29/6/2013: Nama valuations update to May 2013

In the previous post I looked at the latest prices trends in Irish property markets. Now, as promised, an update on Nama valuations.

Note: these numbers are indicative, rather than exact estimates.

29/6/2013: Irish Residential Property Prices: May 2013

This week, CSO released Residential Property Price Index (RPPI) for May. Here's the update on trends and changes. Nama valuations update will be posted in a follow-up post.

Per CSO data, All properties RPPI rose marginally from 64.6 in April to 64.8 in May, 2013. The index is now in the range of 64.1-64.8 for four months in a row, suggesting no change to the overall flat trend at around 65.2. The flat is now running from February 2012, and we are currently below the trendline by about 0.6%.

Year on year, index is down 1.07% and in April it was down 1.22%. Over the last 3 months, All-RPPI rose 0.62% cumulatively, which reverses 1.22% loss on 3mo through April 2013. On 6mo basis, cumulative, All-RPPI is down 0.33% which is an improvement on 1.22 loss over 6 months through April 2013.

2013 is not shaping that great so far, as All-RPPI is down 1.52% since December 2012 end.

Overall, All-RPPI is down 50.34% on all-time peak and in May 2013 it was up only 1.09% on all-time low of 64.1 reached in March 2013.

Houses sub-index rose from 67.3 in April 2013 to 67.6 in May - another marginal improvement. Y/y index is down 0.88% and in April it was down 1.17%. 3mo cumulated gain through May 2013 was 0.9% and there was a 6mo cumulated loss of 2.17%. Relative to peak, the series are down 48.79% and the sub-index is 1.2% above the all-time low.

Per chart above, Apartments sub-index is again in decline, falling from 48.4 in April 2013 to 47.1 in May. Y/y sub-index is down 3.09% and previous y/y decline was 2.42%. 3mo cumulative move in May 2013 was -8.54%, while on 6mo basis, the index is up 3.06%. There is huge volatility in the index by historical standards, which suggests that the market is subject to some very concentrated volume swings in sales.

Dublin sub-index has been used before to drum up the evidence that Irish property markets are returning to life. Chart below shows a marginal positive sloping of the trend since the historic lows of H1 2012.

However, at 59.2, May reading came in only marginally better than 58.9 in April 2013. Year on year, Dublin sub-index is up 1.37 and on cumulated 3mo basis, May reading is down 0.17%. On cumulated 6mo basis, the decline is -1.33% through May. There is zero gain since the end of December 2012. 6mo average reading is now 59.2 - bang on with May 2013 reading. 12mo average is at 58.74, less than 0.8% away from the current reading. For all intent and purpose, current trend is flat at around 58.7-59.0 range. Overall, Dublin prices are down 55.99% on peak and are 3.32% up on absolute low.

29/6/2013: Research Funding Does Not Seem to Match Research Performance

Very interesting:

http://www.plosone.org/article/info%3Adoi%2F10.1371%2Fjournal.pone.0065263

From the abstract: "Agencies that fund scientific research must choose: is it more effective to give large grants to a few elite researchers, or small grants to many researchers? Large grants would be more effective only if scientific impact increases as an accelerating function of grant size."

So, the paper examines "the scientific impact of individual university-based researchers in three disciplines funded by the Natural Sciences and Engineering Research Council of Canada (NSERC)", based on "four indices of scientific impact:

• numbers of articles published, 
• numbers of citations to those articles, 
• the most cited article, and 
• the number of highly cited articles."

All of the above parameters are "measured over a four-year period" and referenced against "the amount of NSERC funding received".

