Thursday, December 13, 2012

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...

6/12/2012: Why was development land left out of Property Tax net?


The Government published the long-delayed and super-secret until now Thornhill Group report into the structuring of the property tax. One point that the report raises is:


"The Group notes the recommendation of the 2009 Commission on Taxation for a recurrent tax on zoned development land and suggests consideration be given to the proposal with a view to supporting proper long term planning and sustainable development. "

Now, the Government has opted for a property tax based on 'market value' assessment. However:
  1. Land is property
  2. Land has market value that can be assessed
Why is development land, zoned land, any other land not covered by the Property Tax?

Budget 2013 measures clearly subsidize financially-instrumented property speculators over those who invest in more efficient use of their homes. With exemption of development land from the tax net, the Budget also subsidizes land banking and land speculation. Once again, at the expense of ordinary homeowners.

Wednesday, December 5, 2012

5/12/2012: Pre-Budget 2013 tunes


Ireland's pre-Budget 2013 arithmetic:

  • Budget 2013 Cuts & Tax hikes = €3.5 billion
  • IL&P (bust state-owned 'bank') bonds repayments January 2013 = €2.45 billion
  • Promo Note (IBRC - toxic loans dump) repayment March 2013 = €3.1 billion
  • Interest on Government debt: 2011 = €3.9 billion, 2012 = €5.7 billion, 2013 = €8.1 billion, 2012-2013 increase of €2.4 billion
  • Adding things up: -€3.5 billion adjustment + €5.55 billion 'banks' wastage + €2.4 billion increase in Ireland financing for "our partners' help" = net €4.45 billion will be sucked out of this economy by pure policy psychosis.
  • 69% of the entire annual adjustment on fiscal side, even assuming it will be delivered in the end, will go to fund increases in Government debt servicing in 2013 compared to 2012. These funds will be largely remitted to Ireland's new 'best friends' - the Troika and Franklin Templeton funds.
Now, good luck listening to today's Budget 2013 announcements by our Minister for 'Friends' Finance.

Tuesday, December 4, 2012

4/12/2012: Irish Exchequer Returns Jan-Nov 2012


So 2013 Budget will be expected to deliver 'cuts' and 'revenue measures' to bring fiscal stance €3.5 billion closer (or so the claim goes) to the balance. Which prompted the Eamon Gilmore to utter this:
"It is the budget that is going to get us to 85% of the adjustment that has to be made, and will therefore put the end in sight for these types of measures and these types of budgets".

Right. €3.5 billion will be added to the annual coffers on expectation side comes tomorrow. €3 billion will be subtracted on actual side comes March 2013 for the ritual burning of the promo notes repayments, and IL&P - the insolvent zombie bank owned by the state - will repay €2.45 billion worth of bonds using Government money comes second week of January. I guess, something is in sight, while something is a certainty-equivalent. €3.5 billion 'adjustments' vs €5.5 billion bonfire.

Six years into this shambolic 'austerity heroism' and we are, where we are:

  1. On expectations forward, the Government will still have fiscal deficit of 7.5% of GDP in the end of 2013, should Gilmore's 'end in sight' hopes materialise. That is set off against pre-banks measures deficit of 7.3% in 2008. In fact, the 'end' will not be in sight even into 2017, when the IMF forecasts Irish Government deficit to be -1.8% - well within the EU 3% bounds, but still consistent with Government overspending compared to revenues.
  2. Overall Government balance ex-banks supports in Ireland in 2012 will stand around 8.3% of GDP. In 2013 it is expected to hit 7.5% of GDP. The peak of insolvency was 11.5% of GDP in 2009, which means that by 2013 end we have closed 4 percentage points of GDP in fiscal deficits out of 8.5 percentage points adjustment required for 2009-2015 period. In Mr Gilmore's terms, we would have traveled not 85% of the road, but 47% of the road.

But wait, there's more. Here's a snapshot of the latest Exchequer returns for January-November 2012:

  • Government tax revenue has fell 0.5% below the target with the shortfall of €171 million and although tax revenues were €1.96 billion ahead of same period (January-November) 2011, stripping out reclassifications of USC and the delayed tax receipts from 2011 carried over to 2012, this year tax receipts are running up 4.5% year on year.
  • Keep in mind that target refers not to the Budget 2012 targets, but to revised targets of April 2012. 
  • Meanwhile, Net Voted Government Expenditure came in at 0.6% above target. 
  • So in a sum, on annualized basis, expenditure running 1.03% ahead of projections and revenue is running 0.86% below target. All of the sudden, the case of 'best boy in class' starts to look silly.
Things are even worse when you look at the expenditure side closer.

