16/12/2014: Next Stop... for Parabolic Ruble...

Ruble down below USD70 and EUR87.40, with 109.20 against Sterling. The CBR move last night (http://trueeconomics.blogspot.ie/2014/12/15122014-dont-blink-or-russian-data.html) is nothing more than a blip on the FX trading screen and a massive hit on the economy.

credit @TheStalwart

There is an emergency meeting scheduled by Medvedev and the next stop is either capital controls or EUR100 marker... or maybe both. The point is that no one is in control anymore, not because they are not trying, but because they are unable...so... smile, as you prepare to ride the RUB/USD chart...

16/12/2014: The Surreal Takes Hold of Kiev and Moscow...

While all of us are watching the Ruble crash, there is an ongoing collapse in Ukraine: http://www.nakedcapitalism.com/2014/12/imf-world-bank-halt-lending-ukraine-franklin-templeton-4-billion-ukraine-bet-goes-bad.html.

I posted IMF 'note' on the emergency visit to Kiev last week http://trueeconomics.blogspot.ie/2014/12/14122014-imf-emergency-mission-to-kiev.html which, in simple terms, amounted to nothing... as in nada... or no new lending.

And to note a simple fact: yesterday's Moscow dramas were nothing compared to Kiev dramas: http://trueeconomics.blogspot.ie/2014/12/15122014-russia-ukraine-cds-hitting.html and

Note: Russia's CDS rose, but didn't even make it into top under-performers group, while Ukraine did... and at an eye watering 77.36% probability of default (cumulative at 5 years). In other words, unless the IMF stamps out some USD15+ billion in new 'loans', Ukraine is done for.

The Russia/Ukrainian 'Arc':

It shows that Ukraine is getting worse faster than Russia is getting worse...

But back to Russia for now, as West's newest 'ally' East of Dniper is out of criticism or questioning... Ruble is tanking, still, as predicted in the first link above:

Credit to: @Schuldensuehner 

The reason is that when you have a 1am Governing Council meeting, you signal to the domestic economy that things are out of control (and they are), which prompts:

• Companies facing upcoming debt redemptions or holding Ruble deposits to run for FX cover and demand dollars or euros or pounds or Mongolian tugriks; and
• Households facing actual inflation (in PPP terms, not CPI) to run for FX deposits and demand same dollars or euros, less so unfashionable pounds and certainly not Mongolian tugriks...

The only way to stop this is... capital controls. All of which has little to do with the actual economy as a cause of the malaise, but all of which will cause actual economy to contract.

Oh, Happy Birthday, Wassily Kandinsky... your Composition VII aptly illustrates the whole mess:

15/12/2014: Don't Blink... or Russian Data Will Get You!

It seems you blink these days and Russian ruble slides: down 10%+ today alone against the USD and down massive 48.13% for the year so far:

Credit: @RobinWigg

Blink again: the Central Bank revises estimates for capital outflows: new estimates suggest Q4 outflows have accelerated again to the levels of Q1 2014, implying full year outflows of USD133.8 billion, basically on par with the disastrous 2008.

Credit: @Schuldensuehner 

You sneeze and... boom... new estimates for growth are coming out: down to -4.5% for 2015 or even 4.7% assuming oil prices staying at 'current' levels of USD60 per barrel (annual average).

Reach out for a cup of tea and as oil price plummets, so does the ruble. If we take RUB3500/barrel or RUB3720/ barrel estimates built into two revisions of the Budget, you have USD/RUB rate in 88-93 range.

Put kids to bed and 10.5% Central Bank rate goes up to 17% - on foot of an emergency: http://www.bloomberg.com/news/2014-12-15/russia-increases-key-interest-rate-to-17-to-stem-ruble-decline.html

Take a smoke break and Russian CDS are busting past the 30% CPD ceiling: http://trueeconomics.blogspot.ie/2014/12/15122014-russia-ukraine-cds-hitting.html

Analysts' nightmare, comedians' rich picking. And comedians are out, in force, pretending to be analysts - the host of geopolitical journalists are now all spotting 'economic analysis' on their webpages. It is going to get worse - Politburo 'Hats Readers' are now coming out with economics and finance analysis, so expect a massive crash...

