22/10/16: U.S. Election: Can There Even Be a Winner?

Despite offering, to many people, especially those tending to think of themselves as either 'liberal left' or centre to centre-right, the upcoming U.S. Presidential vote offers one alternative: voting for Hillary Clinton. It is an undesirable alternative for many of them. And yet, given the state of her opposition, it is (allegedly) the only one.

Hence, it is rare in the current political sh*t storm (which does not qualify for a mature debate) to see reasoned, well-argued analysis of the potential outrun of Hillary Clinton. And, hence, it is very important to try to understand such an outrun.

One of the best articles on the topic I have run across (no, I do not fully agree with it in its entirety, which, of course, does not subtract from its merits) is here: http://www.reuters.com/article/us-election-debate-commentary-idUSKCN12K1IL.

There are serious and measured facts provided in the piece on, for example, Hillary Clinton's innate inability to inspire even her core constituency. And there are serious claims being made about incremental change potential from the Clinton Presidency, or at least a claim to such change as a mandate. There is a very important point of learning here for the Republican party, even though that point is not original and was, in fact, made by the previous Republican nomination contestant, Ohio Governor John Kasich.

But the most important bit remains as noted above: the devision, the gap, the chasm that separates American voters by socio-demographic lines: "White non-college-educated voters are going two-to-one for Trump, 62 percent to 31 percent, according to the ABC News-Washington Post poll. College graduates favor Clinton by more than 20 points, 55 to 34 percent. For the first time in more than 50 years, whites with a college degree are voting Democratic, 51 to 38 percent."

That is right: American society is now divided to the point of mutual aversion across the education line. And this is something that the next President will have to live with and deal with. Given that Hillary Clinton is failing to energize her own core constituency, what chance does she have in energizing two disparate demographics into finding a reconciling common ground? Recall that Hillary Clinton readily and cheerfully labeled a large strata of the American majority "as a “basket of deplorables . . . racist, sexist, homophobic, xenophobic, Islamophobic – you name it.”" Not a hell of a lot of confidence in her ability to heal the nation can be glimpsed from this statement.

And, as the author concludes: "Each of the last four presidents – George H.W. Bush, Bill Clinton, George W. Bush and Obama – promised to bring the country together. They all failed. There is little prospect that either Clinton or Trump – two of the most divisive figures in U.S. politics – can heal the divide. Two Americas, two interpretations."

And that sad prospect is way more significant, more important than the actual outrun of the November 8 vote.

22/101/16: Cashless Society: Efficiency 1 : Privacy 0

My comments on the dangers associated with the idea of the 'cashless society' where traditional money is replaced by fully captured (by data flows) and de-privatized electronic accounts: http://www.gold-eagle.com/article/cashless-society-%E2%80%93-risks-posed-war-cash.

22/10/16: Watering Down Budget 2017 Promises?

My article on the Irish Finance Bill for Budget 2017 is now available on Sunday Business Post website: https://www.businesspost.ie/opinion/constantin-gurdgiev-2-key-budget-promises-watered-finance-bill-367627.

22/10/16: Irish 12.5% Tax Rate and Someone's Loose Lips

It has been some time since I commented here on the matters relating to Irish corporate taxation. For a number of reasons not worth covering. But one piece of rhetoric in the post-AppleTax ruling by the EU Commission has caught my mind today: the statement from the Taoiseach Enda Kenny on the issue of 'Loose Lips Sink Ships'.

Here's what happened: as reported in the Irish Independent, the Taoiseach "warned that "loose talk" about taxation in Ireland was potentially damaging in the face of the Brexit threat. "Ireland will obviously debate these things constructively but to be clear about it, our 12.5pc corporate tax rate is not up for grabs... It's always been 12-and-a-half and it will remain so."" The statement was prompted by the rumours (err... reports) "the European Commission has not ruled out examining 300 more of Ireland's tax rulings."

Mr Kenny said that "The commission have never stated that there are other impending state aid cases against Ireland and to suggest otherwise is mischievous, is misleading, and is wrong... And that type of loose talk is potentially very damaging to our country. It does impact upon companies looking - particularly given the Brexit situation - as to where they might want to invest."