  • Total Net Voted Expenditure came in at €40,635 million in 11 months through November 2012, which is €26 million above last year's, and  is 0.6% ahead of target set out in April. In other words, Ireland's heroic efforts to contain runaway public sector costs have yielded savings of €26 million in 11 months through November 2012.
  • All of the net savings relative to target came in from the Capital side of expenditure, which is 20.5% below t2011 levels(-€629 million). Now, full year target savings on capital side are €562 million, which means that capital spending cuts have already overcompensated the expenditure cuts by €67 million. 
  • On current expenditure side things are much worse. Relative to target, current spending is running at +1.7% (excess of €654 million). It was supposed to run at -1.6% reduction compared to 2011 for the full year 2012, but is currently running at +1.6% compared to Jan-Nov 2011. The swing is over €1.2 billion of overspend.
  • Recall that in 2011 Irish Government expropriated €470 million worth of pensions funds through the 0.6% pensions levy in order to fund its glamorous Jobs Initiative. It now has cut €629 million from capital spending budget or €405 million more than it planned. In effect, thus, the entire pensions grab went to fund not Jobs Initiative, but current spending by the state.
  • The savage austerity this Government allegedly unleashed saved on the net €26 million in 11 months. Pathetic does not even begin to describe this policy of destroying the future of the economy to achieve effectively absolutely nothing in terms of structural adjustments.
  • The overspend took place, predictably, and at least to some extent justifiably by Health and Social Welfare. However, two other departments have posted excess spending compared to the target: Public Expenditure & Shambles-- err Reforms -- posted excess spending overall, while Transport, Tourism and Sport has managed to overspend on the current spending side of things.
On the balance side of things, stripping out banks measures and capital cuts, but retaining reclassifications of revenues and carry-over of revenues from 2011 into 2012, overall current account balance deficit was €9.626 billion in 2012, contrasted by the deficit of €9.712 billion in 2011. This suggests that the Government has managed to reduce the deficit on current account side by €86 million,

Laughable as this sounds, stripping out carry over revenues from 2011, the deficit on current side of the Exchequer finances was €9.45 billion in 2011 and that rose to €9.97 billion in 2012. Which means that the actual current account deficit is not falling, but rising.

Now, let's control for banks measures:

  • In 2011 Irish state spent €2.3 billion bailing out IL&P, plus €3.085bn repaying promo notes for IBRC and €5.268bn on banks recaps. Total banks contribution to the deficit was thus €10.653 billion, This implies that overall general government deficit ex-banks was €10.716 billion in 2011.
  • In 2012 we spent €1.3 billion propping up again IL&P (this time - its remnants) which implies ex-banks measures deficit of €11.668bn
  • Wait a second, you shall shout at this point in time - 2012 ex-banks deficit is actually worse, not better than 2011 one. And you shall be right. There are some small items around, like our propping up Quinn Insurance fallout cost us €449.8mln in 2012 and only €280mln in 2011. We also paid €509.5 million (that's right - almost the amount the Government hopes to raise from the Property Tax in 2013) on buying shares in ESM - the fund that we were supposedly desperately needed access to during the Government campaign for Fiscal Compact Referendum, but nowadays no longer will require, since we are 'regaining access to the markets'. We also received €1.018 billion worth of cash from our sale of Bank of Ireland shares in 2011 that we did not repeat on receipts side in 2012. And more... but in the end, when all reckoned and counted for, there is effectively no real deficit reduction. Nothing dramatic happened, folks. The austerity fairy flew by and left not a trace, but few sparkles in the sky.
  • Aside note - pittance, but hurtful. In 2012 Department for Finance estimates total Irish contributions to the EU Budget will run at €1.39 billion gross. For 2013 the estimate is €1.444 billion. That is a rise of €59 million. Put this into perspective - currently, the Government has run away from its previous commitment to provide ringfenced beds for acute care patients at risk of infections, e.g. those suffering from Cystic Fibrosis. I bet €59 million EU is insisting this insolvent Government must wrestle out of the economy to pay Brussels would go some way fixing the issue.
In the mean time, our interest payments on debt have been steadily accelerating. In January-November 2011 our debt servicing cost us €3.866 billion. This year over the same period of time we spent €5.659 billion plus change on same. Uplift of 46.4% in one year alone.