In truth, as noted earlier (http://trueeconomics.blogspot.ie/2014/12/11122014-central-bank-of-russia-good.html) 100bps hike in CBR rate earlier this month was useless. Useless across the board. Tonight's hike to 17% is clearly a serious push for an attempt to stabilise the ruble and stem the capital outflows. But it won't do the trick either. Much of outflows is driven by bond redemptions. So is much of the demand for dollars. And in this scenario, all the interest rates are going to achieve is collapse investment.

In brief, we are now headed into the inevitable:

• Step 1: capital controls with limited exemptions for individual sectors and firms; and
• Step 2: debt redemptions break for companies directly impacted by the sanctions.
• Step 3 (or maybe it will be step 1 or 2): revise growth estimates for 2015 to -7%, because there won't be any domestic investment at 17% rates and there won't be any foreign investment at 49% devaluation rate, and there will be no government investment at capital outflows into USD130 billion and bond redemptions mounting (http://trueeconomics.blogspot.ie/2014/11/24112014-external-debt-maturity-profile.html). There won't be much of consumption as RUB heads toward RUB/EUR100 marker and banks are not lending.

Speed up your blinking, folks, and buckle your seat belts.

15/12/2014: Russia & Ukraine CDS Hitting Major Highs

Both Russian and Ukrainian CDS are going hyperbolic:

15/12/2014: BlackRock Institute Survey: North America & Western Europe, December 2014

BlackRock Investment Institute released the latest Economic Cycle Survey results for North America and Western Europe:

"This month’s North America and Western Europe Economic Cycle Survey presented a positive outlook on global growth, with a net of 52% of 84 economists expecting the world economy will get stronger over the next year, compared to net 47% figure in last month’s report." Back in October, the proportion was 43% and in September it was 55%. The consensus of economists project mid-cycle expansion over the next 6 months for the global economy - same as in October and November.

"At the 12 month horizon, the positive theme continued with the consensus expecting all economies spanned by the survey to strengthen or stay the same except Finland, Sweden and Norway." Norway featured as an exception in October report and November. Back in October and November reports, expected deviation from stronger trend was also reported for Belgium.

"Eurozone is described to be in an expansionary phase of the cycle and expected to remain so over the next 2 quarters. Within the bloc, most respondents described Finland and Italy to be in a recessionary state, with the even split between contraction or recession for Greece, France and Portugal. Over the next 6 months, the consensus shifts toward expansion for both Finland and Italy." These results were broadly consistent with october and November reports.

"Over the Atlantic, the consensus view is firmly that North America as a whole is in mid-cycle expansion and is to remain so over the next 6 months." Again, this was in line with October and November reports.

 Note: Red dot denotes Austria, Canada, Denmark, Ireland, Spain and Switzerland.

For comparative purpose: October survey mapping 6 months out:

Previous report was covered here: http://trueeconomics.blogspot.ie/2014/10/6102014-blackrock-institute-survey-n.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.

15/12/2014: BlackRock Institute Survey: EMEA, December 2014

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

"With caveat on the depth of country-level responses, which can differ widely, this month’s EMEA Economic Cycle Survey presented a mixed outlook for the region. The consensus of respondents describe Russia, Croatia and the Ukraine in a recessionary state, the outlook changes to expansion for Croatia over next two quarters." In previous survey, the same three countries were described as likely to remain recessionary.

"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. Globally, respondents remain positive on the global growth cycle with a net 58% of 43 respondents expecting a strengthening world economy over the next 12 months – an 28% increase from the net 30% figure last month. The consensus of economists project mid-cycle expansion over the next 6 months for the global economy."

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

Previous report was covered here: http://trueeconomics.blogspot.ie/2014/10/23102014-blackrock-institute-survey.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.

15/12/2014: Ruble's Continued Woes

And Ruble starts the week on a downside trend...  Two charts via @Schuldensuehner

In USD terms at 58.77 and in EUR terms at 73.21.

Predictably, interest rate hikes of last week are not holding the line (http://trueeconomics.blogspot.ie/2014/12/11122014-central-bank-of-russia-good.html)

14/12/2014: IMF (Emergency) Mission to Kiev

Given economic / fiscal position of Ukraine (see http://trueeconomics.blogspot.ie/2014/12/10122014-ukraine-greece-cds-flash-red.html) it is unsurprising that the IMF has dispatched a 'rapid response' team out to Kiev. Here's the IMF official statement on the visit:

Not to over-interpret the above, it suggests that the IMF is considering seriously further 'assistance' to Ukraine and that such a commitment will be based not so much on the progress of structural reforms to-date, but on the progress of the promises of reforms in the future.