So here's the problem, Mr. Kenny: no one is seriously suggesting that the problem with Irish corporate taxation is 12.5% headline rate. I have not seen any reasonably informed source commenting on this. The problem - as as subject of investigations by the EU Commission in the recent past - is the granting of preferential loopholes that went well beyond the 12.5% rate.

So what grave 'threat' to Ireland's tax regime is Mr. Kenny addressing by setting up a straw man argument about 12.5% rate 'rumours'? Answering that question would likely expose whose lips are loose on the matter. My suspicion is that Mr. Kenny deliberately creates confusion between the discussion of the headline rate (which is not happening) and the discussion of the loopholes (which is probably on-going, because (a) things might not have stopped with Apple; and (b) global tax reforms - e.g. BEPS-initiated process - are still rolling out. If so, then it is Taoiseach's lips that might be doing Ireland's 12.5% headline rate some damage.

Personally, I believe Ireland's 12.5% corporate tax rate is just fine. And I also believe that special, individual company arrangements on any tax matters are not fine. I also believe that Ireland should phase the latter out in a transparent fashion, instead of creating another maze of non-transparent and gamable by the larger corporation 'knowledge development box' incentives. Incidentally, tax personalization for Irish entities continues, it appears, with the publication of the Finance Bill this week, where tax procedures for Section 110 companies valuation of inter-company loans was left largely a matter for individual arrangements. BEPS will take care of the rest, or it might not, but that would no longer be a matter of Ireland's failure and it won't challenge our 12.5% tax rate.

11/10/16: BRIC Manufacturing PMI: 3Q 2016

With all PMI data in (China Services data delay was a strange aberration this month), we can tally up 3Q 2016 PMI results. Based on 3mo averages, here is the summary for Manufacturing sector:

Brazil: Over 3Q 2016, Brazil’s Manufacturing sector continued to post sub-50 readings, indicating a strong pace in economic contraction. Overall, 3Q 2016 average Manufacturing PMI came in at 45.9, which is a single of slower economic contraction compared to 2Q 2016 (42.5), but basically the same rate of decline as in 1Q 2016 (46.0). 3Q 2016 was 10th consecutive quarter of sector contraction in Brazil. Worse, PMI for Brazil’s manufacturing has now averaged 49.9 over the period from 1Q 2007 through 3Q 2016. In other words, average quarterly PMI has been consistent with zero growth for 10 and a half years now.

Russia: In contrast to Brazil’s misfortunes, Russian manufacturing PMI strengthened from 49.7 in 2Q 2016 to 50.5 in 3Q 2016, reaching above 50.0 level for the first time since 4Q 2014. Still, at 50.5, the reading is not statistically different from 50.0 and signals weak turnaround in the sector. 3Q 2016 level of PMI breaks a string of 6 consecutive quarters of sub-50 readings. The depth of Russian downturn is self-evident: the last time Russian Manufacturing PMI reached above 50.0 on a statistically significant basis was in 1Q 2013. However, for all the troubles with the economy, Russian performance is significantly stronger than that of Brazil across recent years. In addition, 3Q 2016 reading for Russia is the second strongest in BRIC group, after that of India. To keep things in longer term perspective, however, Russian Manufacturing quarterly PMI averaged just 50.2 since 1Q 2007, hardly a sign of any serious growth over the last 10 and a half years.

China: Chinese Manufacturing PMI averaged 50.2 in 3Q 2016, up on 49.1 in 2Q 2016 and the strongest reading in 8 quarters. As with Russian Manufacturing PMI, Chinese reading for 3Q 2016 is not statistically different from 50.0, and once adjusted for the strong positive skew in the historical data probably underlies continued major slowdown trend in the economy. Again, for comparative purposes, since 1Q 2007, Chinese Manufacturing quarterly PMI averaged just 50.7 - a figure ahead of both Brazil’s and Russia’s, but still a reading that is too weak for the rapidly growing economy dependent on Manufacturing. 

India: India’s Manufacturing PMI averaged 52.2 in 3Q 2016, which represents a substantial rise on 51.0 average in 2Q 2016 and marks the fastest pace of sector growth in the country since 4Q 2014. 3Q 2016 also marked 12 consecutive quarter of above 50 readings for Manufacturing PMI. In contrast to all other BRIC economies, India’s Manufacturing PMI averaged 51.7 reading consistent with growth for the period between 1Q 2007 through 3Q 2016.

