10/12/15: Europe's M&A activity lowest in 17 years

While the U.S. companies are gorging themselves on M&As (see post here: http://trueeconomics.blogspot.ie/2015/12/71215-another-nothing-to-see-here-chart.html), while shying real organic investment (see post here: http://trueeconomics.blogspot.ie/2015/11/141115-more-evidence-us-capex-cycle-is.html), Europe's 'repaired' economy is shying away from both.

Europe's M&A cycle is weak - second weakest for the period of 1998-2015:

Which makes for some interesting reading, especially when one realises that most recent quarterly growth in Europe was underpinned by domestic demand and inventories build up... Time for ECB to start buying companies outright...

10/12/15: U.S. Corporate Debt: It's Getting Boomier

U.S. Non-financial Corporations debt - the other 'third' of the real economic debt equation - is on the rise, again. Deleveraging is not only over, but has been pushed aside. The new cycle of debt boom is well under way, and with it, the next cycle of a bust is getting closer...

10/12/15: Europe's Negative Yields Ship of Fools

Those of you who follow my work would know that I hold little compassion for the 'investors' who are willing to give money away to the governments whilst whingeing about high rates of taxation they endure on their incomes. Well, Europe is full of this sort of investors:

And it is getting more full by the minute at EUR2.7 trillion and counting. So, happy waisting your money...

10/12/15: R v G and all the Pikettian Theory Malarky

You know the Pikettian Thesis that if return on capital exceeds in the long run economic growth, then capital income appreciation relative to wages income growth will lead to rising wealth inequality. Except, err...

Source: @MaxCRoser 

Which says, really, that since the start of the 20th century, wages income of the richest 1% became more important in the determination of their full income, whilst entrepreneurial income remained roughly the same, and capital income shrunk. R > G and all that malarky...

8/12/15: Irish Rents: A Longer Term View

Much has been written about the plight of renters in Ireland. Much of it is correct - there have been some atrocious rises in rents, primarily private rents, in recent years. Year on year, in the last 3 months (though October 2015), private rents rose 10.35% against local authority rents falling 1.11% and mortgage interest declining 8.88%. A year ago - over 3mo through October 2014, private rents inflation was running at 8.95% against local authorities rents rising 1.06% and mortgage interest falling 10.26%.

Which makes for a depressing reading for the renters. Actual rents paid by tenants were up 8.83% in 3mo period through October 2015 and they rose 7.93% y/y in the 3mo period through October 2014. So inflation rate in rents is going up.

However, rents inflation has to be taken over the longer period of time. And here, things are not as clear cut as in the short run. Comparable CSO data goes only back to January 2003. So we have no reliable benchmark for earlier periods, albeit some bootstrapped comparatives are possible. As the result, let’s consider 1Q 2003 as the starting point for inflation - with a host of caveats attached.

Setting 1Q 2003 average level of price indices at 100, inflation in overall Housing, water, electricity, gas and other fuels category that includes rents, mortgages and other housing costs stood at 55.94% in October 2015. Actual rentals paid by tenants over the same period of time were up 26.93%. Private rents rose over 1Q 2003 to October 2015 by 18.62% while local authority rents rose 73.36% and mortgages rose 24.33%.

In other words, cumulated inflation since 1Q 2003 was higher in Local authority rents and mortgage interest than in private rents. Chart below illustrates:

Pretty much the same picture emerges if we take the entire 2003 average (not just 1Q 2003) as a benchmark. In fact, compared to 2003 levels, mortgage interest inflation is just above actual rents paid and is still higher than private rents inflation.

Setting levels aside, let’s take a look at inflation rates (y/y changes in indices). Historical average y/y inflation in Housing, Water, Electricity, Gas & Other fuels category is 4.50% against historical mortgages interest costs inflation of 5.29%, historical private rents inflation of 1.56%, historical local authorities rents inflation of 4.56% and historical inflation in actual rentals paid by tenants of 2.00%.

Once again, timing is everything: given low level of transactions in the purchasing markets for property over the current crisis, majority of mortgage payees today have lived through the period of pre-crisis spike in mortgage costs. Their current savings (reduced cost of mortgages interest) are simply lagged off-sets to this high cost reality of the past. On the other hand, renters faced far lower volatility in rents than mortgagees in mortgage interest. Their current pain is a delayed cost uplift on past moderation in inflation.

Which is, of course, not to say there is less pain because of this or that Irish rental markets are somehow functioning well in terms of pricing. Just to point out that timing of comparatives is important and that one should be careful pitching the (real) pain of Irish renters against the allegedly easy-times for other participants in the markets.

8/12/15: Commodities Rot Runs Ahead

Commodities rot continues unabated, as Bloomberg Commodities Index fell to its lowest reading since June 1999:

Source: @Schuldensuehner

Which, of course prompted another repricing of the commodities-linked currencies:

 Source: @Schuldensuehner

As I noted few days ago (post here) for the Russian Ruble, there is some room to the downside from here on.