So here you have it, folks. This Government has an option: bring Irish debt into ESM, for which we paid the entrance fees, and avail of cheap rates. Go into the markets and raise the cost of funding our overall debt even higher - from €6.17bn annual running cost in 2012 to what? Oh, dofF projects 2013 cost to be €8.11 billion - a swing of additional €1.94 billion. So over two years 2012 and 2013, Irish debt servicing costs would have risen by €3.89 billion swallowing more than 1/2 of all fiscal 'adjustments' to be delivered over the same two years.

At this stage, there is really no longer any point of going on. No matter what this Government says tomorrow, no matter what Mr Gilmore can see in his hazed existence on his Ministerial cloud cuckoo, real figures show that Europe's 'best boy in class' is slipping into economic coma. 

Monday, December 3, 2012

3/12/2012: Current crisis systemic risk comparative



THE LIBERALIZATION AND MANAGEMENT OF CAPITAL FLOWS - an IMF paper released today has an interesting chart putting into perspective the extent of the euro area crisis in comparative terms to other crises (click on the image to enlarge):



The above clearly shows that to Q3 2011, the euro area crisis has been
  1. Systemically separate from the preceding global financial crisis of Q1 2008 - Q1 2010, 
  2. Much smaller in magnitude than the preceding crisis,
  3. As measured by the crisis indicator - comparable in magnitude to the early stage of the Asian-Russian crises and ERM crisis, as well as to the early stages of the Scandinavian crisis
  4. However, the spillover from the euro area crisis to the global economy remained more limited than contagion in previous crises, as illustrated by the systemic crisis indicator.
Another interesting feature of the chart is that it shows that the Age of Moderation (1990-2007) was actually a period with four systemic crises: the Scandinavian crisis of the 1990s, the ERM crisis, the Asian and Russian crises, and the dot.com bubble

Lastly, the above shows that both, the IMF systemic crisis indicator and Equal-weighted crisis indicator are not sufficient in providing lead-up signals for systemic stress build up.

3/12/2012: Austerity Dictionary


Brian Lucey has published a collection of twitter-sourced Austerity Dictionary - link here. Most worthy of reading.

3/12/2012: Ireland's Manufacturing PMI for November 2012


NCB Purchasing Manager Indices for Manufacturing for Ireland are out this morning with a deserved upbeat soundings on foot of the core data showing continued growth in the sector. Here are some details, both worth a positive overall note and some warning signs of potential tightness ahead.

Business conditions continued to improve in the Irish manufacturing sector during November, marking the ninth consecutive month of such increases, though there were slower rises in output and new orders.

Overall PMI was running at 52.4 in November, slightly up on October 52.1. November reading was the highest since July 2012. Strictly-speaking, both October and November indices were statistically indistinguishable from 50.0, however, with the last index reading that was statistically significantly above 50.0 was July 2012 and the last time this happened before then was April 2011.

Not to rain too much on the parade, 12mo MA through November 2012 is at 51.1 and 6mo MA is at 52.4, both encouraging. 3mo MA through November is 51.2 and this is behind 3mo MA through August 2012 which as 52.6. In other words, last 3mo activity does not seem to signal any significant improvement on June-August period, although both 3mo averages are ahead of 50.9 reading that represents the 3mo average between March and May 2012.

Likewise, looking at actual quarterly averages: Q1 2012 came in at 49.8 (contraction), Q2 at 51.5 (expansion at shallow rates), Q3 at 52.2 (another shallow expansion) and Q4-to-date at 52.25 (no material improvement on Q3).