Overall, BRIC Manufacturing PMI did firm up in 3Q 2016, with three out of four BRIC economies reporting nominal above-50 readings for the index for the first time since 1Q 2014. As the result of improving conditions across all BRIC economies, BRIC Manufacturing PMI reached 50.4 in 3Q 2016, up on 49.0 in 2Q 2016. The rise is broadly in line with Global Manufacturing PMI improvement from 50.4 in 2Q 2016 to 51.0 in 3Q 2016.

Table below summarises recent changes:

Chart below highlights key dynamics in Manufacturing PMIs:

23/9/16: The Future of Work: Uncharted Policy Waters

My presentation on economic and social challenges of the emerging Gig-economy (contingent workforce) from earlier this year: http://cxccorporateservices.com/blog/the-future-of-work-uncharted-policy-waters-video/.

23/9/16: Two Major Partnerships for AID:Tech

AID:Tech CEO, Joseph Thompson presented at the Techstars Demo Day earlier this week.

Here is the video of his excellent talk about AID:Tech-powered technology promise to the aid and development sector: https://techstars.wistia.com/medias/fi4q9e0zkf delivered in front of some 600 top European technology VCs and business development specialists.

As a part of the Demo Day, AID:Tech also made two new partnerships announcements. Details are here:

As a board member and an adviser to the company, I am proud of what the team led by Joseph have been able to achieve within a span of just few months. The importance of blockchain-based solutions in providing greater efficiencies, better security and higher degree of transparency to payments in the international aid and development area is matched by the blockchain potential to revolutionise  key development sub-sectors of micro-lending and micro-insurance. AID:Tech are clearly positioned to lead fintech innovation in these market niches.

21/9/16: BOJ New (non) Bazuka

A bit more on BOJ 'inverse' Twist here: http://expresso.sapo.pt/economia/2016-09-21-Banco-do-Japao-lanca-mao-de-nova-bazuca.

21/9/16: Apple Tax Case: Not the Rate, the Loopholes

My column for the Village covering the Apple Tax fiasco: http://villagemagazine.ie/index.php/2016/09/not-the-rate-the-loopholes/

As it says on the 'tin' - the problem with Apple Tax is not the rate of corporate taxation set in law in Ireland (the 12.5% 'red line' rate), and not tax competition, nor the benign nature of tax exemptions that Ireland bestows on all companies, including the MNCs. The problem is that these competitive aspects of the Irish regime are simply not enough for the likes of Apple, which pursued and obtained access to exemptions that any ordinary company operating in Ireland cannot avail of.

Hence, the red herring of the arguments that the EU Competition ruling is an attack on Irish tax rate. It is, instead, a challenge to the asymmetric preferences granted in the past (and still in use during the ongoing phase-out period) to a handful of MNCs over and above domestic companies. Lest we forget, for decades, Irish State had no qualms operating an openly discriminatory taxation regime that treated foreign investment-backed companies differently from domestic companies. Lest we omit considering the present, Irish State still has no qualms taxing human capital of its residents at rates far in excess of those applying to physical and financial capital. Lest we fail to think about it, Irish State has no qualms asymmetrically allocating the burden of the crisis to Irish people over and above our banks, foreign investors, foreign bondholders and vulture funds.

I am one of the most vocal advocates of low (benign) taxation, flat tax, competitive regulatory regimes (coupled with robust enforcement) and other means for improving the functioning of the private markets. Always been one and remain. I support real investment in the economy, both foreign and domestic and believe in a level playing field for entrepreneurs and enterprises, alike. But, folks, the debate around Apple Tax is not about 12.5% tax rate and Ireland's tax autonomy, but about asymmetric nature of privilege.

22/9/16: The most important charts in the world... BusinessInsider

BusinessInsider published their new set of "The most important charts in the world from the brightest minds on Wall Street" : http://www.businessinsider.com/most-important-charts-in-the-world-september-2016-2016-9?op=1.

My - as always contrarian and, hence, somewhat optimistic - contribution here: http://www.businessinsider.com/most-important-charts-in-the-world-september-2016-2016-9?op=0#/#constantin-gurdgiev-57.

21/9/16: BOJ & Fed: Surprises at the End of Policy Line?

