Sunday, December 16, 2012

16/12/2012: Stop the nonsense on 'non-payment' of Promo Notes 2012




In recent weeks, the Irish Government has engaged in a willful and undeniable distortion of fact. Here is one example of a senior Minister on the record saying that : ""[The Government] didn't pay the promissory note this year…"
http://www.herald.ie/news/rabbitte-rules-out-31bn-payment-for-anglo-debt-3321386.html

The same was repeated today on RTE programme.

The Ministers must know that according to the official exchequer accounts, the Promissory Note due 2012 was paid in full.

In the Budget 2013 Economic and Fiscal Outlook (official document released by the Department of Finance: http://budget.gov.ie/budgets/2013/Documents/Budget%202013%20-%20Economic%20and%20Fiscal%20Outlook.pdf) contains the following references to repayment of the Promissory Note 2012:




Page C.19, explanatory note to Table 10 (reproduced above): "The 2012 IBRC Promissory Note payment was settled with a Government bond…"

In Table 10 above, 2012 item for "Promissory Note Repayment of Principal" enters -€3.1 billion, fully confirming the repayment was made.

Page C.22 Table 13 clearly identifies 2012 Promissory Notes repayment as being "Non-cash payment in 2012 of IBRC promissory note" and states in the explanatory note below the table that "In 2012 the annual promissory note payment to IBRC was made with a Government bond". The same is entered on page C.5 under the Table 1.

The details of the bond settlement scheme are here:
http://www.finance.gov.ie/viewdoc.asp?DocID=7195

ECB position on what transpired vis the Promo Notes in March 2012 is outlined here: http://www.ecb.int/press/pressconf/2012/html/is120404.en.html quoting from Mario Draghi's responses to press query regarding the note payment (emphasis mine):
"we take note of the scheduled end-March redemption of the promissory notes and a subsequent reduction in Emergency Liquidity Assistance provided by the Central Bank of Ireland. We expect that the future redemptions will be met according to the schedule to which the government has committed itself."

The above was confirmed less than a week later: Few days after repayment of the March 2012 note, Joerg Asmussen, a member of the ECB's executive board, was speaking in Dublin where he "reiterated the ECB's view that Ireland must continue to repay the Anglo Irish Bank promissory note". Asmussen clearly did not believe that Ireland did not pay 2012 installment on the notes.
Soruce: http://www.rte.ie/news/2012/0411/ecb-official-warns-irish-banks-on-debt.html


The transaction of 'non-payment of cash payment' involved Irish State issuing a €3.06bn bond that was funded by Nama for the period of time it took Bank of Ireland to deliver approval by shareholders. Thereafter, the bond was transferred to the Bank of Ireland for 1 year. Which means that comes April 2013, Irish Government must have some sort of an agreement in place as to what to do with this bond. Either the Bank of Ireland agrees to hold it longer, or the bond has to be sold to another holder.

Here is NTMA Issuance Circular for that bond: http://www.ntma.ie/erratum-2015-bond-offering-circular/

Now, note: the coupon on that bond is 4.5%, far less than 5.5% issued in August 2012, after significant improvements in Irish secondary markets bond yields, so 4.5% Promo Notes Bond is a 'better' deal than ordinary bonds. Which means that Bank of Ireland was buying a dodo. Of course, Nama effectively backstopped Bank of Ireland, which simply borrowed money from the ECB to fund the bond.

All of this stuff I explained back in April 2012. But here's a bit worth repeating: in 2012 Promo Notes carried no interest (the last year of a two years holiday), while in 2012 the state paid 4.5% on 3,629.92 million bond. Thus, the cost to the taxpayers of Minister Noonan's 'non-payment' was €163.35 million annualized.

Which means that were Minister Noonan to repeat the exercise comes March 2013, he will be increasing the interest bill on Promo Notes by the above amount on top of the already hefty €1.9 billion one scheduled for 2013.


Friday, December 14, 2012

14/12/2012: Irish external trade in goods: October 2012


Irish trade in goods stats are out for October 2012 and here are the core highlights (aal seasonally adjusted):

  • Imports of goods in value have fallen from €4.482bn in September to €4.188 billion in October, a m/m decline of €294mln (-6.56%) and y/y increase of €327mln (+8.47%). Compared to October 2010, imports are up 16.43%
  • Imports were running close to historical average of €4.404bn in October, but below pre-crisis average of €4.673bn and ahead of crisis-period average of €4.126bn. Year-to-date average through October was €4.109, so October imports were relatively average.
  • Exports increased from €7.349bn in September to €7.468bn in October (up €119mln or +1.62%). Year on year, however, exports are up only €7 million or +0.09% and compared to October 2010 Irish exports of goods are down 1.48%.
  • Year-to-date average exports are at monthly €7.687bn which means October exports were below this, although October exports were very close to the crisis period average of €7.433bn.

