15/6/2013: Weekend reading links: Part 2

The second part of my Weekend Reading links on Art and Science and No-Economics (see the first part here: http://trueeconomics.blogspot.ie/2013/06/1462013-weekend-reading-links-part-1.html)

Let's start with this:

http://vida.fundaciontelefonica.com/project/may-the-horse-live-in-me/
It's not a horse meets artist or vice versa, but an artist 'becomes' a horse. Literally, physiologically. Amazing stuff, although MrsG thought it is taking performance art a bit too far.


Next up - amazing show of new work by one of my favourite artists of all times: Gerhard Richter
http://www.mariangoodman.com/exhibitions/2012-09-12_gerhard-richter/%20and%20related
Couple of images:

The migration of Richter's work toward more linear, form-focused, less figurative work over recent years has been in tune with what is happening around the world of abstract art today. I love it, but the 'old' Richter (second image above from 2005: http://www.mariangoodman.com/exhibitions/2009-11-07_gerhard-richter/) is much more dynamic and still more appealing to my aged self. From that vantage point, an even more brilliant show of works by the artist is here: http://www.ludorff.com/en/exhibition/gerhard_richter_abstrakte_bilder/works . Art Basel 2013 has more vintage Richters too.


http://www.mariangoodman.com/artists/ has some very interesting artists I knew far less about. Great example is Julie Mehretu: http://www.mariangoodman.com/exhibitions/2013-05-11_julie-mehretu/#/images/7/

Reminds me of one of my old favourites: a merger of abstraction by Cy Thombly (http://www.cytwombly.info/) and mathematical / architectural precision of Alberto Giacometti: http://www.fondation-giacometti.fr/en/art/16/discover-giacometti/ scroll down to Encounters, Portraits and Fifty Years of Prints sections for the likes of

Wyeth cross over too… for some reason… maybe geometry or Giacometti-esque reference to line?

Lastly for the arts: cool images from the Arctic spying outpost: http://www.wired.com/rawfile/2013/06/charles-stankievech-northernmost-settlement/

On science: a quick link to the Science Gallery - brilliant place, brilliant coffee, brilliant crowd: http://sciencegallery.com/

On a personal note: I came across this wonderful set of radio spots recorded for Mount Juliet. Followers of mine would know I was recently privileged to cast a fly (more like nymphs and wet flies) at the estate and can attest to the superb quality of water there. The spots are lovely and worth listening to: http://www.mountjuliet.ie/radio-adverts/

My favourite is The Ghillie one. I did not use ghillie's services on my day on the Nore, preferring the 'risk' of reading the river on my own, but I had wonderful help and conversation with the staff member who helped me with the waders and dry room and fishing room. Superb. And superb doesn't even begin to describe the late-very-late breakfast I got on my return from 5am-noon fishing.

Loved it. And here's one of my friends from the Nore who is still happily swimming in his pool…

Update: I rarely update the Weekend Reading Links posts after they are out, but here are more interesting links, this time on science.


A convoluted title of this paper: "Action video game playing is associated with improved visual sensitivity, but not alterations in visual sensory memory" should not be a deterrent from reading its very interesting findings. Basically, games players (for electronic games that is) tend to be able to see more in the faster-paced and more complex scenes than non-gamers. However, what they see they don't remember all too well after the fact. I am not even sure they comprehend what they see any deeper either, but that a different topic all together. http://link.springer.com/article/10.3758%2Fs13414-013-0472-7


Further evidence that Anglo Irish Bank was lending well beyond the constraints of our planet was found by Nasa: http://arstechnica.com/science/2013/06/nasa-finds-unprecedented-black-hole-cluster-near-andromedas-central-bulge/ In brief, the Andromeda's core is about as concentrated with black holes as Dublin docklands: http://www.independent.ie/business/irish/nama-behind-70pc-of-the-vacant-docklands-sites-29346104.html

15/6/2013: Irish Health Pricing Policy: Stupid, Short-Termist & Costly

Per Irish Times article, the Government is planning to impose a massive price hike on hospital beds, leading to health insurance prices hike of estimated 30%.

This Government has been disastrous when it comes to containing the costs of healthcare. Here are three charts showing:

1. That the within the category of Miscellaneous Goods and Services, to which Insurance Services belong, Insurance Connected with Health posted the highest price inflation since December 2011, with index of prices rising to 127.4 in May 2013 against the benchmark of 100 in December 2011. 
2. In last 12 months, through May 2013, health insurance costs rose 12.5%. This represents the highest rate of cumulated inflation over 17 months from January 1, 2012 through May 2013 for any non-food item of expenditure recorded by the CSO and the second highest rate of annual inflation for any non-food line of expenditure after a bizarre 21.2% price hike in 'Cultural admittance' costs.
3. Across all categories of consumer expenditure, Irish Government controlled or regulated prices (with controls exerted either via high incidence of specific goods and services taxation, where taxes imposed by the state account for over 1/2 of the product final cost; or via State regulation setting prices; or via semi-states dominance in the sector allowing monopoly power pricing, etc) dominate heaviest price increases categories.

The charts below are easy to read: in Yellow, I mark the State-dominated sectors, with blue bars marking other sectors. All price indices are through May 2013. All data is from CSO.

Charts above confirm the observations made in points (1)-(3).

This Government is clearly on an economic suicide course. Raising health insurance costs will multiply demand for public healthcare & increase the cost of this demand by forcing more patients into emergency rooms. Worse, the completely moronic (and I cannot find any other way of expressing this) system will create a cascading cost increase to public system.

Currently, an insured patient in a hospital yields: vat and other tax revenues to the State, and generates positive return per bed occupied. In addition, the patient is pre-screened for hospital admission by a private doctor 9also generating vat and other tax revenues to the state) thus avoiding emergency room admission.

Forcing this patient from insurance into public system removes all of the above tax revenues and leads to the patient going via emergency room into admission. This means higher emergency room costs, plus higher treatment costs, because by the time a patient goes through with emergency room their admitting point condition would be most likely worse than were they to go through more preventative care and monitoring with private doctor pre-screening.

The word for this policy on health costs inflation is idiocy. Pure and simple.

14/6/2013: Weekend reading links: Part 1

Weekend reading links as usual, and as in previous week - in two posts.

