland rose to 64.9 in October, signalling huge rates of growth, despite few cranes being visible around. 3mo average through October is at 62.6 against 3mo average through July at 60.9. Similar rises were recorded in 6mo average through October. All of which suggests we should be seeing a massive boom. Of course we are not. Why? Because the levels from which the activity is rising are… well, microscopic.

Housing sub-sector PMI rose moderated slightly to 66.4 from the blistering 68.4 a month ago. 3mo average through October is at 66.17 against 3mo average through July at 62.57. Again, the above numbers would have signalled we are in a new bungalow blitz boom, except we are not. At least not yet.

Commercial sub-sector PMI hit 66.8 in October, a solid rise from already boiling 62.7 in September. 3mo average through October is at 64.23 which is up on 61.8 3mo average through July 2014.

Civil Engineering PMI came in at 50.6 in October, which is welcomed sign. Still 3mo average through October remains below 50.0 at 48.0 and that is a slight improvement on 3mo average through July (47.43).

Crucially, the improvement in the Civil Engineering sub-index pushed all sub-sectors to co-move as the table below shows:

It is worth remembering that Construction Sector PMIs seem to have little bearing to the reality in the sector activity on the ground as shown below, so it is worth taking these numbers with a grain of salt.

Just how bonkers is the above PMI data? Or just how much salt to be used with that fish:

Yep, historically, PMIs decline when activity expands and vice versa...