  • Overall, the rise of €423mln in trade surplus can be attributed as follows: 71.2% of trade surplus increase came from shrinking imports, while 28.8% came from rising exports. Not exactly robust performance, especially given exports are up only 0.09% y/y.
  • Trade surplus expanded by 14.4% m/m after a rather significant drop off in September. However, october trade surplus at €3.28bn was still the second lowest reading in 7 months.
  • Year on year, trade surplus in October actually fell €321 million or -8.91% and compared to October 2010 trade suplus is down 17.65%. These are massive declines and worrying.
  • Trade surplus in October 2012 stood ahead of the historical average of €2.903bn and ahead of pre-crisis average of €2.513bn - both heavily influenced by much more robust domestic consumption in years before the crisis. Crisis period average of €3.307 is slightly ahead of October 2012 reading. However, average monthly trade surplus for 12 months through October was more robust (€3.578bn) than that for October 2012.

Here are some charts on the relationship between exports, imports and trade balance:


Accordingly with the above, imports intensity of exports rose slightly in October on foot of a steep fall-off in imports, rising 8.75% m/m. However, the metric of 'productivity' of irish exporting sectors is now down 7.72% y/y and down 15.38% on October 2010. During crisis period, Exports/Imports ratio averages 182.4%, while YTD the ratio averages 188.0%. In October 2012 it stood at 178.3% well behind both longer term trend metrics.


Lastly, the above relatively poor performance of exporting sector came amidst two forces, both representing adverse headwinds for Irish exporters:

  1. Global trade slowdown
  2. Term of trade deterioration.





October 2012 on October 2011, saw decreases in the value of exports of Chemicals and related
products - down -€253 million (or -6%), and a decrease of €513 million in Organic chemicals, "partially offset by an increase of €208 million in Medical and pharmaceutical products" per CSO. Further per CSO: "The value of exports increased for Miscellaneous manufactured articles (up €91 million), Mineral fuels (up €54 million), Machinery and transport equipment (up €47 million) and Food and live animals (up €39 million)... The larger increases were for imports of Food and live
animals (up €116 million), Mineral fuels (up €96 million) and Machinery and transport equipment (up €92 million)."

So to summarize: headline rise in tarde surplus is driven more than 3/4 by drop off in imports, with exports performing poorly on y/y basis and m/m basis. However, we have to be cognizant of the adverse headwinds experienced by irish exporters in global markets and by the continued effect of pharma patent cliff.

Thursday, December 13, 2012

13/12/2012: Some thoughts on gold



Tonight's Prime Time program covering gold is undoubtedly one of the rare occurrences that this asset class got some hearing in the Irish mainstream media. Which is the good news.

Not to dispute the issues as raised in the program, here are some of my own thoughts on the question of whether or not gold prices today represent a bubble.

A simple answer to this question, in my opinion, is that we do not know.

Short-term and even medium-term pricing of gold (in any currency) is driven by a number of factors (fundamentals), all of which are hard to capture, model and value.

For example, currency valuations forward suggest that gold is unlikely to experience a sharp and protracted correction in the US dollar terms, if you believe the Fed QE4 is likely to persist over time. In euro terms, potential for devaluation of the euro implies pressure to the upside to the gold price. Yen price is also likely to play longer-term continued devaluation scenario. Things are less certain when it comes to Pound Sterling price… and so on. Here's just one discussion on one of the above effects: http://soberlook.com/2012/12/precious-metals-hit-by-evans-rule.html?utm_source=dlvr.it&utm_medium=twitter

Another example: drivers for prices on demand side that include rather volatile regulatory conditions in the major gold demand growth markets, such as China and India.

In short, things are much more brutally complex than the PrimeTime programme allowed for.