Let's start with some fun. After a week of reading economics on this blog, why not leaf through 12 "random and obscure laws" that still exist. I know the USofA is a liberty paradise but… allegedly, not in Maine and not when it comes to Christmas lights and wreaths… or in Wisconsin as it goes for margarine...
http://likes.com/facts/totally-random-and-obsucre-laws-that-actually-exist?pid=95328&utm_source=mylikes&utm_medium=cpc&utm_campaign=ml&utm_term=25124720


My favourite visualisation of Big Data this time around comes from North Korea

And do check out the rest of the fab pics here…
http://likes.com/facts/wtf-north-korea?v=eyJjbGlja19pZCI6IDExMTkzMDIyNzksICJwb3N0X2lkIjogMjUxMjQ3MjB9

Note: on a serious side, I do find the above pic almost artistic - in the same vein as Andreas Gursky's real art: http://artblart.com/tag/andreas-gursky-tokyo-stock-exchange/

which (the above) also came from DRNK… and his very famous
http://artblart.files.wordpress.com/2008/11/gursky-99cent.jpg
My students from UCD courses in Masters in Management programme would remember the linked image.


From the sublime above to the atrocious below: The Kitsch of Ashgabat http://www.theatlantic.com/infocus/2013/06/the-city-of-white-marble-ashgabat-turkmenistan/100528/
My favourite is

The bizarre, tortured, almost shredded geometry of the totalitarian PhysEd comes to memory. No, the true derangement of the tyrant is measured not so much by thousands starved or banished or destroyed, but by grandiose waste of beauty, the more forced, the more permanent, the better. It is hard to explain, but violence to intrinsically beautiful is more characteristic of the delusion than violence to human. perhaps because nature usually poses no political threat, thus defacing nature is purely violent without any purpose.

Perhaps this would do for a better explanation: by Joseph Brodsky

 

Space is memory. The above photo records the former to sustain the latter.


A more modern - almost real-time - Duchampianization in Cyprus:
http://www.reuters.com/article/2013/06/10/us-cyprus-toilets-idUSBRE9590IA20130610
and it's inspiration:
http://www.tate.org.uk/art/artworks/duchamp-fountain-t07573
I could have chosen to term this Duchampianism - and almost did - except some attribute Duchamp's inspiration to a positive value - the ready made reproduction of the curvature similar to Constantin Brancusi's marbles, which obviously would not have been an appropriate allegory for Nicosia's installation. So perhaps we have amore ad hoc ready made analogy in two pieces, hence, Duchampianization term.


Take this quote for a teaser: "Most people have no clue that quantum computing exists. Even fewer know how it works. But once you understand it, and its vast processing power, you'll understand that this new Digital Age we're living in has barely scratched the surface of the computer potential."
Read more: http://www.businessinsider.com/what-is-quantum-computing-2013-6#ixzz2WE8s9ZjW
You will want to read more... I know - I did. And here's the source: http://dwave.wordpress.com/ Just awesome!


Two sets of links on time:

The first one is of two watches - the diametrically opposing works of art:
2013 - Vianney Halter

http://basel.watchprosite.com/show-forumpost/fi-636/pi-5864183/ti-862138/
But do watch the video - a fascinating story, also told in the article linked below:

http://live.wsj.com/video/the-most-important-watch-of-2013/62A235B4-BF3A-4BA0-B500-21048E3B3C30.html?mod=WSJ_article_outbrain&obref=obnetwork#!62A235B4-BF3A-4BA0-B500-21048E3B3C30
http://online.wsj.com/article/SB10001424127887324063304578523182943531780.html


And Ukraine's brilliant entry to Basel 2013:
http://basel.watchprosite.com/page-slide.new/ti-867538/pi-5909858/msid-26618318/fi-/nalbumforum.all_bLoB_s-/
and more pics:
http://basel.watchprosite.com/?show=photo&fi=636&imgid=3355653&msid=26618318&ti=867538&pi=5909858


But time (we are on dimensions theme here - following the note about space) is also linked to memory:

http://lifehacker.com/how-your-brain-perceives-time-and-how-to-use-it-to-you-511184192

And thus - to round up the first post of weekend reading links: of space and time... together:

http://www.poets.org/viewmedia.php/prmMID/19072

14/6/2013: EU's FTT: One Tax, Multiple Problems

FTT - Financial Transactions Tax - has been the pet project of pure love for Eurocrats and Socialistas in the Member States, hungry for revenue. It has been labelled a 'Robin Hood Tax' because the politicians attempted to sell it as a tax on filthy-rich financial services to redistribute to starving unemployed, presumably, despite the simple fact that in the un-competitive and fragmented market for financial services that is Europe, such a tax - any tax - will be fully passed onto ordinary savers, investors, depositors and in general onto the users of financial services.

The EU Commission published volumes of commissioned - made-to-order - research that shows just how brilliant an idea the FTT really is: it will raise loads of revenues, harm no one and will not reduce financial markets efficiency. Stopping just short of declaring the FTT to be a panacea to common cold, the EU enthusiastically propagandized the idea despite the simple fact that vast majority of academic research on the topic of transactions taxes finds that they are either ineffective as means for revenue raising or costly in terms of economic efficiency.

I wrote about this (see link at the bottom of this post below) and will continue to write, not because I long for an easy life for the bankers or financial investors, but because I recognise the fact that investment markets are necessary to the functioning of the society and the economy, and because I also recognise that more open, less restricted, but well-regulated and strictly enforced financial services are better than anything that Brussels et al can conceive in their technocratic dreams.

So in line with the past record, here's another study (http://www.cpb.nl/en/publication/an-evaluation-of-the-financial-transaction-tax) that explores "...whether the FTT is likely to correct the market failures that have contributed to the financial crisis, how well the FTT is likely to succeed in raising revenues, and how the FTT compares to alternative taxes in terms of efficiency."

The study finds (emphasis is mine) "... little evidence that the FTT will be effective in correcting

market failures. Taxing of transactions is not well targeted at behaviour that leads to excessive risk and

systemic risk creation. The empirical evidence does not suggest that the introduction of an FTT reduces

volatility or asset price bubbles. Transaction taxes will likely reduce investment in trading activity and

information acquisition, but also raise the costs of insurance against currency and interest risks by

companies, insurers and pension funds. The welfare effect of that is unclear."