Let's take a look at core subcomponents:

  • Actual Output levels expanded in November at 53.8, down on 54.4 expansion in October, but up strongly on output growth of 51.0 and 51.3 recorded in August and September. 12mo MA is at 51.5. Both October and November readings were significantly above 50.0 line - adding some statistical support to the output growth signals. 6mo MA is now at robust 53.3 and 3mo MA is at 53.2, identical to the 3mo MA through August 2012. Q4-to-date reading is at strong 54.1 and up on 52.1 average for Q3 2012, 51.4 average for Q2 2012 and 50.2 average through Q1 2012. Good news, despite slower growth rate recorded m/m.
  • New orders also moderated the rate of expansion to 52.1 in November, from 52.7 in October. 12mo MA is now at 51.4 and 6mo MA at 53.1, the latter being statistically significantly different from 50.0. 3mo MA is at 52.4 down from 53.7 3mo average through August 2012. On quarterly basis, Q1 average stood at 49.9, Q2 2012 average rose to 52.0, with Q3 2012 average hitting 53.3, and Q4-to-date average sliding back to 52.4.
  • Growth in new orders seemed to have been driven by growth in export orders, up from 51.8 in October to 52.1 in November. Both months expansions were statistically insignificant. New export orders improvement, however, in m/m terms was more significant than improvement in overall new orders. 12mo MA for export orders stands at 52.3, with 6mo MA at 52.5. 3mo MA at 50.8 - signaling weakness in the overall sub-index performance, against 3mo MA of 54.2 recorded in June-August 2012. On quarterly basis: Q1 2012 average reading was 51.9, rising to 52.8 in Q2 and Q3, before sliding to 52.0 in Q4-to-date.

 Per Markit/NCB release: "According to respondents, slower growth of new business enabled manufacturers to work through outstanding business. Backlogs of work decreased for the twenty-first month running, albeit at a reduced rate." This is illustrated below:


As you know, I usually run more detailed comparatives on input/output prices and profitability in a separate post, once Services sector data comes in. But some reflections here:

  • Output prices contracted in November, posting a reading of 49.7 down from 51.7 in October. This is the first contraction in the series since August 2012. Overall, trends in output prices are not encouraging for Irish manufacturers. 12mo MA is at 49.1, with 6mo MA at 50.3. Q1 2012 average is at 47.3, Q2 2012 average at 49.4 and Q3 average at 50.2, while Q4-to-date average is 50.7.
  • Meanwhile, Input prices continued robust inflation trend set o since August 2012. In November, input prices subindex stood at 59.0 down slightly on 60.7 in October and 60.6 in September. 12mo MA is at 58.0, 6mo MA at 55.8, 3mo MA through November is at 60.1 and previous 3mo MA through August was at 51.4. In quarterly averages terms, Q1 saw average subindex reading of 60.4, Q2 at 57.9, Q3 at 55.1 and Q4-to-date at 59.9.
  • Continued widening gap between input prices (cost) inflation and output prices (revenue) deflation suggests two possible pressures in the sector: (1) rising transfer pricing - as opposed to actual activity - in the sector by the cost-base-driven MNCs, and (2) shrinking profit margins for Irish firms and profit-base-driven MNCs.



Lastly, per chart above, employment:

  • Employment subindex expanded to 53.5 in November, a robust rise on 51.9 in October, but behind 54.1 reading reached in September. Overall, employment index is now ahead of 50.0 line for nine consecutive months. 12mo MA is at 52.3, 6mo MA at 53.3. 3mo MA through November is at 53.2, slightly down on 53.4 3mo MA through August 2012. In quarterly terms, Q1 saw subindex average 50.0, Q2 2012 - 54.4, Q3 2012 - 52.8 and Q4 2012-to-date averages at 52.7. In other words, there seem to be robust hiring signal coming from the sector in the last 9 months.
Net conclusion: good PMI readings, especially considering that Euro area continues to tank and global trade slowdown is yet to be reversed. Some tightness on profit margins and weakening new orders growth rate are to be watched. However, the two warning signals above are likely to be offset by the stocks rebuilding in months ahead, should new orders hit a slowdown.

Updated:
Manufacturing PMIs across the euro zone contracted for a sixteenth consecutive month in November, with last month's reading at 46.2, up on 45.4 in October. November marks the slowest pace of contraction in eight months, but the downturn remains strong. New exports continued decline, while Italy PMI is down to a 3mo low of 45.1 and Spain is at 45.3.


The Markit/HSBC China Manufacturing PMI for November rose to 50.5, up from 49.5 in October hitting for the first time in 13 months the 50.0 mark.

Saturday, December 1, 2012

1/12/2012: Greek Deal 3.0


If you need to read anything at all on Greek 'Deal' 3.0 signed in November this year, go no further than this post from Yanis Varoufakis. Lethally direct & brutally correct assessment, in my view.