My comment for Portugal's Expresso on Bank of Japan and U.S. Fed rate setting meetings (comment prior to both): http://expresso.sapo.pt/economia/2016-09-20-Mercados-nao-esperam-subida-de-juros-nos-Estados-Unidos

English version:

With Bank of Japan clearly running out of assets to buy to sustain its continued efforts to further ease money supply, the Bank’s September 20th meeting is likely to be more significant from the markets perspective than the Fed’s. Back in July, Bank of Japan initiated a comprehensive review of its current policy measures. This move was based on two key pressures faced by Tokyo: the complete lack of monetary policy effectiveness and the shortages of assets eligible for BOJ purchases, still remaining in the markets.

My suspicion is that BOJ is likely to go for the reversal of the Fed’s Operation Twist, buying - as Washington did in 1961 and 2011 - shorter maturity bonds. In 2011, the Fed opted to buy longer-term debt and selling short term bonds. The Fed objective back then was to flatten the yield curve. Bank of Japan today is more desperate to see steepening in maturity curve instead. Paired with deeper foray into negative deposit rates territory, such an Inverse Twist move is probably the likeliest outrun of the current BOJ policy debate, with both policy changes carrying a probability of around 60-70 percent for September 20th meeting. On a longer odds side, expansion of volumes of purchases of bonds (doing more of the same option) for BOJ, in my opinion carries a probability of just 30-40 percent.

BOJ announcement of new policies is potentially more important to the global markets than the Fed’s, in the short run, because BOJ policy options are pretty much similar to those of the ECB, and because Tokyo faces a greater urgency to move this time around. Across the bonds markets, in recent months, there has been an increasing sense that ultra-aggressive monetary policies (those led by BOJ and ECB) have lost their effectiveness just at the time when the central bankers are rapidly running out of option to produce further monetary stimulus without engaging in an outright helicopter money creation. At the same time, as monetary policy effectiveness declined, markets reliance on central banks pumping more and more liquidity into the global financial system is rising as economic fundamentals stubbornly refusing to support current markets valuations in both equities and bonds.


Fed’s rate setting meeting, coming hours after Bank of Japan’s one, will be less predictable and has the capacity to take markets off guard. Prevailing market consensus is that the Fed will simply amplify its extremely moderate hawkish position, signalling once again the growing consensus toward a rate rise after the November Presidential election. In my view, this is the most probable outrun with a probability of around 75 percent. However, given the signs of strengthening economy over 3Q 2016, and the early indications of improving inflationary outlook on foot of August figures, the Fed might surprise with a 25 bps hike in base rates - a low probability (roughly 25%) event. On the ‘hold policy’ side, there has been some disappointing recent economic releases, with a decline in retail sales, flat producer prices inflation and a large drop in industrial production. These, alongside the political cycle, weigh heavily on the probability of a rate hike this week.


The key to the September rates outlook and the markets dynamics will be the twin combination of BOJ and Fed moves. Dovish Fed, alongside further aggressive expansion of Japan’s monetary policy will serve as a forward signal for the ECB to boost its own asset purchasing programme. This is a more likely outcome of Wednesday news flow, given the conditions in the domestic economies and in the global trade environment. Any surprises on the side of the Fed or BOJ deviating from dovish stands will likely be interpreted by the markets as a trigger for bonds sell-off and will also be negative for share prices.

19/9/16: Survivorship Bias Primers

Not formally a case study, but worth flagging early on, especially in the context of our Business Statistics MBAG 8541A course discussion of the weighted averages and stock markets indices.

A major problem with historical data is the presence of survivorship bias that distorts historical averages, unless we weigh companies entering the index by volumes. Even then, there are some issues arising.

Here are few links providing a primer on survivorship bias (we will discuss this in more depth on the class, of course):

• "Morningstar Takes a Closer Look at Survivorship Bias" https://www.ifa.com/articles/morningstar_takes_closer_look_survivorship_bias/
• "SURVIVOR BIAS AND IMPROPER MEASUREMENT HOW THE MUTUAL FUND INDUSTRY INFLATES ACTIVELY MANAGED FUND PERFORMANCE: http://www.etf.com/docs/sbiasstudy.pdf
• "When It Comes to Fund Performance, History Is Often Written by the Winners" http://www.wsj.com/articles/SB10000872396390444025204577545460615317218
• An example from actual data on construction sector activity: http://trueeconomics.blogspot.com/2010/08/economics-9810-irelands-construction.html