"The FTT will likely raise significant revenues, in spite of the fact that the tax base is highly elastic. In the short term, the incidence of the tax will be chiefly on the current holders of securities. Ultimately, the tax will be borne in part by end users, and we estimate the likely effects on economic growth."

"When compared to alternative forms of taxation of the financial sector, the FTT is likely less efficient given the amount of revenues. In particular, taxes that more directly address existing distortions (such as the current VAT exemption for banks, and the bias towards debt financing) provide more efficient alternatives."

And here's a report from the Open Europe think-tank on the FTT, assessing the EU Commission response to the concerns of the eleven - that right, eleven - member states: (http://openeuropeblog.blogspot.co.uk/2013/05/if-you-had-kept-quiet-you-would-have.html)

Quote: "The Commission's response ranges from weak to capricious to outright ridiculous. For example, when it says that "we're not aware of any credit crunch" in Europe."

What else is new?

Note: I wrote about the concerns around the issues of repos and hedging here: http://trueeconomics.blogspot.ie/2013/05/3052013-ftt-up-down-down-again-climbing.html


Links to past articles on FTT: http://trueeconomics.blogspot.ie/search?q=FTT&max-results=20&by-date=true
You can search this blog for key words and sort the posts by relevance or date.

14/6/2013: Detroit suspends payments on unsecured debt

I recently wrote (albeit in distinct context) about Detroit's bankruptcy. Here's the latest on the saga:
http://www.bloomberg.com/news/2013-06-14/detroit-on-bankruptcy-s-brink-stops-paying-some-debts-orr-says.html

I love this city because it gave me (via Chicago) my greatest partner in the crime of life. And my students in Smurfit Graduate School of Business are certainly familiar with the imagery of the urban collapse from Detroit and Flint, Michigan on foot of my lecture notes slides penchant for dramatic photography.

Sadly, it is totally, comprehensively, irreparably destroyed. Its only hope is a structured and comprehensive default followed by a bottom-up restructuring of its economy, demographics, politics, policies and institutions. Let's hope Michigan State will not commit the errors committed by the Euro area 'leaders' in Greece, Ireland, Portugal, Cyprus, Spain, Italy...

14/6/2013: G8 Summit: pure laughs

G8 Summit has been transforming Northern Irish country towns into prosperous villages... (see the first image in this post: http://trueeconomics.blogspot.ie/2013/05/3152013-bank-holidays-links-on-art.html), but all along, the real winners in the Best Bizarreville News Contest was the host resort itself:

14/6/2013: Scary table of the week: Irish Property Prices 'Recovery' Dating

Updating my databases, I came across an old exercise of estimating the property prices recovery paths for Ireland based on the CSO Residential Property Price Index. Here's an updated table of dates of expected recovery according to three basic scenarios:

There is virtually no point of repeating the same exercise for real values, albeit the closest this comes to such an attempt is Scenario 3.

All calculations are based on CSO data.

13/6/2013: Irish Construction Sector Activity Post Some Better News: Q1 2013

Some good news for Irish construction sector (not as impressive as German stuff, but... much more welcome, given the sector dynamics so far through the crisis).

Per CSO: "The volume of output in building and construction was 4.4% higher in the first quarter of 2013 when compared with the preceding period.

• This reflects increases of 6.8% and 1.2% respectively in residential building and non-residential building. 
• There was a decrease of 0.7% in the volume of civil engineering.  The change in the value of production for all building and construction was +1.9%. 
• On an annual basis, the volume of output in building and construction increased by 10.7% in the first quarter of 2013.  
• There was an increase of 9.5% in the value of production in the same period. 
• The annual rise in the volume of output reflects year-on-year increases of 26.8% and 2.4% respectively in civil engineering and non-residential building work. 
• Output in residential building decreased by 2.5%"

Now, graphs and a summary table for more detailed analysis:

13/6/2013: Boom-time in German Building Industry?

Ifo published some new survey data on German economy. One that jumps out is the Architects Survey. Per Ifo (emphasis mine): "The business climate improved significantly at the beginning of the second quarter of 2013 and has not been as favourable since the German reunification boom at the end of the 1990s, according to the remarkable results of the Ifo Institute's quarterly survey of freelance architects."

Freelance architects "assessed their current business situation as significantly better than in previous quarters and business expectations have also improved compared to last quarter's assessments. 

• The share of architects surveyed who described their cur-rent business situation as "good" increased from 41% to 43%. 
• Business expectations also improved compared to last quarter’s assessments. The share of partici-pants that expressed scepticism about the future fell considerably from 16% to just 10%. 
• 57% of the architects surveyed signed new contracts in the first quarter of 2013. 
• Number of new contracts for detached and semi-detached houses in Q1 2013 is the same as in Q4 2012 - at a level that is almost twice as high as the low point reached in 2006 and 2007.
• Total number of new orders for the planning of multi-family buildings in Q1 2013 was around 150% higher than the figure just six months previously.

It's a boom-time in Germany and Angela might be feeling a bit more confident, assuming the euro news are not too bad come elections...

12/6/2013: Statement, Questions, Facts

Statement: "She pointed out that one in five of credit union loans was in arrears for more than nine weeks. This 20pc figure compares with 11pc of mortgage holders being in arrears for three months or more."

Source: http://www.independent.ie/business/personal-finance/property-mortgages/credit-unions-warned-many-loans-will-not-be-paid-back-29337885.html

Question 1: Given that both Credit Unions and banks are regulated from the same Central Bank, why are we using different time bases for comparatives on NPLs?

Fact: 11.9% is the actual percentage of mortgages in arrears (by account numbers) over 90 days, per latest official data available (Q4 2012), which rounds to 12% not 11%.
Fact: Including BTLs, 13.04% of all mortgages were 90 days and more in arrears (by accounts) and 18.2% by outstanding amounts.

Question 2: Given the above, why is the Registar of Credit Unions referencing 11%?

Fact: Balance of mortgages in arrears over 90 days in Q4 2012 was 15.8%.

Question 3: Should we reference balances for comparatives?