The reason for this complexity is that gold acts simultaneously (as an asset) in several structural ways:
1) as a simple bi-lateral long term hedge for inflation, equities and currency valuations
2) as a medium term (albeit not entirely persistent) hedge for some asset classes (e.g. equities)
3) as a short term speculative instrument to some investors
4) as a backing for numerous and large volume ETFs
5) as a benchmark backing for numerous and relatively large volume synthetic ETFs
6) as a store of value
7) as a risk management tool for complex structured portfolios
8) as a bilateral safe haven against equities and bonds, political and economic risks, systemic financial markets risks, etc.

These relationships can be unstable over time, can require long time horizon for materialization and are 'paid for' by assuming higher short term volatility in the price of gold. That's right - while PrimeTime contributors spoke about gold price 'correcting' or 'bubble bursting' none seemed to be aware of the fact that if you want to get something you want (hedging and safe have properties being desirable to investors), you should be prepared to pay for it (price volatility seems to be a good candidate for such cost of purchase).

No matter what happens in the short- to medium- term, gold is likely to remain the sole vehicle for the store of value and risk hedging over the long-term. It did so over the last 5,000 years or so and it will most likely continue doing so in years ahead. This property of gold is well established in the literature and is hardly controversial.

There is one caveat to it - due to instrumentation via ETFs, there are some early (and for now econometrically fragile) signs emerging that some of gold's hedging properties might be changing. More research on this is needed, however and only time will tell, so in line with PrimeTime, let's stay on the RTE side of Complexity Avoidance Bias on that one.

There is an excellent summary on what we know and what we don't know about gold by Brian M. Lucey available here:  http://ssrn.com/abstract=1908650 .

Last year I gave a presentation at the Science Gallery on some properties of gold, which is posted here: http://trueeconomics.blogspot.ie/2011/08/20082011-yielding-to-fear-or-managing.html .

Not to make this post a lengthy one, let me summarize my own view of gold as an asset class:

  1. In my view, gold can be a long-term asset protection from the risk of expropriation, inflation, devaluations, and tail risks on political and economic newsflow side etc.
  2. To me, gold is not a speculative (capital gains) instrument for the short-term and it should not be acquired in a concentrated fashion - buying in one go large allocations. Gold should be bought over longer period to allow for price-averaging to reduce exposure to gold price volatility.
  3. Gold allocation should be relatively stable as a proportion of invested wealth - different rules apply, but 5-10% is a reasonable one in my view.
  4. Of course, any investment portfolio (with or without gold) should strive to deliver maximum diversification across asset classes, assets geographies etc.



Disclosure: I have no financial interest in or any commercial engagement with any organization engaged in selling gold. Until December 1, 2012 I used to be a non-executive member of the investment committee of GoldCore Ltd and was never engaged on their behalf in any marketing or provision of advice to any of their current or potential clients.

13/12/2012: Italy & Spain escape bond markets scrutiny... for now



Two bond auctions for the largest peripheral euro area countries showed the sign of markets still believing the ECB promises of OMT 'some time soon' and at significant support levels.

Spain aimed to sell up to €2 billion worth of above-OMT dated paper and in the end managed to sell slightly ahead of target: €2.02 billion in 3-, 5- and 28-year bonds. Recalling that OMT is promising to purchase bonds with maturities up to 3 years, the result was pretty strong.

Average yields were 3.358% for 3-year paper (compared to 3.39% back on December 5th), 4-year yield was 4.2% down on 4.766% back at October 4, and 28-year bond yield was 5.893%.

Bid-cover ratios were 4.81 for 3-year (vs 2 on December 5), 3.13 for 5-year (vs 2.47 on October 4) and 2.09 for the 2040 bonds. This was the first time near-30-year bonds were offered since May 2011.

Spain is now out of the woods in terms of funding for 2012 - it has raised this year's requirement back a month ago - but the country will need to raise some €90.4 billion in 2013.


Italy also went to the well today, placing €4.22 billion worth of bonds - below the maximum target €4.25 billion. The bonds placed were: €3.5 billion of 3-year paper at 2.5% (down on 2.64% in November 14 auction, marking the lowest yield since October 28, 2010 auction) and €729 million of 14-year paper at 4.75% yield. Bid-cover ratios were much weaker than those for Spain: 3-year paper attracted ratio of 1.36 down on 1.5 in last month's auction.

Italy's 2013 funding requirement is expected at over €400 billion.