If you want to understand why 120% debt/GDP ration by 2020 or 2022 is not attainable absent OSI, see my note here.

1/12/2012: Irish banking Reforms: are things getting better?


In the previous post, I discussed changes in irish banking system systemic stability in 2012 (January-November). But here's a longer range view - from September 2010 on through November 2012.

Now, keep in mind: since September 2010, Irish banks had

  1. Massive recaps (2011-2012)
  2. Full reform and deleveraging programmes, approved by the EU and Irish authorities
  3. Rounds of increases in charges on customers to beef their own interest margins
  4. Vast subsidies from the ECB and CBofI
  5. Subsidies from the Government via deposits (see here)
  6. According to the Government, BofI (largest bank) has completed its deleveraging programme, while AIB (second largest bank) is ahead of target
  7. Massive sales of riskiest assets to Nama that crystalized losses and led to recaps, which are now completed
  8. According to the Government have bee operating in more benign environment of property prices stabilization
  9. Benefited from a 88% rally in Government bonds which they stuffed onto their balancesheet over 2010-present like there is no tomorrow
and so on. In other words, there are tomes and tomes of Government sponsored propaganda to suggest that things are going honky-dory in the banking sector in Ireland. Here's what Head of the Department of Finance had to say this week about the banking sector 'progress' (emphasis is mine):

"With PCAR capital investments and the Bank of Ireland sale, confidence started to return to the banking sector. [this refers to 2011]"

"In 2012 we have witnessed further tangible signs of stability. …Even though non-performing loans continue to grow; here again there are tentative signs that in the mortgage arrears area the growth in new arrears has been arrested. 

The banks still have a lot of work to do to roll out sustainable mortgage solutions, but this process is underway.

Importantly, confidence is returning to our banking system following its recapitalisation.  Deposits across the Irish system are up 2.5% with stronger growth recorded by AIB, BOI and PTSB (which are up 5.3%).

We are in a situation now where the domestic banking system is getting stronger, albeit from a very weak starting point.
  • The large scale balance sheet restructuring has been completed;
  • BOI have completed the disposal of non-core portfolios
  • AIB have substantially completed their disposals. 
  • The funding gap has been significantly reduced and the drawing on Eurosystem funding by our government supported going-concern banks continues to decline, and is now less than €60 billion (excluding IBRC).
  • Importantly, as I said earlier deposits are growing and the banks are back in the funding markets."
So, in other words, we should expect Ireland's banking system to have performed well in progressing since 2009-2010 lows?

Here's the chart:

In reality, courtesy of Euromoney surveys, we know that Irish banking system stability has deteriorated, not improved, between September 2010 and November 2012, and this deterioration was the second largest amongst 37 European countries.

1/12/2012: Ireland - still the second worst banking sector in EA


Another Euromoney risk survey on and the results for the banking sector are out:


Ireland's banking sector zombies are ranked as 4th least safe in the entire Europe of 37 countries. Next to Greece (3rd least safe), and Macedonia (1 place ahead of Ireland - 5th least safe). Iceland, having defaulted and demolished its banks, ranks 7th least safe. Note, Ireland remains the second weakest banking sector in the EA17.

Of course, our 'leaders' would say that yes, things are bad, but they are improving... hmm...


Are they? Well, sort of. Ireland's score (higher score, greater systemic stability) have risen in 11 months of 2012, but the rise was far from spectacular. Ireland's improvement in the score is 7th largest in the sample, behind that for Iceland.

Ireland's gap to the peers (Advanced Small Open Economies) in overall score is about 4.4 points. 11 months of heroic Government reforms have yielded a gain of 0.2 points in Irish position, and the deterioration in the overall euro area climate has resulted in a decline in the average ASOE score of 0.07 points. This means the spread improved in favour of Ireland by less than 0.3 points in 11 months - a rate of 'reforms' that can close the current gap, assuming continued deterioration in ASOE average, over  161 months. In other words, unless the 'reforms' in Ireland's banks start bearing fruit much faster than they have done in 11 months of 2012 so far, it will take us 13.4 years to reach ASOE average levels of banking system stability.