Here is an interesting discussion of the historical trend/cycles in commodities busts via Carmen Reinhart: https://www.project-syndicate.org/commentary/commodity-price-decline-will-continue-by-carmen-reinhart-2015-11. And long-view chart of same:

Trend-wise, that is 160 years of deflation...

7/12/15: A new study on psychology of crisis response & the role of the media

This is a new study developed by an excellent young Irish psychologist - Seamus Power - at the University of Chicago. 

All Irish people, over the age of 18, are eligible to take part in this survey and all walks of life, ages, demographics etc are really needed. The survey should take under 15 minutes to complete.

Seamus is interested in your responses to a range of questions and your reactions to a randomly assigned media article covering the topics relating to policy responses to the recent crisis.

I can't really stress enough how important this topic is for Ireland and for social sciences, so please, take a few minutes to complete it. We need data-based evidence and Seamus will be sharing his findings with all of us.

Study link here: http://ssd.az1.qualtrics.com/jfe/form/SV_bKESEHr6IXjkXGt .

7/12/15: CX Future of Work Summit: Dublin

Another excellent video from the CXC Corporate's "Future of Work" summit on the Gig Economy: https://vimeo.com/148042205.

You can see more on the event, including my slides here: http://trueeconomics.blogspot.ie/2015/11/111115-gig-economy-challenge.html

7/12/15: Of Monetary Activism and Growth: CB Balancesheets vs Economies Balancesheets

There is much talk around two matters relating to the monetary policy expectations:

1. The 'normalisation' course allegedly pursued by the Fed (rates rises); and
2. The justification for (1) by references to the monetary policy-repaired economy, made wholesome once again thanks to the Central Banks' activism (see recent Janet Yellen speech on the subject here)

Except, of course, the second point is... err... questionable. For all the estimates of percentage points of growth uplifts and unemployment reductions delivered by the Fed-linked economics analysts, there are two simple facts stubbornly persisting out there:

Fact 1: U.S. (and European, and Japanese, and global) growth since the end of the Great Recession has been much slower than historical records for recoveries suggest; and

Fact 2: Fact 1 comes on foot of a historically unprecedented monetary expansions, that are, by far, not over yet.

Here are two charts on the second fact:

Now, observe: as of today, Big 4 CB balancesheets expanded almost 4-fold. By the end of 2017 (per BAML), projected balancesheets are expected to rise even further, by more than 4.5-fold. Both BOJ and ECB will be leading this latter stage of monetary easing - the two economies that are by far fairing the worst throughout the crisis, despite the fact that whilst the ECB adopted a more conservative stand in the earlier stages of the crisis, BOJ raced ahead of everyone else with Abenomics arrival.

In other words, since 2012 through 2015, CB balancesheets grew by more than 50 percent. Meanwhile, what happened to growth rates and growth expectations?

Which, sort of, suggests that all this 'normalisation' of growth under the monetary policies activism is... well... imaginary?..

7/12/15: Another "Nothing to See Here" Chart for M&As

I have written over the recent months about the over-heating present in the global (and especially N. American) M&A markets (see posts here,  here and here) so it is only reasonable from continuity perspective to post some more data on the subject. Here it is :

Source: @Jim_Edwards

Looking at the volumes of M&A deals since around the start of 2Q 2014 through today, one cannot escape a simple conclusion: absent organic growth in revenues, and with shares buy-backs now being discounted in the markets (belatedly awakening to the reality of unsustainable valuations in the equity markets), current levels of M&A (over at least 18-21 months period) are simply, certifiably, clearly bonkers.

5/12/15: Ruble converging to Urals... at last

After some strengthening in the second half of November, Russian Ruble continues to re-align with oil prices:

With current levels of Urals-Brent spread, Ruble has room to the downside still, at about 2-3 percent, taking it into 69.8-69.9 range. Which means the CBR has some room for raising foreign exchange reserves, but not much room...

3/12/15: Heard of Number26, yet?..

An interesting 'break-in' into Irish banking market via Number26 which uses:

• Fintech platform; and
• German license

to break the Central Bank of Ireland-led freeze on new entrants into the banking market here.

Details are here: http://techcrunch.com/2015/12/02/number26-launches-its-bank-of-the-future-in-6-new-countries/. Surprisingly low margin operation based on fees from transactions, rather than on direct customer charges. Presumably, accounts are insured by German system and are free from the Irish Government indirect tax extraction schemes, such as card duties etc... One, of course, will have to be compliant on Irish DIRT.

Of course, Fintech offers plenty of disruption potential in the sector that is inhabited by technology dinosaurs. Still, for all its promise, Fintech is yet to:

1. Achieve a significant breakthrough into traditional banking and insurance services (beyond aggregators and price optimising platforms) and
2. Deliver a viable (financially) margins model.

These two points mean that to achieve scale, Fintech offers today need deep pockets and customer bases of more traditional services providers, as I describe during this discussion: http://trueeconomics.blogspot.ie/2015/10/161015-financegoogle-2015.html.