Thus, both Italy and Spain seemed to have benefited once again from the ECB's OMT promises. The problem is out to 2013 - with both Italy and Spain having to raise just over 1/2 of the LTROs 1&2 worth of bonds, the promise of OMT better translate into actual scaled OMT purchases, and the threat of political mess in Italy better stay out of headlines.


13/12/2012: Mortgages at Risk: Acceleration in the Trend


In the previous post (here) I detailed the trends in mortgages arrears in Ireland based on Q3 2012 data released today. Since then, I have seen some comments on the 'dynamics' of the mortgages arrears, suggesting that things are 'getting worse more slowly'.

This is simply incorrect. Here's a chart graphically showing acceleration of overall crisis since Q2 2012:


Note that data through Q3 2010 is imputed by estimating back trend from Q4 2010-Q2 2012 data reported by CBofI. Hence, the jump in orange line at Q3-Q4 2010.

13/12/2012: Irish Mortgages Arrears - Q3 2012


Q3 2012 data for Irish residential mortgages in arrears is out and here is the first summary of horrific details:

  • Total number of residential mortgages in arrears more than 90 days rose from 47,627 to 49,482 between Q3 2011 and Q3 2012 - a rise of 3.89% y/y. This marks acceleration in the rate of increase in arrears 90 days + from 1.13% in Q2 2012.
  • Total number of mortgages in arrears less than 90 days rose to 86,146 in Q3 2012 from 62,970 in Q3 2011 - an increase of 36.8% y/y, compared to a rise of 45.3% in Q2 2012.
  • Total number of accounts in arrears (90 days and over, and under 90 days) rose from 110,597 in Q3 2011 to 135,628 in Q3 2012 - an annual rate of growth of 22.63%. In Q2 2012 the rate of increase was 25.20%.
  • Total number of accounts at risk of default (currently in arrears, plus restructured and not in arrears, plus repossessed) rose to 180,314 in Q3 2012, up 6.5% q/q and up 21.95% y/y. In Q2 2012 the rate of annual increase was 20.92%.
  • Overal value of mortgages at risk now stands at €31,835,683,000 up 6.0% q/q and 19.8% y/y
Charts to illustrate:


Let's make it simple:
  1. Between Q3 2011 and Q3 2012, the % of loan accounts in arrears for more than 90 days rose from 8.1% or all accounts (10.8% of outstanding mortgages values) to 11.3% (15.1% of outstanding mortgages values).
  2. A a year to Q3 2012, the number of mortgages at risk of default or defaulted (including mortgages in arrears, restructured and current not in arreas and repossessions) rose from 147,857 to 180,314
  3. In Q3 2012, mortgages at risk accounted for 24% of all mortgages outstanding accounts and 29% of the total value of outstanding mortgages, up from 19% and 23%, respectively, in Q3 2011.
That's right - almost 1/4 of all mortgages accounts are now at risk or have defaulted, and almost 30% of the total value of outstanding mortgages is at risk.

Updated: here's the Irish Mortgage Holders Organization response to today's Arrears figures.

Tuesday, December 11, 2012

11/12/2012: Ireland and EU27 Construction sector activity Q3 2012


On foot of the previous post looking at Q3 2012 data for Construction and Building Sector activity in Ireland, here are some international comparatives.

Keep in mind the mental key to decoding these: per Irish Government and a host of its 'analysts', Ireland has delivered an economic turnaround sometime back in early 2012 and our economy has stabilized. We are not Greece. In fact, per claims, we are the best performing economy in the Euro area periphery.

With the above in mind, chart below shows Ireland's Building & Construction Sector performance with index normalized at 100=2005, set against the backdrop of the 'Peripheral' Euro area states:


Pretty clearly, we are 'unique' in the periphery as being so far the worst performing economy in terms of Building & Construction. Now, let's recall that in Ireland, Building & Construction are about the only conduits for household investment. Also, let's recall that household investment is usually seen as the leading indicator of cyclical turnarounds.

Now, to the full EU27 comparative:


And again, by far, Ireland is the worst performer in the above. In fact, based on 2012 data through Q3:

  • Ireland's index of construction activity is currently at 20.85, down on 2011 index of 23.4 and down on pre-crisis peak of 103.6. 
  • Which means that Irish activity index is now down to the absolute lowest in the EU27. Worse, our index reading is worse than Greece's (37.7 or 81% ahead of Ireland's). 
  • We are 44.7% below Greece, 53.2% below Spain, 62.7% below Portugal and 73.2% below Italy.