1/12/2012: Irish Government deposits with Zombie Banks


On the foot of the analysis of deposits from Irish Residents, one might ask a question if the Irish Government deposits within the Irish banking system are significantly skewed in favour of the Covered Group of banks (Irish domestic banks largely owned by the Government).

The hart below plots the ratio of Irish Covered Banks Deposits from Irish Residents as a percentage of all same category deposits within the Domestic Banks group:


And the subsequent chart plots Government deposits in Domestic group and within Covered group:


Per first chart above, it is pretty clear that Irish Government deposits are biased in favour of the Covered banks and that this bias has risen dramatically during the current crisis (since the beginning of 2008). Of course, the effect of this bias is two-fold:

  1. This represents a direct subsidy from the Exchequer to the Covered Banks at the expense of non-Covered banks, and
  2. This results in lowering the deposit rates that Covered Banks must charge to attract depositors.
Now, some more detailed stats on the same subject:
  • In October 2008, 75.49% of all Resident Deposits within the Domestic System were banked at the Covered Institutions. This represented a decline of 0.505% on September 2012 and a drop of 3.67% on October 2011.
  • Share of Covered Banks in total Domestic Resident deposits was down on 3mo average basis (q/q and y/y) and on 6mo average basis
  • In October 2012, share of Covered Banks in total Domestic banking system resident deposits was down 3.67% on October 2011, down 7.44% on October 2010 and down 6.56% on October 2009.
  •  While total share of Covered Banks in domestic deposits has declined, in Government deposits their share has risen. In October 2012 Covered Banks' share of Government deposits rose to 91.992% (up 1% m/m and 0.8% y/y). The said share is no up 1.92% on October 2010.
Let's take a look at longer term series:
  • Prior to 2008, average share of Covered Banks in total resident deposits was 78.7% and this fell to 75.3% for the average from 2008 through present, with 3mo average through October 2012 share now at 75.7%.
  • Prior to 2008, average share of Covered Banks in Private Sector resident deposits was 75.7% and this fell to 73.6% for the average from 2008 through present, with 3mo average through October 2012 share now at 72.8%.
  • Prior to 2008, average share of Covered Banks in Government deposits was 81.5% and this rose to 92.4% for the average from 2008 through present, with 3mo average through October 2012 share now at 90.9%.
While Private Sector seemingly is diversifying away from Irish banking zombies, Irish Government is increasingly subsidizing them. Given the Government simultaneously deposits with the banks that it owns and guarantees, one wonders if such apparent and blatant subsidization of the domestic covered institutions through deposits holdings by the Government is (1) consistent with competition rules present in the EU, and (2) consistent with good practices of risk management.

1/12/2012: Much Hype on Little Signs: Private Sector Deposits in October


Much hoopla is doing rounds these days about the 'rise in October deposits' in irish banking system. Head of the Department of Finance has referenced the 'welcome news' in his most recent speech and the Central Bank has cheerfully noted as much in the release published last night. Alas, as usual, the reality is not as encouraging as the 'Green Jerseys' crowd might suggest it is.

Let's cut some fog of numbers here.

First, Domestic Group of banks:

  • Total Deposits in Domestic Group of banks (covering all banks registered to operate in Ireland) rose from €206,363mln in September to €208,633mln in October. In other words, deposits rose 1.1% m/m (reversing a -0.19% contraction m/m in September 2012).
  • However, total deposits in Domestic Group are down 16.6% y/y in October 2012, oops... volatility in m/m figures seems to be clouding the minds at the 'Green Jerseys' clubhouse. And worse:
  • More worrying: 3mo average deposits through October 2012 are down 7.9% on 3mo average deposits through July 2012, and are down 16.8% on 3mo average through October 2011. 
  • Likewise, 6mo average through October 2012 is down 10.0% on 6mo average through April 2012 and is down 15.4% on 6mo average through October 2011.
  • Some might say that these averages are down because of some exits of banking institutions from Ireland, but that is simply false, as data for Covered Banks (see below) shows an even more disastrous trend.
  • Now, October 2012 levels of total deposits from Irish Residents are down 16.6% on October 2011, down 31.2% on October 2010 and down 32.8% on October 2009. Only Borat would cheer these trends with a 'Good news' headline.
Much of the above data trends is driven by the Monetary & Financial Institutions deposits changes. Much, but not all. 
  • Government deposits with Domestic Banks rose 25.9% m/m in October having posted a 6.0% rise in September 2012. Year on year, Government deposits are up 44.8% in October 2012 and they were up 2.4% in September 2012. Virtually all trends on Government deposits are up.
  • In contrast, Private Sector deposits with Domestic banks grew only 1.16% m/m in October 2012 and 2.2% in September 2012. 
  • In longer term trends, Private Sector deposits didn't fare that well: 3mo average through October 2012 rose 0.06% on 3mo through July 2012, while it was up 0.73% y/y. 6mo average was up 1.2% in October 2012, compared to 6mo average through April 2012, but down 1.25% in y/y terms.
  • Now, for dysmal science analysis of the Private Sector deposits: in october 2012, Private Sector Deposits in Domestic Group of banks were up 2.2% on October 2011, down 13.0% on October 2010 and down 18.0% on October 2009.
  • Borat back, please.
Let's take a look at the levels of change in Domestic Group deposits:
  • Cheerful increase in total Irish residents' deposits in Domestic Group of banks amounted to €2,270mln in October compared to September 2012, with only €923mln of that - less than half - accumulating in Covered Banks. Looks like foreign banks are beating Irish zombies in the deposits gathering game.
  • There was a rise of €1,663 million in Private Sector deposits in the Domestic Group of banks in October, compared to September. Of this, only €574mln - roughly one third - landed in Irish banks, with 2/3rds going to foreign banks.
  • Borat would say that the above shows success in restructuring Irish banking system. More even-headed analysis suggests success in foreign banking system operating in Ireland.
Now, Covered Banks (aka Irish Banking Zombies):
  • Total Residents' deposits in Covered Banks were up €923 million in October 2012 (+0.59%) m/m, reversing a -0.01% decline in September. Y/y deposits are down 19.63% - worse performance than in September 2012 (-19.26%).
  • Let's put things into perspective: in a year to October 2012, Irish Residents' deposits in Covered Banks shrunk €38.5 billion. In the 'cheers inducing' month of October 2012 they rose €923mln. Simple math suggests that it will take us 48 months of these 'improvements' to get back to where Irish Residents' deposits were back in October 2011.
  • But there's more: Total Residents' deposits in Covered Banks in October 2012 were -19.63% below October 2011, -36.35% below October 2010, -37.64% lower than in October 2009. You get my point - Covered Banks (which were supposedly reformed, repaired, recaped per Department of Finance & CBofI, ages ago) are still performing woefully worse than foreign banks operating in Ireland.
  • Government deposits with Government-owned banks rose €695 million m/m in October (+27.2% m/m and +45.92% y/y), outstripping increases in private deposits of €574mln (+0.55% m/m and +3.3% y/y).
  • Private Sector Irish Residents' deposits with Covered Banks fell -0.75% on 3mo average basis through October 2012 compared to 3mo average through July 2012, although these are up 2.80% y/y. On another positive note, 6mo average for Irish Residents' Private Sector deposits with Covered Banks rose 1.8% on 6mo average through April 2012.
  • Nonetheless, Irish Residents' Private Sector deposits with Covered Banks in October 2012 were still down 15.8% on same period of 2010 and down 20.7% on same period 2009.
  • Switching back to more positive bit of news: Private Sector deposits with Domestic Banks were up €3.121bn in October 2012 y/y, and up €3.379bn for deposits with Covered Banks, which means that y/y Irish Covered Banks are generating stronger activity in attracting Private Sector Residents' deposits than foreign banks.
Here are some charts illustrating the above trends:









1/12/2012: US birth rate hit an all-time record low in 2011



The 2011 preliminary data for the US released this week showed 3,953,593 births in the US, a 1% decrease (-45,793) compared to 2010. The US fertility rate of 63.2 per 1,000 women age 15-44 years has now "declined to the lowest rate ever reported for the United States."
Full release here: http://www.cdc.gov/nchs/data/nvsr/nvsr61/nvsr61_05.pdf

In other words, the US birth rate is now below where it was during the WW2 years and the Great Depression.