Of course, it is hard to imagine Ukrainian authorities unrolling any big and binding reforms in the current climate and given short span of life of the new Rada to-date, so don't take the above comment as sarcasm - Ukraine needs assistance now and the promise of reforms is real, in my opinion. The only problem is that any assistance via IMF will be short-term (3 years or so) and will be in the form of debt, while what Ukraine really needs is longer-term funding and in a form of a Marshall Plan (even if in debt form, at least on terms of near-zero cost of funding and flexible maturity). Sadly, such preferential funding is unlikely to come...

14/12/2014: Irish Building & Construction Q3 2014: Another Quarter of Unconvincing Recovery

Indices for activity (volume and value) in Building & Construction sector in Ireland were published this week covering Q3 2014. Here are the details:

Across all Building & Construction sector:

• Value index for all Building & Construction sector rose to 108.6 in Q3 2014 - the highest reading since Q4 2009 and the second reading over 100.0 since Q4 2010. Year-on-year, index is up solid 11.38%, slightly slower than Q2 rise of 11.55%. The index, however, is still 70.88% below the peak.
• Excluding Civil Engineering, Building & Construction activity rose in value 103.4 in Q3 2014, he highest reading since Q4 2013 and up 9.77% y/y. This is the slowest rise in the index in 6 quarters. In Q2 2014, index rose 11.82% and in Q1 it was up 14.91%.
• In volume terms, all Building & Construction activity index reached 108.1 in Q3 2014, up 9.97% y/y, slightly below 10.37% growth in Q2 2014. Volume of activity in the sector is still 72.40% below the pre-crisis peak.
• Again, taking out Civil Engineering, the activity in the sector is growing at a slower pace in volume terms - up 8.43% y/y in Q3 2014 and down 80.03% on peak.

Chart to illustrate:

In basic terms, overall activity in the broad sector is running along a nearly flat trendline with some signs of very fragile recovery. And that is off the levels so abysmally low that one would require sustained 20%+ growth rates to achieve any meaningful gains.

Underlying the above trends, we have at least some life showing in the Residential Building segment. In Q3 2014, Residential Building activity index posted a 21.13% y/y rise in terms of value, reversing two consecutive quarters of decline. Still, value of activity in this sub-sector remains 90.5% lower than at the pre-crisis peak. In volume terms, the index rose 19.55% and is down 91% on pre-crisis peak. 

Two chart below show just how pathetic the recovery has been to-date in Residential Building & Construction sub-sector.

In summary, there is barely any life in the Building & Construction sector activity - measured against both volume and value of activity - across all sub-sectors, save Civil Engineering, where the falloff has been relatively shallower (down 26% on peak in Q3 2014 in terms of value and 28.5% in terms of volume). And, of course, the data is again contrary to the booming Construction Sector PMIs. What a surprise!

Interestingly, in non-Residential Building sector, activity is growing at the rates of just 2.33% y/y in terms of volume and 3.75% y/y in terms of value - despite the numerous 'good news' claims from Nama and the commercial real estate sector and despite the allegedly 'low' vacancy rates and rising rent rolls.

13/12/2014: CESIfo on Minimum Wage Effects in Germany

An interesting research note from Germany's CESIfo institute on the effects of minimum wage law change. The note, titled "Minimum Wage: German Firms Plan Price Increases, Staff Cuts and Reductions in Working Hours" is available (in German) here:
http://www.cesifo-group.de/DocDL/ifosd_2014_23_5.pdf

Basically, on January 1, 2015 Germany will implement a Federal minimum wage of EUR8.50/hour (see background here: http://www.bbc.com/news/business-28140594).

CESIfo undertook a survey of employers' expectations as to hiring and labour utilisation / demand changes expected following its introduction. The key point to note is that these are expectations reported by surveyed businesses, not the actual responses.

Per CESIfo German companies that will be affected by the minimum wage as of 1 January 2015 are planning to

• Increase their prices (26 percent)
• Reduce bonuses (23 percent), 
• Reduce payrolls (22 percent), 
• Reduce working hours (18 percent), and 
• Scale back investment activity (16 percent). 

Furthermore, "most companies are planning to implement a combination of these measures, and only 43 percent of the firms affected plan not to react at all… eastern German companies will be far more deeply affected than their western German counterparts by a ratio of 43 percent to 24 percent."