Fact: in Q4 2012 all mortgages in arrears (>30 days or over 4 weeks and given reporting and registration lags, closer to probably 6-7 weeks) amounted to 19.3% of all mortgages by account numbers and 24.9% of all mortgages by outstanding amounts. All of the sudden, that vast difference implied in the quote above is... err... rather much smaller.

Aside: why are we now ca 2 weeks behind the normal release schedule for mortgages arrears data?

12/6/2013: Bond Markets: Is Canary Kicking the Bucket?

I have written before about the prospect of the Fed starting unwinding of the QE operations. Here's my summary forward view.

Stage 1: the Fed will reduce the rate of QE print ('taper on'). This is inevitable and it is already driving 10-year Treasury yields up - in last 40 days, by some 50bps. The same is also inevitable for the Euro area, albeit via a different mechanism (unwinding of excess liquidity supply to the banks, plus scaling down of any expectations for OMT to kick in), driving the Bund up some 35bps.

In both cases, macro news-flows and inflationary pressures pointed to the opposite direction for yields. This is confirmed by the differences in risk pricing indices in the bond markets (MOVE index: Merrill Lynch Option Volatility Estimate (MOVE) Index on US Treasuries) as opposed to the equity market volatility index (VIX). MOVE has gone almost double from around 47-48 in early May to over 80 recently. Levels around 80 are consistent with the height of the peripheral euro area crisis back in 2012. Over the same period of time, VIX is up from around 13.0 to 16.0 and during the height of the euro area crisis it was averaging closer to 40.

Stage 2: In the follow up stage, the Fed will have to engage in more than simply scaling back new purchases. Here, the unwinding will begin in earnest and the Fed will have to sell longer-dated bonds into the market.

For now, we are just embarking on Stage 1. Emerging markets and corporate bonds, as well as euro periphery bonds are all signalling the same story: yields are pressured up. During May, US investment corporate bonds fell 2.7%, while junk bonds were down 2.3%.

Now, in the longer term,  when US gross interest rate rises relative to the euro area, forward exchange rate must rise relative to the spot and dollar will weaken forward. This covered parity relationship tends to hold over the longer periods of time under normal market conditions. In May-June so far, Dollar is 5% weaker than EUR, and over 2% weaker than CHF (linked to EUR). However, Dollar is stronger 22% than JPY and virtually unchanged on GBP, dollar strengthened with respect to the emerging currencies.

However, in the short run we are not in a normal economy. As US economy continues to improve, few things will happen:
1) The Fed will continue tapering on the QE in the short-term
2) Expected unwinding of QE (rising rates, instead of lower speed of purchasing of Treasuries as in (1)) will enter expectations in the market but in a longer term, rather than any time soon
3) Bond yields will continue rising and volatility will remain amplified. Long-term US equilibrium is for 10 years at 3.0-3.2% and short-term overshooting that range, for Bund - at current rates, around 2.5-2.8%.
4) Fed will be watching the speed of increases and manage unwinding process accordingly to keep yields from overshooting 3%-or-so target by a significant margin.

All of this means that news-flow will be crucial in months to come as it will be signalling both short-term and long-term changes to the Fed position (usual stuff about the rates), but also strategy (severity of (1) above, or switch to (2) from (1)).

In the short term, dollar will see pressures to appreciate as interest rates will remain intact at policy level and it will take time for higher Treasury yields to transmit into higher real interest rates in the US, inducing slowdown in the economy. Until that happens, economic recovery will be pushing up equities and USD.

In the longer run, however, this pattern will be altered: improved economic news will signal forward switch from (1) taper off to (2) unwinding. Yields will put pressure on real interest rates (3) and policy rates will move up. This will lead to subsequent devaluation of the USD toward equilibrium and a slamming of the breaks on the recovery.

The emerging markets and corporate bonds squeeze are not simple reallocations of liquidity. Truth be told, there is nowhere for liquidity to 'reallocate', given yields. Instead, these are early warning systems at work. Now, to see the underlying iceberg we are heading for, recall this http://trueeconomics.blogspot.ie/2013/04/2242013-who-funds-growth-in-europe.html


Updated: series of very interesting interviews on the issue of monetary exit: http://www.voxeu.org/article/exit-strategies-time-think-ahead

and an interesting post on term premia due to QE:
http://www.econbrowser.com/archives/2013/06/update_on_the_y.html

11/6/2013: Irish Services Index: April 2013

Good news is: on an annual basis, per CSO, in April 2013:

• Administrative and Support Service Activities rose +21.3%, 
• Information and Communication went up +15.4%, 
• Other Service Activities +4.2%, 
• Transportation and Storage +1.4% and 
• Accommodation and Food Service Activities (+0.3%) increased 

On bad news front:

• Wholesale and Retail Trade were down -4.2% and 
• Professional, Scientific and Technical Activities fell -0.6%.

The seasonally adjusted monthly services value index increased by 1.2% in  April 2013 when compared with March 2013 and there was an annual increase of 4.1%.

As you would know, I am not covering Services PMIs anymore, as these are no longer being released in any useful data format (Markit has decided to exclude reporting of actual levels of sub-components for PMIs, preferring to practically give instead its analysts personal opinion about these levels). 

However, I will continue reporting CSO data.

So here's more detailed analysis:

• Wholesale Trade sub-index rose from 106 in March to 114.1 in April, marking a 7.64% rise m/m and a decline of 4.68% y/y. 3mo MA through April 2013 stood at 110.23, down on 116.67 3mo MA through January 2013 and down sharply on 122.07 3mo MA through April 2012. 6mo MA through April 2013 is at 113.45, down on 121.10 6mo MA through April 2012.
• Wholesale and Retail Trade, repair of vehicles sub-index improved from 102.3 in March 2013 to 105.7 in April 2013 (+3.32%), but the index is down 4.17% on April 2012. 3mo MA through April 2013 is at 104.3 against 3mo MA through April 2012 at 111.27; 6mo MA through April 2013 is at 106.32 against 6mo MA through April 2012 at 110.80.
• Transport & Storage sub-index is at 113.4 in April 2013 up marginally (+0.62%) m/m and up 1.43% y/y. 3mo MA through April 2013 is at 111.83 up on year ago 3mo MA of 106.83. 6mo MA through April 2013 is at 111.18, up on 6mo MA through April 2012 at 106.73.

