7/6/15: Updating America's Scariest Charts... The Ones You Forgot About

Remember the Old America's Scariest Chart (http://trueeconomics.blogspot.ie/2014/06/662014-king-of-scariest-charts-is-dead.html) and my own New America's Scariest Chart (http://trueeconomics.blogspot.ie/2014/11/16112014-americas-scariest-chart.html). Well, a year ago, the formal one officially 'died'... as in disappeared from the mainstream media.

Question is: did it? Really?

So here is updating the Old America's Scariest Chart (and improving on the original) to current data:

Summary of the lessons from the above: America's jobs recovery in the current cycle is the worst on record for post-WW2 period in terms of recovering the jobs lost. It is second worst on record in terms of post-recovery jobs growth (the worst case being 1953 recession, which simply run into 1957 recession, but taking the two recessions jointly actually delivers better performance than the current recovery period).

And updating the New America's Scariest Chart:

Summary of the lessons from the above: yep, this cycle is also the worst in history for average duration of unemployment.

Happy recovery, U.S. of A. and a happier one, yet, to Europe.

7/6/15: Another 'friend' bites the dust: Juncker on Greece

Despite all the warm and fuzzy feelings for Jean Claude Juncker's allegedly 'humanitarian' view of the Greek crisis, it is now apparent that Athens indeed does not have any friends left in the top echelons of European leadership. Per Reuters reports, Juncker's response to the Greek proposals for dealing with the crisis involved warning that "time was running out to conclude a debt deal to avert a damaging Greek default."

One has to wonder, though, what did Reuters mean (see full report here) by the reference to concluding 'a debt deal', since the Institutions (aka Troika) proposals last week included no deal on debt, as in none, nada, zilch. Only one proposal from last week covered the issue of debt - the Greek Government proposal that Juncker has rejected.

Of course, this is yet another iteration in the crazy game of chicken (or a game of crazy chicken) being played by the Institutions and Greece.

Not surprisingly, the EU dragged out its most 'happy to be seen as doing anything' leader, the EU Council President Donald Tusk, who went on to accuse the government of Greece of not playing fair with the lenders. Note: Poland, from which Tusk hails, did not lend Greece any funds (check the information here: http://www.bloombergbriefs.com/content/uploads/sites/2/2015/01/MS_Greece_WhoHurts.pdf and here: http://www.bruegel.org/nc/blog/detail/article/1557-whos-still-exposed-to-greece/), though of course, Tusk speaks for Europe (or rather the European Council Presidency he holds).

Things are getting dense now, as we head into the second quarter of June and the jumbo payment to the IMF gets closer and closer and closer.

7/6/15: Greece: How Much Pain Compared to Ireland & Italy

Today, I took part in a panel discussion about Greek situation on NewstalkFM radio (here is the podcast link http://www.newstalk.com/podcasts/Talking_Point_with_Sarah_Carey/Talking_Point_Panel_Discussion/92249/Greece.#.VXPx-AJaDJQ.twitter) during which I mentioned that Greece has taken unique amount of pain in the euro area in terms of economic costs of the crisis, but also fiscal adjustments undertaken. I also suggested that we, in Ireland, should be a little more humble as to citing our achievements in terms of our own adjustment to the crisis. This, of course, would simply be a matter of good tone. But it is also a matter of some hard numbers.

Here are the details of comparatives between Ireland, Italy and Greece in macroeconomic and fiscal performance over the course of the crises.

Macroeconomic performance:

Fiscal performance:

All data above is based on IMF WEO database parameters and forecasts from April 2015 update.

The above is not to play down our own performance, but to highlight a simple fact that to accuse Greece of not doing the hard lifting on the crisis response is simply false. You can make an argument that the above adjustments are not enough. But you cannot make an argument that the Greeks did not take immense amounts of pain.

Here are the comparatives in various GDP metrics terms:

5/6/15: The Fiat of OMT: (almost) three years on...

Remember all the bull about the 'unique' efforts, the 'best in class', the 'prudent policies' that got our bond yields down so dramatically in the past? Well, the view here was and remains that most of the 'normalisation' in bond yields was down not to our internal policies or choices, but to ECB and that our yields declined, largely, in tandem with the Euro area yields (that tandem bit is best explained as the decline in financial fragmentation - the financial gap between the 'periphery' and the 'core'). Here's a handy chart from the BBVA Research plotting the evolution of the latter with some timelines added:

What's even more 'funny' in the above is that what 'worked' for the Euro area was not tangible measures such as LTROs, TLTROs, QE, ELAs etc, but the never-to-be-fulfilled promise of an ultimate backstop - the OMT, which never once was actually used or deployed as a tangible instrument and remains, through today, just that - verbal promise/threat unbacked by anything but the fiat of the markets conviction that no matter how much one needs to, swimming up the powerful waterfall is a bad idea.