Core findings:

• "Impact is positively, but only weakly, related to funding" - which is disturbing, as it suggests that funding allocation is not academically efficient. 
• "Researchers who received additional funds from a second federal granting council, the Canadian Institutes for Health Research, were not more productive than those who received only NSERC funding." Which suggests that the most important agency has trouble identifying and signalling by its grants allocation the academic 'winners'.
• "Impact was generally a decelerating function of funding." Which is really bad. In basic terms, the more funds were pumped the less was the positive marginal impact. So that "impact per dollar was therefore lower for large grant-holders". Which "is inconsistent with the hypothesis that larger grants lead to larger discoveries". 
• "Further, the impact of researchers who received increases in funding did not predictably increase." So obtaining a larger grant did not lead to subsequent improvement of the researcher output! 
• "We conclude that scientific impact (as reflected by publications) is only weakly limited by funding."
• And a big Boom! "We suggest that funding strategies that target diversity, rather than “excellence”, are likely to prove to be more productive." 

Now, the last point is what all funding agencies around the world are trying to avoid. Everywhere, the policy in funding research is on more concentration and on more winner-picking. Not on funding broader research and research groups.

Incidentally, if you are interested in this topic - what and how should be funded and prioritised in research and education - read my Sunday Times article tomorrow.

29/6/2013: WLASze Part 2: Weekend Links on Arts, Sciences and Zero Economics

This is the second part of my usual Weekend Links on Arts, Sciences and zero economics (WLASze). The first part is linked here.


An insightful piece on what philosophers as a group believe in:
http://www.openculture.com/2013/06/what_do_most_philosophers_believe_.html
Very interesting and can be followed by the very brief (and as such not very deep, but still interesting)
http://www.openculture.com/2010/11/do_physicists_believe_in_god_.html
and by brilliantly extensive http://www.sixtysymbols.com/ .
The latter literally is a sort of a merger of art (of symbol or word or meaning) and sciences.
And while on the above topics, here's John Lennox of Oxford on science and belief… http://johnlennox.org/


Back to art-meets-science, a major mapping/visualization geek alert:
http://www.wired.com/design/2013/06/infographic-this-detailed-map-shows-every-river-in-the-united-states/?cid=co9216134#slideid-152839
Love the images:

Laborious, but beautiful mapping, sadly in relatively low res only...


But blending cheeky with complex does not make it either art or science in the end, in my opinion, of course:
http://www.guardian.co.uk/science/alexs-adventures-in-numberland/2013/jun/26/mathematics
"And when you slice a scone in the shape of a cone, you get a sconic section – the latest craze in edible mathematics, a vibrant new culinary field" Err… not really.


http://www.prokopchik.com/ @pavelprokopchik great photo by Pavel Prokopchik for NY Times: http://www.nytimes.com/2013/06/21/world/europe/a-sea-of-bikes-swamps-amsterdam-a-city-fond-of-pedaling.html?_r=0

Sadly, only in low res quality, again...


Good review via @farnamstreet of a very interesting book on occasionally mindless fascination we hold for scientific explaining away of reality (or is this fascination itself an behavioural bias?):
http://www.linkedin.com/today/post/article/20130607125052-5506908-what-if-capitalism-could-be-artistic?trk=mp-details-rr-rmpost
Which makes me wonder, are biases endogenous to biases? Liam, your suggestions?!. And to MrsG a gentle suggestion: my birthday is coming up...


Bad news:

"Art Southampton Presented by Art Miami for Art Collectors NYC and In-Crowd East Coast with Cars Italia and Galleries Kitsch USA" for the crowd of those who think a horse bronze with polished detail is worth a silver metal couch and all that shines…

You can almost see the parallel to the previous screenshot: animate duo 'racing' to the cocktails counter with an enlightened look about them of a floodlight set to highlight the Maserati... being vs object - all denoting the same fake-ness of the art world that fits a dressed-up-white hangar… in dressed-up Hamptons… Watch the preview slideshow… http://www.art-southampton.com/ it is frightening (and as such so anti-artistic as to become almost artful).