• Accommodation & Food Services slipped from 105.9 in March 2013 to 102.7 in April 2013 (-3.02%) and the index is up only 0.29% y/y. 3mo MA through April 2013 is at 103.2, which is up on 3mo MA through April 2012 at 101.2. Similarly, 6mo MA through April 2013 is at 103.77 which is up on previous year level of 101.3.
• Much of the improvements in the above sector was driven by rising value of food services, up 3.51% y/y. Accommodation services actually fell 1.35% y/y and were down 9.07% m/m.
• Administrative and support services activity also improved m/m (+1.66%) and rose strongly by +21.31% y/y. Huge gains were recorded in the activity on 3mo MA basis y/y and 6mo MA y/y basis. I have no explanation to this other than possibly reclassification of some activities into this category, plus boom in on-line services centres in Dublin (much of google and other ICT services firms activities here relate to support and admin, rather than R&D or professional work).

• ICT services continue to boom, rising 15.42% y/yin April, although slipping 1.59% m/m from the historical record-breaking levels in March 2013. on 3mo MA basis, April 2013 stood at 122.13 strongly up on previous year levels of 109.87. On 6mo MA basis, April 2013 came in at 120.42, up on 110.42 a year ago.
• In contrast to ICT services and Admin services, Professional, scientific and technical activities index declined for the third month in a row, falling to 91.0 in April 2013 from 91.2 in March 2013 (-0.22%) and is marginally lower (-0.55%) y/y. 3mo MA through April 2013 is at 91.4 and it is virtually flat on 3mo MA through April 2012 (91.2). 6mo MA through April 2014 at 91.0 is down on 94.5 6mo MA through April 2012.

• Overall Services sector activity index rose 1.21% m/m from 107.7 in March 2013 to 109.0 in April 2013, and is up 4.11% y/y. 3mo MA through April 2013 is at 107.63 which compares marginally positively against 105.4 3mo MA a year ago. 6mo MA through April 2013 is at 107.62, also marginally up on 105.47 6mo MA through April 2012. However, 3mo MA through April 2013 was identical to 3mo MA through January 2013, implying zero growth, and 6mo MA through April 2013 was slightly ahead of 6mo MA through October 2013 (107.6 relative to 105.9).

10/6/2013: Fitch on Irish Banks

Both Fitch and S&P have in the recent past questioned the model of Irish banking sector crisis resolution on the foot of the apparent link between the banks balance sheets and the exchequer.

Today, Fitch issued another report on Irish banking sector, titled "Peer Review: Irish Banks"

The report claims that Irish banks' current ratings "are constrained by the significant risks that remain in the Irish banking system. However, support remains an important rating driver and Fitch considers that the Irish authorities' propensity to support the 'pillar' banks, Bank of Ireland (BOI) and Allied Irish Banks, p.l.c. (AIB) remains undiminished, despite the withdrawal of the Irish Bank Eligible Liabilities Guarantee (ELG) in March 2013."

Crucially, "Fitch believes that the pillar banks' performance will continue to track within the stress case scenario of the 2011 Prudential Capital Assessment Reviews (PCAR), however these tests were framed on a Basel II basis. Since then capital expectations of market participants have increased. The 2014 PCAR may revise the stress assumptions and requirements to align more closely with Basel III." The kicker is that the banks will need new capital ('might need' another state injection as opposed to 'will need' capital).

"As Irish banks' capital ratios continue to be eroded and a return to profitability only appears feasible in the longer term, the banks may need to raise additional capital before they can contemplate a future independent of state support", Denzil De Bie, a Director in Fitch's Financial Institutions Group told Reuters.

The old kicker is that assets and capital held by the Irish banks remain weak, "with high NPLs and impairment charges, especially against commercial real estate and residential mortgage loans. Although the rate of deterioration slowed at BOI and AIB in 2012, Fitch believes impairment charges could increase during 2013 and 2014, with arrears reaching a peak in 2014, as the banks accelerate the resolution of mortgage arrears in line with new targets set by the Central Bank of Ireland in March 2013."

"Asset quality is weak in the Irish banks, with NPL ratios of 16%-40% in the Fitch-rated
institutions at end-2012. The banks also report a significant portion of their loan book to be past
due but not impaired."

Peaking of mortgages arrears per PCAR2011 starts in 2014 and goes on in 2016-2017.

"Underlying pre-provision operating profitability is structurally very weak because of the long-term, very low-yielding mortgage loans in their books. Until rates rise, Fitch considers that a return to sustainability will only be possible as the various restructuring and cost control plans of the banks begin to yield results. Fitch expects a return to operating profitability to be delayed until at least 2015 because of the continued erosion of earnings from high but reducing impairment charges."

Now, recall that per PCAR2011, Irish banks were supposed to fund their full losses out of operating profits starting with 2015. So far, Fitch is not saying there is excess (above PCAR2011 stress test assumptions) level of stress in the system, but Fitch does seem to point to the already recognised two pressure points:
- continued deterioration on the assets quality side, and
- Basel III.

And the banks are still dependent (and will remain for some time to come) on state/central bank supports: "with loan/deposit ratios still at a high 130%-230% in the Fitch-rated banks at end-2012, wholesale, government and European Central Bank funding still forms an important, albeit reducing, component of the Irish banks‟ funding bases." Why? Because deleveraging is by far not complete:

On banks doing their bit to get credit flowing to the economy:

And per stabilisation of deposits:

10/6/2013: Corporate Tax Haven Ireland Weekly Links Page

We score the 'unique' one in the world of tax arbitrage / err... tax havens... our own proper name. And FT just 'graphed' it:
http://www.ft.com/intl/cms/s/0/e0c8317c-ceaf-11e2-8e16-00144feab7de.html#axzz2VqnobwHj

For more links to worldwide reporting of Ireland as corporate tax haven, follow the second link in this post:
http://trueeconomics.blogspot.ie/2013/05/2652013-corporate-tax-haven-ireland.html or
http://trueeconomics.blogspot.ie/2013/05/1452013-corporate-tax-haven-ireland.html

10/6/2013: Italian GDP for Q1 2013

Italian GDP release for Q1 2013 in few tweets and a picture

So, 'fail' on preliminary reading, showing lead indicators being too optimistic. Expectations average was for -2.2% decline. And per components:

 Note the last one - growth crisis accelerating, not otherwise.