So that 'turnaround' or in Hillary Clinton's words 'rebound', then... certainly not to be seen in Building & Construction sector.

11/12/2012: Construction Sector Activity in Ireland - Q3 2012



Horrible numbers out today for the Irish Building & Construction sector.

Per CSO: "The volume of output in building and construction was 4.2% lower in the third quarter of 2012 when compared with the preceding period. This reflects decreases of 5.3%, 2.4% and 1.9% respectively in the volume of residential building, civil engineering and non-residential building. The change in the value of production for all building and construction was -2.1%. On an annual basis, the volume of output in building and construction decreased by 10.8% in the third quarter of 2011. The value of production decreased by 8.5% in the same period."

Now some details:

  • Value Index for ex-Civil Engineering work stood at 17.5 in Q3 2012 (100=2005 activity levels), down 15.5% y/y, marking 23rd consecutive quarter of declines (! give that number a thought).
  • Worse, ex-Civil Engineering Value index is down 2.23% q/q, down 10.15% for Q2-Q3 2012 compared to Q4 2011-Q1 2012 6mo periods and down 14.5% for the 6 months through Q3 2012 compared to same period in 2011.
  • The rate of annual decline in the index has accelerated since Q4 2011.
  • Volume Index for ex-Civil engineering work fell to 15.5 in Q3 2012 from 15.9 in Q2 2012. The Index is now also down consecutive 23 quarters. The annual rate of decline continued to accelerate for the fourth quarter in a row.
  • In 6 months through Q3 2012 index fell 15.82% compared to same period of 2011. Quarterly index change is -2.52%.
  • Relative to peak, Value Index in ex-Civil Engineering sector is now at 15.39% and Volume Index is at 14.57%.

In Civil engineering sector things are bouncing at the bottom - a pattern that is now running solidly from Q3 2010:

  • Value Index for Civil engineering slipped to 63.0 from 64.6 in Q3 2012 compared to Q2 2012, marking a decline of 2.48% q/q. However, due to massive jump in Q2 (+16.2% y/y), index is still 9.2% ahead of Q3 2011 reading. This side of the Index is likely to suffer in 2013 due to Budget measures on capital spending.
  • Volume Index of Civil Engineering also fell from 57.5 in Q2 2012 to 56.1 in Q3 2012 (-2.43% q/q), although the index is up 7.9% y/y in Q3 2012 (due to a one-off substantial rise of 14.8% in Q2 2012).


Overall, based on simple averages, activity in Civil engineering remained broadly unchanged - at absolute lows - since Q3 2010, averaging between 63.3 for the Value Index and 56.3 for the Volume Index. This dynamic is simply inconsistent with any talk about economic turnaround.


Misery comparatives for the sector are self-evident when looking at residential and non-residential indices:



  • Value of Residential Construction reached another historical low in Q3 2012 - hitting 8.2, down from 8.5 in Q2 2012. This means that activity by value in this sub-sector is now down 91.8% on 2005 levels or 92.8% on pre-crisis peak. The Index has been posting annual rates of decline in every quarter since Q1 2007, or 23 quarters in a row. The rate of decline (y/y) also accelerated since Q1 2012.
  • Volume of Residential Construction is down from 7.6 in Q2 2012 to 7.2 in Q3 2012. Again, this implies that volume index is now down 92.8% on 2005 level and 93.0% down on pre-crisis peak. Annual rate of decline accelerate to 20% in Q3 2012, the highest rate in 4 quarters. The index has now posted 26 consecutive quarters of annual declines.
  • Non-residential Construction Value Index fell from 53.5 in Q2 2012 to 52.5 in Q3 2102, with annual rate of decline accelerating to 15.5% in Q3 2012, marking third consecutive quarter of annual declines. The index is now 57.4% down on pre-crisis peak.
  • Non-residential Construction Volume Index is down from 47.5 in Q2 2012 to 46.6 in Q3 2012, marking an accelerated annual rate of decrease of 16.3% in Q3. The Index is now down 58.4% on pre-crisis peak.

If anything the above dynamics clearly show that the rates of activity collapse are accelerating through Q3 2012, nto ameliorating or turning to positive growth. Both series dynamics, therefore, are consistent with worsening of economic conditions, not stabilization or a turnaround.

I will blog on European countries comparatives in the next post.