29/6/2013: Banks-Sovereign Contagion: It's Getting Worse in Europe

Two revealing charts from Ioan Smith @moved_average (h/t to @russian_market ): Government bonds volumes held by Italian and Spanish banks:

Combined:

• Italy EUR404bn (26% of 2013 GDP) up on EUR177bn at the end of 2008
• Spain EUR303bn (29% of 2013 GDP) up on EUR107bn at the end of 2008

Now, recall that over the last few years:

• European authorities and nation states have pushed for banks to 'play a greater role' in 'supporting recovery' - euphemism for forcing or incentivising (or both) banks to buy more Government debt to fund fiscal deficits (gross effect: increase holdings of Government by the banks, making banks even more too-big/important-to-fail); 
• European authorities and nation states have pushed for separating the banks-sovereign contagion links, primarily by loading more contingent liabilities in the case of insolvency on investors, lenders and depositors (gross effect: attempting to decrease potential call on sovereigns from the defaulting banks);
• European authorities and nation states have continued to treat Government bonds as zero risk-weighted 'safe' assets, while pushing for banks to hold more capital (the twin effect is the direct incentive for banks to increase, not decrease, their direct links to the states via bond holdings).

The net result: the contagion risk conduit is now bigger than ever, while the customer/investor security in the banking system is now weaker than ever. If someone wanted to purposefully design a system to destroy the European banking, they couldn't have dreamt up a better one than that...

28/6/2013: Expenditure Components of GDP: Q1 2013

Having looked at the recession/expansion dynamics in Irish economy on foot of Q1 2013 figures (here),  the dynamics in GDP and GNP in Ireland at the aggregate levels (here), and the mythology of the 'exports-led recovery' (here), let's round up the Q1 2013 QNA cover with a look at the expenditure-lined components of the GNP and GDP.

Below we look at the Seasonally-adjusted Current Market Prices data.

Personal Expenditure on Consumption Goods and Services fell 2.21% in Q1 2013 q/q and was up 0.01% y/y. This compares against much more benign drop of -0.07% q/q in Q4 2012 and a 1.15% rise y/y. Since Q1 2011, when the Coalition came to power, Personal Expenditure is down 1.55%. In terms of q/q changes, Q1 2013 marked second consecutive quarter of declines.

Net Government Expenditure on Current Goods and Services declined 0.1% q/q in Q1 2013 and was down 2.56% y/y. This marks moderation in declines recorded in Q4 2012 when q/q decline stood at -1.90% and y/y decline was running at -2.88%. Net Government Expenditure decline was the shallowest contributor to voerall economic contraction recorded in Q1 2013. Compared to Q1 2011, Net Government Expenditure on Current Goods & Services was down 3.98% in Q1 2013. In terms of q/q changes, Q1 2013 marked second consecutive quarter of declines.

Gross Fixed Capital Formation - the most devastated expenditure component of GNP to-date has fallen massive 7.32% in Q1 2013 in q/q terms and was down whooping 18.74% in y/y terms. This shows dramatic acceleration in decline from -2.16% drop in q/q terms in Q4 2012 and the reversal of the y/y rise of +4.31% recorded in Q4 2012. Relative to Q1 2011, Gross Fixed Capital Formation was down 14.25% in Q1 2013. In q/q terms, Q1 2013 marked second consecutive quarter of declines.

Exports excluding factor income shrunk 0.79% in Q4 2012 on q/q basis and there was 4.93% growth in y/y terms. This was then. In Q1 2013 exports of goods and services fell 4.59% q/q and were down 3.13% y/y. Relative to Q1 2011 exports of goods and services net of factor income payments were up 2.22% in Q1 2013, but we also marked two consecutive quarters of contraction here.

Imports of goods and services, net of factor income payments were down 2.12% q/q in Q1 2013 and -3.13% y/y. This marks significant shift 'South' in the series compared to Q4 2012 when imports shrunk 1.05% q/q and were up 4.57% in y/y terms. Imports are running -0.05% down on Q1 2011 and Q1 2013 marks the second consecutive quarter of q/q declines.

GDP at curent prices, seasonally adjusted fell 0.6% q/q in Q4 2012 and there was annual growth of 0.38%. In Q1 2013, GDP fell 2.16% q/q and there was annual decline of 2.09%. This marks third consecutive quarter of decline in GDP and thus officially, return of the recession is dated to Q4 2012. The average rate of recessionary decline in GDP in the current episode is so far -1.06% per quarter. This is shallower than the previous recessionary episode (Q4 2008-Q4 2009) when GDP contractions averaged 2.76% per quarter. Compared to Q1 2011, Q1 2013 GDP at current market prices stood at -1.04%, or put differently, gross domestic product in Ireland in Q1 2013 stood below the levels attained in Q1 2011 when the current Government came to power.