Note one positive contributor... the only one...

And quarterly changes on real GDP side:

So we know austerity has been savage. Really, savage...

10/6/2013: Did UK Taxpayers 'Rescue' Ireland?..

An interesting story today in The Times. Here's a report on it from The Telegraph (http://www.telegraph.co.uk/finance/business-news-markets-live/10109577/Business-news-and-markets-live.html go to 7:10am post). Emphasis is mine:


"The Times is leading with the story that Britain has given a back-door bailout worth around £10 billion to the Republic of Ireland in an arrangement that was never explicitly approved by Parliament. The money has been pumped into Ulster Bank, a subsidiary of the state-owned Royal Bank of Scotland which was rescued by a public cash injection of £45 billion five years ago."

What's the gist? "New figures show that Ulster Bank, which operates predominantly in the Republic despite its name, has accounted for approximately one in every four pounds of losses at RBS since 2008... Almost one pound in every four injected into the two state-backed banks by the Government has gone directly into the Irish economy, the two lenders' subsidiary accounts show."

How so, may I ask? "Between 2009 and 2011, RBS made "capital contributions" totalling €9.13bn (£7.6bn) to its Dublin-headquartered subsidiary Ulster Bank Ireland. Over the same period, Lloyds transferred £6.41bn to its Irish operation, Bank of Scotland (Ireland), before dissolving the business.
The total – £14bn – amounts to more than a fifth of the £65bn UK taxpayers injected into RBS and Lloyds in 2008 and 2009, and is expected to rise further. Analysts estimate that RBS transferred another £2bn last year."

How so, I ask again?

You see, in reality, there was no £10 billion bailout from the UK to the Republic of Ireland and the money injected into Ulster Bank did not go 'directly into the Irish economy'. What did happen is that a bunch of bondhodlers and interbank lenders to the Ulster Bank were made whole on the liabilities which the Ulster Bank would not have repaid, were the UK taxpayers not pumping money into it. Truth is, the UK taxpayers, like Irish taxpayers, were made subsidies to the international banking funding scheme. Not to the Irish economy or to the Republic of Ireland.

The UK taxpayers did lend money to the Irish Government under the Troika+ 'rescue' deal and we shall say thank you to them for this much, especially since these loans were made on terms that matched fully multilateral loans. But the Republic of Ireland and its economy have nothing to say on the UK taxpayers being wrongfully made pay ever cent on the euro of the Ulster and BOSI borrowings.

Full stop.

8/6/2013: Shortages of Safe Assets & Banks Recaps - troubled waters of Basel III

Here's an interesting view on European banks: http://www.voxeu.org/article/urgent-need-recapitalise-europe-s-banks . The core point is here:

Chart: Market-to-book value of European banks:

Quote: " On average, the market-to-book value of European banks now is about 0.50 (see Figure 1). This indicates that accountants’ estimates of bank capital are far too rosy, and that banks have substantial hidden losses on their books."

But there's more. "Until now, Europe’s banking sector has been kept afloat by implicit state guarantees of virtually all liabilities. …in 2012 these guarantees provided banks in Europe with an annual average funding advantage amounting to 0.3% of total assets. …An annual funding advantage of 0.3% of assets can be capitalised to be equivalent to 2% of total assets, on the assumption of a discount rate of 15% commensurate with banks’ uncertain earnings prospects. Given total banking assets of €33 trillion in the Eurozone, we are talking about an implicit guarantee of about €650 billion."

In short, through the crisis, European banking system was pumped with implicit supports to the tune of EUR2.6 trillion.

More than that. EBA is delaying stress tests into 2014, so we won't even in theory be able to know what is going on in the banks. Except, one has to doubt that the theory is a good instrument for the reality, as EBA has managed to bungle all stress tests it carried out to-date. In other words, EBA is acting de facto to increase implied supports as it delays and evades recognition of losses.


Look at the following paper: http://www.cpb.nl/en/publication/private-value-too-big-fail-guarantees (alternative link via ssrn: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2271326) which concluded that: "over the period 1-1-2008 until 15-6-2012" for only 151 European banks, "the size of the funding advantage' granted by various state supports "is large and fluctuates substantially over time. For most countries it rises from 0.1% of GDP in the first half of 2008 to more than 1% of GDP mid 2011. Our results are comparable to findings in previous studies. We find that larger banks enjoy on average higher rating uplifts, but the effect of size does not increase anymore for banks with total assets above 1,000 billion Euro compared to banks with assets between 250 and 1,000 billion Euro. In addition, a higher sovereign rating of a bank‟s home country leads on average to a higher rating uplift for that bank."

In other words, remove the protectionist supports and the system will crumble.

Note, the paper also cites the case of Ireland. "When we take a closer look at the funding advantages of banks from Spain, Italy, and Portugal in Figure 7, we see that the advantages enjoyed by banks are relatively small in these countries. This can be explained by the smaller rating uplifts that the banks from these countries enjoy. The fact that rating uplifts are relatively small in these countries is likely to be related to lower sovereign creditworthiness. The banking sector in, for example, Spain is not necessarily smaller when compared to GDP than the banking sector in France and Germany. So this is unlikely to explain the results we find. In Ireland, funding advantages are relatively large compared to the other three countries. The funding advantage enjoyed by Irish banks is somewhat higher than the advantage enjoyed by French and German banks."

Figure 7: funding advantage per country (Spain, Ireland*, Italy, and Portugal) (*note that the figure for Ireland is drawn on a different scale)

Now, when you just thought that the resolution path (as suggested by the article linked above) is well-known: assess, expose, recap, things are getting slightly out of hand. BIS has warned that simply pumping more capital into banks might be a wrong thing to do. Here's the BIS paper: http://www.bis.org/publ/cgfs49.pdf.

In the nutshell, BIS is saying that core tools for dealing with banks insolvency so far are… possibly… making these banks less safe, not more. The problem is that under Basel III, safety of bank capital is determined by safety of underlying assets held as capital (so far - fine). These 'safe' assets are… err… Government bonds and Government-guaranteed commercial paper (e.g. MBS). The idea is that 1) these assets are more secure, thus provide better cushion in the case of distress, and 2) these assets can be sold (are liquid) easily to cover any losses.