Sunday, December 9, 2012

9/12/2012: Two stunning visualizations


Two stunningly insightful and elegant visualizations:

The first one on numbers factorization: http://www.datapointed.net/visualizations/math/factorization/animated-diagrams/

And the second one on the spread of printing and publishing:
http://exp.lore.com/post/37413824753/remarkable-harvard-visualization-of-the-rise-of

9/12/2012: ListGate and journalistic biases


Breda O'Brien's piece on the issue of press and media independence published today by the Irish Times is likely to provoke - over the next few days - some heated polemic both in the media and amongst the readers. Knowing the level of vitriol that is out there toward the views of various opinion writers, opinion makers and journalists (including those who combine all three endeavors in one person) in our divided society, it is not my intention to start or re-direct the above polemic. I hold my own views, and on some issues, I prefer to keep these views private.

But I would like to make an observation or two on the issue of media independence, reporting biases and personal beliefs. These come from my own experience, both as a person occasionally / often writing for press, and as a person who used to hold a position of an editor of a publication.

Based on these experiences, and a bunch of my on biases, undoubtedly, I must say that the #listgate 'scandal' is misplaced.

Journalists have a right to hold their own beliefs and they have a right to express these beliefs freely. That these two inalienable rights can create a conflict with the ethos and ethics of independent reporting is a natural matter of life. These conflicts cannot be legislated against or regulated against without destroying these rights. Nor, for that precise reason, should such legislating or regulating be contemplated in the society that supports freedom and liberty.

A journalist has a right - an inalienable right - to attend any legal demonstration or join a legal organization or partake in a legal action of their choice. Full stop. A journalist has a right - an inalienable right - to express their view on any subject relating to any organization, action or demonstration. Including a right to express such opinion in public domain, including via media and press.

The boundary between independence of reporting and personal opinion bias is not established by whether a journalist has personal beliefs or whether a journalist chooses to express such beliefs. That boundary is not established by a journalist attending as a participant any event, or if she or he is tweeting about it or reporting on the events which can be coincident or contradictory with a journalist's personal opinion. Neither is the Daniel Kahneman's theory of how our brains work relevant to the ex ante analysis (it can be relevant to the ex post analysis, however) of what constitutes a risk factor in generating biased reporting.

That boundary is established by the nature and quality of reporting itself. If reporting is biased, then the boundary of professionalism and independence is crossed. If reporting is straight down the line, factual and un-emotive, then no boundary is broken.

The core problem, therefore, is not in the bais itself, but in the source of potential bias in Irish journalism. In my view, that source is media users' expectation that journalists can or should be opinion formers, cultivated by

  • preferences for complexity avoidance amongst the readers that vests journalists with a professional license to 'explain the world' to readers / viewers, plus
  • preferences of the journalists to shape their profession away from being a facilitator of newsflow (lowly task of reporting, reserved for the often despised wire services), toward being creators of content. 
The former implies immense amount of trust placed at the hands of the journalists by the public, while the latter implies a natural incentive to 'professionalise' opinion formation as a part of journalism.

Journalists should not - in either a professional capacity or in personal - be vested with a license to be intellectuals. No one should. Neither an academic, nor a legal professional, nor any other professional or indeed anyone. Formation and influencing of public opinion is the domain for all, not a domain for a single or a handful of professions. The game is up for Ireland's intellectual elite when one considers the representation of opinion in Irish press. Indeed, the game is up for virtually all press on the same basis.

In Ireland, the readers expect not reporting of news, but production of opinion from our press. And too often our press obliges to reflect these preferences. Thus, pages of newspapers and our airways are filled with journalists interviewing journalists and reporting on what other journalists expressed in their opinion articles. We have cross-media population of opinion writers whose only claim to knowledge they attempt to communicate and expand is that they acquire or collate opinions of others during their performance of their professional duties.

Take a look at economics - the field I am familiar with - as an example. How many economics commentators in this country have requisite training to understand an item of modern economic research? Outside those who only produce occasional opinion articles - a tiny handful. How many economics commentators in this country today run their own databases, maintain rigorous updating of their analysis, collate real data and are able to analyse that data using modern economics tools? Amongst regular commentators on economics - a tiny handful.