Net factor income from the rest of the world declined in both Q4 and Q1, with decline accelerating in Q1 2013 to 19.21% q/q from 2.92% in Q4 2012. As the result of this, GNP moved up, in the opposite direction of the GDP.

GNP at current market prices grew 0.68% q/q in Q1 2013, down on 1.18% expansion recored in Q4 2012. On y/y basis, GNP grew 4.12% in Q4 2012 and by 4.26% in Q1 2013. Compared to Q1 2011, GNP is now up 2.46%.

Both Final Domestic Demand and Total Domestic Demand posted second consecutive quarter of q/q contraction in Q1 2013.

To summarise, not a single line of expenditure posted an increase in the Q1 2013 in terms of q/q changes once seasonal adjustments are taken into the account. In other words, the sole positive improvement in the numbers - relating to GNP - was driven exclusively by reduced outflow of funds from MNCs.

Worse, not a single line in the determination of the GDP in Ireland was up in q/q terms in any quarter since the end of Q3 2012. We had, put differently, 6 months of across the board contractions in the economy, when we consider expenditure-based definition of GDP.

28/6/2013: Exports-led recovery: Q1 2013

I covered the headline numbers and trends for the GDP and GNP in previous two posts: here and here. Now, onto some more detailed analysis.

Remember, from the very beginning of the crisis, Irish and Troika leaders have been incessantly talking about the 'exports-led recovery'. Position on this blog concerning this thesis consistently remained that:

1. Exports growth is great, but
2. Exports growth is unlikely to be sufficient to lift the entire economy, and
3. Exports growth projections were unrealistic, while
4. Exports re-orientation toward services, away from goods was less conducive to delivering real growth in the economy.

Q1 2013 data continues to confirm my analysis.

In Q1 2013, based on real valuations (expressed in constant market prices),

• Exports of Goods & Services shrunk 6.47% q/q and fell 4.09% y/y. This compares to +1.19% q/q growth in Q4 2012 and +1.28% expansion y/y. Compared to Q1 2011, when the current coalition took over the reigns in the Leinster House, total exports of goods and services are down 0.88% in real, inflation-adjusted terms. Troika sustainability projections envisioned growth of over 6% over the same period of time.
• Imports of Goods and Services showed pretty much the same dynamics as exports in both Q4 2012 and Q1 2013, but owing to sharper contractions in 2011-2012 these are now down 4.34% compared to Q1 2011.
• Exports of Goods fell in Q1 2013 by 3.83% q/q and 9.37% y/y, while there were declines of 2.68% q/q and 2.33% y/y in Q4 2012.
• Exports of Services were down 8.75% q/q but up 1.27% y/y in Q1 2013, and these were up 4.77% q/q and 4.63% y/y in Q4 2012.

• Trade Balance in Goods and Services fell 4.96% q/q and was down 3.63% y/y in Q1 2013, with Q4 2012 respective changes at -15.91% q/q and +0.98% y/y. Compared to Q1 2011, trade balance is up 15.91%
• Trade Balance in Goods was down 6.63% q/q in Q4 2012 and this deteriorated to -10.73% growth in Q1 2013. Y/y, trade balance in goods contracted 0.05% in Q4 2012 and shrunk 10.59% in Q1 2013. On Q1 2011, trade balance in goods is down 14.04%.
• Trade Balance in Services fell from EUR1,130mln in Q3 2012 to EUR132mln in Q4 2012 before improving to EUR601mln in Q1 2013. In Q1 2012 the balance stood at EUR28 million.

28/6/2013: Underlying dynamics in Irish GDP & GNP: Q1 2013

Q1 2013 National Accounts do not make for a pleasant reading. The implications from the business cycle perspective are pretty clear - we are in a continued (3rd quarter in a row) recession, which constitutes the fourth 'dip' since the onset of the Great Recession. The post summarising that evidence is linked here.