The original 'Whatever it takes' moment: https://www.ecb.europa.eu/press/key/date/2012/html/sp120726.en.html

5/6/15: Right? Wrong? Green? Blue?..

With Greek chaos apparently presenting some analysts with a chance at comparative between Greece (belligerence) and Ireland (compliance) paths to 'salvation' in this crisis, one can point to two key observations these comparatives commonly miss:

1. Ireland's case was different from the Greek case: we complied with the EU/ECB dictate concerning private debts of a failed bank to private lenders. Not sovereign debts of the state to official lenders. To refresh some memories, Greece did default on (restructure) its sovereign debts to private lenders as a part of PSI. It is now on the verge of defaulting on sovereign debt to state/official lenders. 
2. Ireland's case for pushing harder for resolution of debt overhang does not involving a direct sovereign default (a unilateral refusal to pay on state liabilities), but rather a case for orderly cooperative writedown of the legacy bonds created by restructuring (at the time - unilateral - may I remind the readers) of promissory notes. This is crucially different from the Greek case which implies default on general government bonds across the entire swath of these obligations, not a well-defined targeted sub-set. Furthermore, Irish liabilities at play are held within Irish institution (the Central Bank), while Greek liabilities at play are held outside Greek institutions (the ECB, ESM and IMF). Finally, there was no question raised in the case of Ireland defaulting on IMF debt. In Greece, that portion of debt is now at play via the Greek Government proposal for debt restructuring published earlier this week.

Last, but not least: if anyone think it is 'crazy' or 'dangerous' to talk about the potential 'hard-ball' tactics or 'pressure' negotiations, here is a refresher from that tool of the markets: the WallStreet Journal that outlines for Ireland the case that Irish Government has failed to outline: http://www.wsj.com/articles/SB10001424127887324590904578289921520466036. 

4/6/15: Greece is Not Zimbabwe... but It Is Groovying with Zambia

So Greece opted to bundle its repayment to the IMF due June 5th into final one-shot payment due 'before' June 30th, raising total to be paid on June 30th to EUR1.5 billion. Before then, Greece faces public sector wages and state pensions bill of ca EUR1.5 billion, and EUR5.2 billion of maturing short-term debt.

The IMF official statement is here:
"The statement below is attributable to IMF Communications Department Director and Chief Spokesman Gerry Rice:

“The Greek authorities have informed the Fund today that they plan to bundle the country’s four June payments into one, which is now due on June 30.

“Under an Executive Board decision adopted in the late 1970s, country members can ask to bundle together multiple principal payments falling due in a calendar month (payments of interest cannot be included in the bundle). The decision was intended to address the administrative difficulty of making multiple payments in a short period. “"

As IMF notes, the 1970s decision (see below) is designed to deal with 'administrative' issues. In Greek case, the delay is linked to the ongoing battle between Greece and the Institutions [formerly known as Troika] over the new 'bailout' package. Which hardly fist 'administrative' label in any way.

IMF 1970s decision is cited here:

 Source: @jsphctrl 

Only payments for one calendar month can be bundled and interest due must be paid outside the bundling arrangement.

So far, in history of IMF, only Zambia availed of this arrangement in the 1980s. At least - a consolation prize for Europe - it was not Zimbabwe.

Another (close enough) case, but with more sinister outrun was Argentina, back in 2003-2004: "Last September, Argentina temporarily defaulted on a $2.9 billion payment due to the IMF until the new Standby Arrangement was hammered out. This March, the Argentines threatened to withhold payment of a $3.1 billion payment unless the IMF staff recommended completion of the second review of the loan accord." Source here. [h/t for this to @drubaid].

WSJ already updated their debt maturity timeline for Greece to reflect the 'bundling': http://graphics.wsj.com/greece-debt-timeline/

With OMT, LTROs, TLTROs, ELA, SMP, PSI, OSI, capital controls, SDR (IMF) reserves manipulation and now 'bundled' payments, Greeks are getting more and more inventive at creative sovereign finance...

Congratulations, Euro, the 'very soft default' has arrived...

4/6/15: Bank Fines Data

A handy graphic from @Reuters tallying up banks fines http://graphics.thomsonreuters.com/15/bankfines/index.html?utm_source=twitter
And a full table:

Of course, in Ireland, there has never been any unwanted actions by the core banks deserving fines or other such going ons... except for Ulster Bank and that on foot the IT systems meltdown: http://www.irishtimes.com/business/financial-services/central-bank-issued-fines-totalling-more-than-5m-last-year-1.2097056.

4/6/15: Trend-spotting Out in 3 Key Charts

If you want to understand the German (and the Euro area) economy key trend, here are three charts:

Source for all: http://www.pewsocialtrends.org/2015/05/21/family-support-in-graying-societies/#

Combined, these imply one thing and one thing only: Domestic Demand (Investment + Consumption + Government Spending) can be sustained [in theory] over the next decades by just one thing: "Government Spending". In practice, the bad news is: such spending is neither hugely productive, nor feasible in current levels of indebtedness worldwide. Worse [from economic perspective] news: much of this spending will be swallowed by health & end-of-life services that will not be increasing the productive capacity of our societies.