Thus, regular 'economics' opinion writers (as opposed to occasional ones) are confined to the realm of journalists covering economics pontificating on economics matters. They do so not from the basis of opening their own databases and tracking their own trends analysis, research (either published or maintenance, peer-reviewed or simply original), but from the absis of what they glimpse from either interviews or conversations with those who do, or worse - on the basis of un-cited sources. In volume terms, reprinting 'influential' but often commercially biased research, reporting on largely irrelevant or unscrutinised statistics, and creating fake 'balance' by seeking out diametrically opposed positions for commentary in situations where sometimes such positions simply make no sense are all routine occurrences in Irish economic policies debates.

One example comes to mind. During the debates on the issue of Property Tax, majority of airways were filled with superficial positioning of 'Pro-tax' arguments juxtaposed by 'Anti-tax'. At the same time, the real debate amongst professional economists was positioned more along the lines of 'What sort of tax?' and 'What the tax revenue should be used for?' Media-sustained tax and spending policies debate so far has completely failed to even begin addressing the core issue of what is being funded by our fiscal policies, stressing instead levels of funding and individual aspects of funding allocations.

The result of this 'professionalization' of journalists' own opinions is a gradual disappearance of actual reporting of facts and migration of journalism into opinion making, aka promotion of own views. In modern press and media, a reporter or an investigative reporter are the jobs only useful in so far as being instrumental to launch one's career to become an opinion writer.

(There are exceptions, of course, but these are found primarily in narrow specialization, requiring expertise-building, by a handful of journalists covering specialist fields. For example - legal affairs or finance or science and arts coverage.)

In general, however, once the two roles are combined, especially for senior journalists, there is always a risk of the boundary between personal belief and independent reporting being blurred - even if only sub-consciously. It is, thus, the end role of the editors, as guardians of the conduit by which journalists' work reaches the public, to ensure that the values of independent and objective reporting are reflected in a publication, as well as to make certain that opinion, when published, is clearly identified.

The concerns of impartiality and objectivity in reporting, of creating a clear-cut separation between analysis, reporting and opinion, are, thus, concerns of editorial approach. And these concerns are not served well by professionalization of the journalistic license into becoming a license to form opinion.

Kahneman's two-systems brain theory does not imply distortionary damage at the level of journalists seeking a balance between their own beliefs and the objectivity of their reporting. Instead, it implies that the danger - in the form of distorting the process of discovery of truth by the readers - arises from the ethos of publications and media channels editorial positioning. Thus, it is not relevant to the thesis of media biases formation as to how many journalists attend a particular social protest event any more than the knowledge of how many of the journalists have read a particular book or subscribe to a particular magazine. Neither is it relevant as to how many of them use social networks to promote that which they believe in. The only thing that matters is whether these beliefs are actually transmitted to the pages of their publications when they act in an official capacity without a clear warning that these are opinions of the authors. The primary guardian against such dangers is not each individual journalist, but the editor of the publication responsible for objectivity of the publication content.


Friday, December 7, 2012

7/12/2012: Irish Services Index - October 2012


The latest data on Services Sector activity in Ireland for october 2012 is very encouraging and reflective of the underlying growth signaled by previous PMI in Services readings.

Headline CSO-published monthly Services Activity Index for non-financial services in Ireland rose 3.8% m/m in October (after weak -2.4% m/m reading in September) and is now standing at 107.0 - an all-time high. Note, data for these series runs only from October 2010. Year on year the index is now up 10% on October 2012, the first time annual rate of growth hit double-digits expansion in series history. 

Removing some of the volatility, 3mo MA is now at 105.3 - the highest it has ever been. Solid upward push well beyond the already upward-sloping trend is very encouraging. 3mo MA in 3 months through July 2012 was 105.0 - also strong reading, especially compared to 98.7 3mo MA through October 2011.

Growth rates are impressive: 3mo average growth rate through October is 6.7% on annualized basis, ahead of 6.1 reading for 3mo average through July 2012 (although m/m rate is 0.63%, well below previous 3mo average of 1.2%).