Problem is: there is a shortage of 'safe' assets as defined by Basel. The shortages are riven by 1) higher demand for these assets, 2) smaller number of 'safe' (highly-rated) sovereigns, 3) reduced issuance by highly-rated sovereigns ('austerity') and 4) central banks and non-banking financial institutions (e.g pensions funds) hoovering up these assets. BIS is not worried about the shortages of safe assets, but here are some links on this:

• from the Economist: http://www.economist.com/blogs/freeexchange/2013/02/safe-asset-shortage
• and from BIS own researchers: http://www.bis.org/events/conf120621/gourinchas_paper.pdf
• from Bruegel: http://www.bruegel.org/nc/blog/detail/article/1023-blogs-review-the-safe-asset-shortage/
• from FT Alphaville: http://ftalphaville.ft.com/tag/shortage-of-safe-assets/ with a chart:

In turn, shortages of safe assets, even if nascent, can drive ups emend for riskier assets and thus increase riskier assets allocations by the financial intermediaries (think insurance and pensions funds on drugs).

Here's a very interesting discussion of what can happen next from @simonefoxman: http://qz.com/88585/new-fears-of-financial-interconnectedness-highlight-the-delusion-of-bank-capital/?oref=dbamerica

"And therein lies the risk. The assets don’t change hands permanently: It’s just one institution lending junk bonds to another and borrowing higher-quality ones in return. So a default on one side could translate into problems for the other. In such cases, the “high-quality capital” is only as reliable as the low-quality capital it was exchanged for. Moreover, if assets on either end of such a deal are mispriced, it could have knock-on effects across the financial system.

As a result, warns the BIS, the financial system is becoming more interconnected—and thus more susceptible to system-wide problems of the kind we saw in the financial crisis a few years ago."

Once again, Basel III might be off the target by a mile when it comes to improving quality of risk buffers in the banks… Just as with liquidity buffers: http://trueeconomics.blogspot.ie/2013/05/352013-basel-25-can-lead-to-increased.html

8/6/2013: Euromoney Credit Risk summary for Ireland

Latest results for Euromoney Country Risk survey for Ireland:

7/6/2013: Weekend Reading Links: Part 2

In the previous post I have compiled some reading links for the weekend: http://trueeconomics.blogspot.ie/2013/06/762013-weekend-reading-links-part-1.html

As promised, here is a follow up second post with the rest of links.


The world of clocks and daggers is, it turns out, also the world of some appreciation for the arts. As reported here: http://www.wired.com/threatlevel/2013/06/analyst-who-cracked-kryptos/ the CIA staff has finally cracked the code of the Jim Sanborn's cryptographic sculpture at the CIA’s HQs. It took 8 years and then it took another 25 years for the fact to be revealed to the public. But even more fascinatingly, one last coded section of the sculpture is yet to be deciphered…


Not exactly art or science, but Apple is a leading light in the world of design-driven approach to manufacturing. It has been brilliant, irreverent, non-standard and always expressive through out decades. It has also been a brand icon for creative industries )rows of Macs on ad agencies desks) and as such it is associated with the very iconic anti-IBM commercial that launched it http://www.youtube.com/watch?v=VjyrqVgWPXY.

But now, Apple is the new IBM… http://blog.stephengates.com/2010/04/12/welcome-to-1984-how-apple-has-become-the-new-ibm/ and worse, it is anti-Apple too, for the man who did this: http://www.youtube.com/watch?v=FXGrVEnKDko would have probably never been hired into Apple today: http://venturebeat.com/2013/06/03/if-steve-jobs-applied-for-a-job-at-apple-today-theres-no-chance-in-hell-hed-get-hired/ .


The next link, as I promised not to do anything 'economics'-wise, is not so much about economics of something, but rather economics as a field of inquiry. Anyhow, I find it intelligently written and actually quite good: http://www.theatlantic.com/business/archive/2013/06/should-we-trust-economists/276497/


Two related articles on art of light:
http://www.theartnewspaper.com/articles/What-happens-when-the-lights-go-out/29752
and
http://www.theartnewspaper.com/articles/Flavins-will-see-the-light-of-day/29751

I prefer Dan Flavin's works: here he is in his symmetric error of homage to Tatlin: http://www.moma.org/collection/object.php?object_id=81337

Of course, irony has it, Tatlin was asymmetric: http://kdigital.tumblr.com/post/576318843/model-for-the-monument-to-the-third-international It always puzzled me why in all of his homages to Tatlin (of which Flavin made 8) he was always symmetric in interpreting Tatlin's tower. All said, here's Flavin at his best http://www.davidzwirner.com/wp-content/uploads/2011/11/33-400x266.jpg

And finally - another reminder - I will be taking part in http://www.rar.ie/ on Thursday 13 June, 2013, from 8.00pm – 2.30am.


Have a great weekend and stay tuned - there will be economics posts on the blog.

7/6/2013: Weekend Reading Links Part 1

The weekly links page for weekend reading materials is now becoming a regular feature of this blog. Why? Because in my daily life I am privileged to come across a number of fascinating things - science and arts related - and these are simply worth sharing. Also because art and science are more important in value to humanity than economics (the bit of economics that is beyond science-art overlap, or, as I call it, applied economics). And finally, because it is often fun to tease out bits of my own thinking on the matters of art (and less so on the matters of science).

So here's this week's list in no particular order.