Per release:

  • The number of births declined for most race and Hispanic origin groups in 2011, whereas the rate declined only for Hispanic, non-Hispanic black and AIAN women. 
  • The birth rate for teenagers 15-19 years fell 8 percent in 2011 (31.3 births per 1,000 teenagers 15-19 years), another record low, with rates declining for younger and older teenagers and for all race and Hispanic origin groups. 
  • The birth rates for women in their twenties declined as well, to a historic low for women aged 20-24 (85.3 births per 1,000). 
  • The birth rate for women in their early thirties was unchanged in 2011 but rose for women aged 35-39 and 40-44.  
  • The birth rate for women in their late forties was unchanged in 2011. 
The worrisome trend here is not the decline in teenage births, obviously, but a combination of dramatic fall-off in the birth rates for 20-24 and 25-29 age groups. In addition, increases in 40-44 age group and 35-39 age group are associated with smaller family sizes.
 



  • The first birth rate in 2011 (25.4 births per 1,000) was the lowest ever recorded for the United States. 
  • The birth rate, the number of births, and the percentage of births to unmarried women each declined for the third consecutive year.  
  • The birth rate was 46.1 birth per 1,000 unmarried women aged 15-44 and the percentage of births to unmarried women was 40.7. 


There are two trends working through here:
  1. The birth rate in the US has declined in every year since 2007 when the total number of births reached over 4.3 million - an effect attributable to the severity of the economic crisis. As the top chart clearly shows, this is similar to what was experienced during the Great Depression, albeit at a shallower scale. Same took place in the 1970s. The effect of the Great Recession is now more moderate than in the earlier years of the crisis, with 1% decline y/y in 2011 following on 2% drop in 2010 and 3% drop in 2009.
  2. Long-term trend to the downside in overall birth rates - the trend clearly present since the late 1950s. The rate of this long-term decline in the US is still benign compared to Europe. In Germany, birth rate currently stands around 1.36 children per woman, while in the US it is at 1.9.

Friday, November 30, 2012

30/11/2012: Moody's downgrade ESM and EFSF


Moody's downgrade of ESM and EFSF: here.

The downgrade was driven by two factors:

  1. Moody's downgrade of France - the second largest provider of callable capital in the case of the ESM and as a guarantor country in the case of the EFSF.
  2. "Moody's view that there is a high correlation in credit risk among the entities' supporters is consistent with the evolution to date of the euro area debt crisis and the close institutional, economic and financial linkages among the major euro area sovereigns. As a result, the credit risks and ratings of the ESM and the EFSF are closely aligned to those of its strongest supporters."
Another point of interest: "Moody's acknowledges that the ESM benefits from credit features that differentiate it from the EFSF, including the preferred creditor status and the paid-in capital of EUR80 billion. However, in Moody's view, these credit features do not enhance the ESM's credit profile to the extent that it would warrant a rating differentiation between the two entities."

Update: here's a good take on some of the issues involved in the downgrade: http://dealbreaker.com/2012/11/efsf-conveniently-downgraded/

30/11/2012: Greek debt distribution


Updated Greek debt shares based on latest 'deal' (to my post on impossibility of 120% debt/GDP target http://trueeconomics.blogspot.ie/2012/11/15112012-impossibility-of-greek-2020.html)


via MacroMonitor

30/11/2012: Eurocoin continues to signal EA17 downturn in November



In November euro area leading growth indicator Eurocoin stood at -0.29 % which is the same level as in October. This reading "reflects the opinions of households and businesses, as recorded by the surveys, which overall remain still unfavourable, though signs of an easing of pessimism emerged in some euro-area countries less affected by the sovereign debt tensions". Some details can be found at http://eurocoin.cepr.org/index.php?q=node/148 .

Reading below zero signals contraction in economic activity and the Eurocoin is now under water for 14 months in a row. The reading of -0.29 is the 3rd lowest the indicator reached during the current downturn. 



Consistent with the current slowdown, the price-growth dynamics suggest that there is an opening for further ECB easing:


Per above, it is quite obvious that we are stuck in the quick sand of being very near the zero-rate bound and no improvements in growth.

Per below, current inflation is still above the target, but the direction of change is encouraging:

In particular, latest inflationary pressure easing appears to be in line with ECB expectations and suggest that inflation is relatively well anchored, although still ahead of the ECB formal target.

Furthermore, 3-mo MA for Eurocoin through November 2012 is at -0.3 and 6mo MA at -0.273, both close to -0.31 average for the crisis period of 2008-2009.

The mixed bag of indicators is firmly shifting toward some action from the ECB soon.