Decomposition by sub-sectors is also solidly expansionary:
  • Wholesale and Retail Trade index rose to 115.3 in october, up 6.2% on September (following m/m fall-off of 2.6% in September) and up 10.5% y/y - the fastest pace of annual expansion in series history. 3mo MA is at 111.8 ahead of 3mo MA through July 2012 which stood at 110 and well ahead of 3mo MA through October 2011 (104.7). Average monthly rate of growth remained 1.33% in August-October, same as in May-July 2012. Annual rate of expansion based on 3mo MA series is now at 6.8% well ahead of 6.2% recorded for 3mo through July.
  • All of activity in the wholesale and Retail Trade came in from Wholesale Trade side, with Wholesale Trade index rising to a historic high of 128.7 (+8% m/, and +15.4% y/y). Wholesale activity was booming, which might be a net positive to the holidays sales season. 
  • In ICT services, activity rose 1.2% m/m and 6.5% y/y to 107.7. This only partially reversed the contraction of 2.8% m/m recorded in September 2012. The annualized rate of growth in the sub-sector slowed down to 6.5% in october from 7.3% in September. Thus, 3mo MA series are less impressive in dynamics: 2012 3mo MA through October stood at 107.9, down on 111.3 3mo MA for period through July 2012, but still well ahead of the 3mo MA through October 2011 (101.7). 
  • The sector is pivotal to our exports and the fact that annualized rate of growth fell to the 3mo MA of 6.1% in August-October compared to 12.5% for the 3mo period through July 2012 is a bit of a concern. Still, I am happy to take 6.1% growth in the current global environment.
  • Business Services index rose to 107.8 in October, the highest reading on record, with m/m growth of 6.3% (fully reversing the slide of 1.2% recoded in September). Year on ear the series up 10.7%. 3mo MA series are showing similar performance to the core index: 3mo MA through October is at 104.5, slightly up on 3mo MA through July 2012 (104.0) and significantly up y/y (100.5 recorded in 3mo through October 2011). Surprisingly, Business Services activity m/m expansion rate has slowed down over the last 3 months from the average of +2.3% m/m in May-July 2012 to an average of +0.9% in August-October. However, annual rate of expansion picked up from +0.4% in 3mo through July to +4.2% in 3mo through October.
  • Transportation and Storage sector activity rose marginally from 113.0 in September to 113.4 in October. The sector failed to recover from a 1% m/m slide in September, gaining just 0.4% m/m in October. However, annual rates of growth in the sector are now running at double digits for 7 consecutive months and the rate of expansion has accelerated to 17.6% in October 2012, marking the fastest annual rate of growth in the sub-index history.
  • Accommodation and Food sector activity slipped for the second month in a row. 3.1% m/m drop in September was followed by a 0.3% slip in October. 3mo MA for the index is now at 91.6, against 3mo MA through July of 89.4 and 3mo MA through October 2011 of 87.8. The sector has been a major disappointment in terms of activity since the start of the series.
  • Other Services also showed persistent weakness in recent months - the fall m/m in the subindex of 0.8% in September was moderated by a rise of 0.7% in October, but overall the index is a relative laggard in the entire Services group, performing worse than even Accommodation & Food. 





So on the net, very robust index performance for Services sector activity, with good strengths in terms of 3mo MA trends in Wholesale Trade, Business Services, and Transportation & Storage, relatively steady performance in ICT services and continued weaknesses in Accommodation & Food and Other Services sub-sectors.

Thursday, December 6, 2012

6/12/2012: 2008 and the Confidence Fairy


An interesting paper on euro area levels of financial stress arising from household debt (here). Do note that data on which this is based refers to 2008 survey, so is pretty dated by all possible means.

Recall that back in 2008 no one in the Official Ireland was even slightly concerned with household debt levels. I recall AIB senior banking team making rounds through the brokerage houses in late 2008 blabbing out mythological stuff like: "Irish people do not default on mortgages" and "Not a single cent from the State".

Yet, the data in the link above clearly shows that Ireland was already building up some serious payments problems:

Figure 1: Proportion of the population in a critical situation with respect to arrears and outstanding amounts by poverty status, 2008 (% of specified population) - Source: Eurostat 2008 ad-hoc module 'Over-indebtedness and financial exclusion'
Note that for the vulnerable population group, Ireland sports the 5th highest rate of stress in the EU.

But the really interesting chart is the following one:

Figure 6: Expectation for the financial situation for the forthcoming 12 months, 2008 (%) (NB: Households could also answer ‘to stay about the same’ or ‘don’t know’)
The above shows the following interesting fact: in 2008, Irish people had a pretty reasonably average ratio of optimism to pessimism. This ratio is roughly consistent with that in France, Belgium, Slovenia and the Netherlands. Our optimism for 12 months ahead was higher than the EU27 average and our pessimism levels were below those for any other bailout country. In other words, that confidence fairy was working our way... and the outcome of that was...