By sector, the impact is distributed as follows:

• "Service providers, and especially those in the catering and hotel industry, mainly intend to respond by increasing prices (31 percent)."
• "In retailing, responses to the minimum wage were primarily cited as staff cuts (29 percent) and shorter working hours (33 percent)."
• "In manufacturing, staff cuts (26 percent) ranked just above reductions in bonuses (23 percent) and raising prices (23 percent)."

So may be we'll see an uptick in German inflation in early 2015... to the delight of the ECB and the detriment of all of us reliant on its low interest rates... But it will be inflation of a different nature...

12/12/2014: Ruble's Euro Pain

A quick footnote to the yesterday's post on Central Bank of Russia move. RUB/EUR is also in pain territory just as RUB/USD:

Charts courtes of @Schuldensuehner 

12/12/2014: That Invisible Irish 'Trickle Down' Recovery: Consumers' View

In recent posts (see all five of them linked here: http://trueeconomics.blogspot.ie/2014/12/12122014-qna-q3-2014-irish-external.html) I covered in detail the latest official stats on Irish economic recovery/growth. The picture these figures present is of basically static domestic economy, with questionable quality 'exports-led recovery'.

So what's can one add to the above? Ah, just a couple of recent surveys.

Remember, the political meme is that the recovery is charging ahead and is trickling down to ordinary families and into the real economy. Which, naturally, suggests that households should be feeling better. If not fully 'great', at the very least better… So do they?

We can look at consumer confidence indicators from the ESRI to check. Alas, these are bearing negative relation with actual domestic demand. Still, on a shorter note, core retail sales have been rising recently - in volume - and a starting to show some life in value. Chart below illustrates just how weak the 'real recovery' has been despite the sentiment - as measured by ESRI - has been allegedly at all time highs:

But there are other surveys to look at.

Based on Amarach data: in April 2014, 41% of Irish people thought Ireland is a great place to live in. By November 2014 this rose to 56%.But less than half of us felt that there are
opportunities in Ireland for those who are prepared to seek them out (49% in November, still, a rise on 42% in April 2014). So the 'recovery' is not exactly the one where opportunities for betterment are being presented, even if we control for effort.

Good news is - people are getting more optimistic: in November, 56% of surveyed felt that better times lie ahead for the Irish economy, up on 48% in April. Hopium is a powerful drug, especially when dispensed in massive doses of Government-paid-for PR via all channels of traditional media. Allegedly, quality of life in Ireland is ranked as being high by a rising proportion of people too: from 48% in April to 56% in November, although we have no idea what this means, really, this should translate into a feel-good factor of sorts. Right? Well, let's give it a pause and think - the above are all issues relating to 'us' as a collective. Let's see what surveys said about personal.

View: "I feel angrier about austerity now than I have ever felt before." If things are so good at collective levels, surely they should good at personal level too? In November 2014, 49% of surveyed agreed with the above statement and only 16% disagreed. Wow! All the recovery and the goodies from the Budget 2015 and those feeling angrier with the state of our policies is outstripping those who do not by more than 3:1.

Confirming the above, 59% of Irish people felt that economic pressures are making them  depressed. Only 24% disagreed. 39% of Irish people felt that the economy (not the economists) is having a negative impact on their personal health. 29% disagreed. When asked of they feel being successful/very successful in managing their finances, 56% of us agreed back in September 2013, 50% agreed in April 2014 survey and 50% in November 2014 survey. So things are not getting better in terms of our perceived financial health over time. They are getting worse.

Do the people plan to 'vote' with their money for the recovery? Don't hold your breath, folks. Only 16% of us said they will loosen the purse strings a bit next year. 49% said they won't.

Here are some numbers on how we feel about the state of our financial affairs, not as a nation or as Troika

Well, the last line in the table above is telling.

But may be the above data is suspect? Well, why not check with the 'Optimists par excellence' from the ranks of Big 4 'consultancies'? Let's take a look at Deloitte. Surely they can see the optimism around?

Check out their H2 2014 Consumer Review. Here are the snapshots:

We feel, predominantly, no better about all major points of economic well-being today:

And we want to save more, spend less and borrow less:

So where's that 'trickle down' optimism contagion from all the feel-good policies the Government allegedly lavishing upon us all? Spot one beyond those jobs-for-life-and-pensions-for-free walls of the Government 'think tanks', if you can…