In the mean time, logic of the above two charts implies:

1. Increased build up of external imbalances (current account surpluses in more extremely ageing countries);
2. Increased savings not suitable (due to risk profiles) for private investment (hence higher retail & long-term demand for highly rated bonds and equity, as opposed to higher growth bonds and equity); 
3. Reduced domestic consumption;
4. Heating up tax competition on the side of capturing revenues (as opposed to incentivising higher growth);
5. Growing reliance on 'hidden' taxes (e.g. currency devaluations and indirect taxation) to amplify (1) and (4);
6. Current 'peak productivity' generation (chart 3 above) is screwed on the double, and productivity growth curve going forward is downward-sloping, most likely even if we control for technological innovation.

All six points currently are at play. Draw your own conclusions.

4/6/15: Irish Growth Fudge: Village, May

My most recent article for the Village Magazine [May 2015] is now available on-line: http://www.villagemagazine.ie/index.php/2015/05/1-not-5-growth-in-2014/

Covering the problems with Irish growth accounting.

4/6/15: Irish Fiscal Spring: Village, April-May

My recent article for the Village Magazine [April-May edition] on Irish economy is now available on-line: http://www.villagemagazine.ie/index.php/2015/05/spring-unsprung/ 

3/6/15: BRIC Services & Composite PMIs: May 2015

Time to tally up BRICs PMIs for May.

Manufacturing numbers were covered here: http://trueeconomics.blogspot.ie/2015/06/2615-bric-manufacturing-pmi-continued.html

On services side:

• Brazil Services PMI tanked spectacularly, falling from already strongly contractionary 44.6 in April to a 74-months low of 42.5 in May. 3mo average through May is now at an abysmal 45.0 against 3mo average through February at 49.9 and 3mo average through May 2014 of 50.7. All in, this is the third consecutive month of sub-50 readings and adjusting for statistical significance, Services PMI index rose above 50.0 only three times over the last 16 months. 
• Russia Services PMI, meanwhile, surprised to the upside, rising from 50.7 in April (signalling weak growth) to 52.8 in May, signalling pretty robust recovery. 3mo average through May, however, is poor at 49.9, albeit an improvement against 3mo average through February at 43.7 and 3mo average through May 2014 of 46.9. All in, this is the second consecutive month of above-50 readings and first month of readings statically significantly above 50.0. May reading is the strongest since December 2013.
• China Services PMI continued to signal expansion in the sector at an accelerating rate, as the index increased from 52.9 in April to 53.5 in May. 3mo average through May is now at a relatively strong 52.9 against 3mo average through February at 52.4 and 3mo average through May 2014 of 51.3.
• India Services PMI tanked in May, falling from 52.4 in April to a 13-months low of 49.6 in May. 3mo average through May is now at 51.7 against 3mo average through February at 52.5 and 3mo average through May 2014 of 48.8. This development suggests substantial weakening in growth conditions in India which was the bright spot for growth within the BRICs group.

As the charts below shows, on a composite side, Russia has now reversed - for the second month running - previous trend and is now acting as a positive growth contributor to BRICs aggregates. The rest of BRICs, however, are acting as a drag on growth, especially when it comes to Brazil.

Table below summarises recent changes in the PMIs for both components across all BRICs:

3/6/15: Russian Services & Composite PMIs: May

Having covered Russian Manufacturing PMI earlier (here), now lets update data for Services PMI and Composite PMI.

In contrast to disappointing Manufacturing PMI, Services PMI for Russia came in at a surprising strong upside, rising to 52.8 in May 2015 from 50.7 in April. This marks the highest reading since December 2013 and the second consecutive month of above 50.0 readings in the series. 3mo average through May 2015 is now at 49.9 as opposed to 3mo average through February 2015 at 43.7 and 3mo average through May 2014 at 46.9.

Composite PMI, pushed up by Services sector reading posted another surprising rise to 51.6 in May, signalling rather solid growth momentum, compared to 50.8 in April 2015. 3mo average for the series is at 49.7 against 3mo average through February 2015 at 45.8 and 3mo average through May 2014 at 47.5.

As chart above illustrates, we now have strong growth in Services sectors driving up overall Composite indicator. This is quite surprising, given April real dynamics (see here).

Overall, PMIs indicate a volatile, trend-less movement toward overall economic stabilisation that require two things to confirm a positive trend: 1) improvement in Manufacturing reading over the next 2-3 months and 2) continued above-50 readings in Services over another 2-3 months. In simple terms, it is too early to call a positive trend in the economy, but Services dynamics are encouraging.