Since my days at IBM I came to appreciate the complex nature of data visualisation. Prior to my days at IBM I came to appreciate the value of visualisation in shaping our understanding of the world when information about the world is transmitted to us by means of data. Now, here's an article that added to my understanding of visualisation as a tool for shaping the long-term future of the world: http://venturebeat.com/2013/06/07/sparkon-releases-future-visualization-engine-to-help-kids-choose-a-career/ . Why is it important to me? Ok:

1. It contains direct links to human capital (sorry, err… I know, no economics)
2. If visualisation is about narrating the world, making it more comprehensible, then visualisation is also capable of altering the world around us by altering our understanding of it. That is second-order loop of causality: world causes data, which causes (via visualisation) our understanding which in turn causes us to interact with the world and thus cause data… If we take the visualisation as a tool for directly shaping human choice of careers, fields of study, inquiry etc, then the visualisation over time becomes the first order shaper of the world, right? Scary… You bet:
3. The entire idea of shaping (via any specifically designated tool) one's future, as in "Let’s say your strongest “career personality type” is artistic follows by enterprising, you are extroverted, and you are passionate about art and video games. Sparkon suggests a range of jobs that bring all these together, like video game designer or art director, and suggests majors and skill sets that are useful for these areas. The engine then suggests specific videos, like “careers in the video game industry,” computer programming, or graphic design. There are also more general videos about college and SAT preparation, communication and leadership etc… Students can create a Netflix-style queue with recommended videos, and parents can also get involved by monitoring their kids’ progress to see what they are exploring." Missing something? Oh, yes, Sparkon won't really suggest you become an artist, cause you know… "there's no money in that". Now, imagine the world where humans are discouraged from making any errors by constantly being steered / selected into a stream of activities and information determined by a machine?.. Here comes Sparkon generation of drones?

Next, back to Venice Biennale:
"When I got out I felt I had escaped from the suffocating embrace of a revenant worthy of De Chirico. But this remake is perfectly in tune with the market of today now that the fairs have given up on the fuchsia and chrome-yellows of Murakami and Koons and have taken to showing off the pauperish neutrals of the Seventies. It is a much more radical product than the efforts of the young neo-conceptualists, but highly fashionable at a time when collecting is wearing the hair-shirt of the most hypocritical of penitents."

What?! Ah, yes, yes… that's about current reconstruction of the 1969 exhibition http://www.veniceconnected.com/node/29046. The review of it - the source of the quote - is here: http://www.theartnewspaper.com/reviews/The-Prada-Biennale-show-Creative-Energy-turned-into-Dead-Fetishism/29836 . Comes August, I am looking forward to being as suffocated by the embrace of the exhibition as I was suffocated by the embrace of the review, just as I am certain to be suffocated by the Venice stuffed by the 30+ degrees sun heated bodies of tourists, who usually leave Biennale the last on the list of amusements worth attending…


The art of displaying dead art (point above) is different from the art of feeding dead art to a dead dictator… and the latter doesn't quite offer the promise of the excitement of the former. Except when the dead dictator is Kim Jong-Wong-Bi-Din-Dong-Il of North Korea. Fascinating and fantastic account of Kim's favourite sushi chef depicted in a lengthy interview in http://www.gq.com/news-politics/newsmakers/201306/kim-jong-il-sushi-chef-kenji-fujimoto-adam-johnson-2013?currentPage=1

My favourite rhetorical bit: "And guesthouse is code for a series of palaces decorated with cold marble, silver-braided bedspreads, ice purple paintings of kimilsungia blossoms, and ceilings airbrushed with the cran-apple mist of sunset, as if Liberace's jet had crashed into Lenin's tomb." My favourite human bit: Fujimoto's two abandoned families. It has to be a rare twist of fate in which one abandons his two daughters and a spouse to serve the dictator in exchange for having a family that he subsequently condemns to labour camps by escaping the dictator… and so on… do read!


Science or fiction? http://www.forbes.com/sites/alexknapp/2013/06/06/take-that-nsa-scientists-hide-communications-using-a-hole-in-time/ So basic idea is there are holes in time (not only the ones that follow copious consumption of alcohol) and you can hide stuff in them (well, for now, no white elephants - ease off, politicians with any plans). My favourite quote: "In practice, this system isn’t perfect." No sh*t, Sherlocks…


New stuff on 'how planets are formed' http://www.siliconrepublic.com/innovation/item/32967-astronomers-discover-comet/ Predictably, nothing new on why planets are formed… but that is a different topic.


On the way we know stuff, plus the way we communicate, a very interesting paper from Cornell University "Social Media and Information Overload: Survey Results" (http://arxiv.org/abs/1306.0813) looks at information flows via user-generated media, "such as Facebook, LinkedIn and Twitter' based on smallish sample of 587 participants in a UK survey. "Participants who experience information overload are those who engage less frequently with the media, rather than those who have fewer posts to read." Kind of obvious: less you engage, bigger is build up of unanswered communications. "Microbloggers complain of information overload to the greatest extent. Two thirds of Twitter-users have felt that they receive too many posts, and over half of Twitter-users have felt the need for a tool to filter out the irrelevant posts." I have no idea how I would have answered their survey… maybe because I feel that I am more surveys-overloaded than twitter-overloaded?


Much is written by humanity on the topic of happiness. So much so that even the Guardian (a miserably Lefty paper) has gotten to the topic, let alone the economists (the latter also more often than not read the Guardian, which is clearly correlated with both being unhappy on average more than non-economist and so on…) Read: http://www.guardian.co.uk/commentisfree/2013/may/31/secret-happiness-complicated-research?INTCMP=SRCH - it is somewhat 'all over the place' and not too deep, but is interesting nonetheless. And when you finished, read

•  http://trueeconomics.blogspot.ie/2011/09/3092011-returns-to-beauty.html
•  http://trueeconomics.blogspot.ie/2013/05/452013-higher-income-vs-higher.html
•  http://trueeconomics.blogspot.ie/2009/02/european-v-american-model-labour-and.html
•  http://trueeconomics.blogspot.ie/2009/07/interesting-research-happiness-on-venus.html
•  http://trueeconomics.blogspot.ie/2013/05/3052013-more-on-wellbeing-v-income.html

And thereafter, come back to this page…


Last week, I posted links to several articles on the proof of the theorem that postulates that gaps between prime numbers are bounded (see: http://trueeconomics.blogspot.ie/2013/05/2552013-saturday-reading-links.html). Here's a human story behind the proof author:
http://www.wired.com/wiredscience/2013/05/twin-primes/ - worth a read.


In contrast, here's the design for much-awaited Lego House design: http://aboutus.lego.com/en-gb/news-room/2013/june/the-right-look-for-a-lego-house/ and, argue with me on this, but I think it is banal. Made even more banal by monochromatic white, which is so 'not Lego' and thus expected in the world of reverse psychology of asymmetric innovation - aka the world of on-line aesthetics.


Stay tuned for more reading links once the kids are put into their beds...