In this post, let's take a look at the GDP and GNP in constant prices.

On seasonally-adjusted basis (removing seasonal volatility),

• GDP at constant factor cost (national output ex-taxes and subsidies) fell 0.65% q/q in Q1 2013, having contracted 0.12% q/q in previous quarter. On an annual basis, the GDP at factor cost declined 1.32% in Q1 2013, accelerating annual rate of decline relative to Q4 2012 when it fell 1.04%.
• Compared to Q1 2011, when the current Government came to power, GDP at factor cost was 0.72% higher in Q1 2013.
• Taxes rose 1.04% q/q in Q1 2013, after having posted a decline of 0.64% in Q4 2012. On an annual basis, taxes were down 0.79% in Q4 2012, but they rose 2.32% in Q1 2013.
• Compared to Q1 2011, taxes were up 1.16% in Q1 2013.
• To summarise the above, austerity is clearly biting. Taxes are rising at a 60% faster rate than economic activity.
• Subsidies remained relatively constant in Q1 2013 on an annual basis, implying that net taxes rose strongly.
• GDP at constant prices (accounting for taxes net of subsidies - the headline metric usually referenced as GDP) fell 0.58% q/q in Q1 2013, which follows a shallower contraction of 0.18% recorded in Q4 2012. On an annual basis, GDP contracted by 1.03% in Q1 2013, following a 1.02% contraction in Q4 2012.
• Net factor income for the Rest of World (outflows to the rest of the world from factor payments, net of inflows of Irish incomes earned abroad) fell dramatically in Q1 2013, down 16.96% q/q, following a 3.22% decline q/q in Q4 2012. In year-on-year terms, net outflows fell 16.55% in Q4 2012 and by 27.58% in Q1 2013. 
• It is impossible to tell from QNA the core drivers of the net outflows, however, from the balance of payments data we have reinvested earnings in Q1 2013 by the foreign companies in Ireland at EUR4,753 million, up on EUR4,010 million in Q4 2012 and down on EUR6,768 million in Q1 2012. The gap of Repatriations of earnings from Ireland are not provided for Q1 2013.
• On foot of significantly reduced outflow of funds abroad, GNP at constant market prices rose in Q1 2013 rose 2.85% q/q and 5.46% y/y, beating growth of 0.51% q/q and 3.01% y/y recorded in Q4 2012. 
• However, as analysis in the subsequent posts will show, this growth is entirely dependent on reduced outflows of funds abroad. Q/q, net expatriation of funds slowed down by EUR1,204 million, while earnings outflows abroad shrunk by EUR2,015 million.
• Taking the average net factor payments abroad for Q1 2010-2012 in place of Q1 2013 figure, GNP growth controlling for net factor payments changes would have been around -0.01% y/y and -2.48% q/q.

Charts below summarise seasonally unadjusted series:

The chart below clearly shows that even in y/y terms, we are now in a solid, three-quarters long (so far_ recession.

The GDP/GNP gap has, predictably - given the shrinking of net factor payments abroad - declined from 25-26 percent (seasonally-adjusted and unadjusted) in Q1 2012 to 17.3-17.5 percent in Q1 2013:

It is worth noting in the chart above a significant increase in volatility in the gap, which is reflective of the greater volatility in Ireland's GDP and GNP series as well as destabilisation in growth correlation between GDP and GNP. This new pattern is most pronounced starting with Q1 2008 and is associated with both - the crisis and the underlying re-distribution of growth drivers away from the domestic economy to services exports, especially during the 2010-2011 'recovery'.

27/6/2013: Quadru-Sextu-ple-dip Recession in Ireland: Q1 2013

All you need to know about today's QNA data release (though it won't deter me from more detailed analysis later) is:

• Ireland is in a quadruple-dip recession (chart below)
• You and I are in a sextuple-dip recession (second chart below)

Incidentally, just in case you felt like previous 'expansion' (officially from Q1 2010 through Q2 2012) was not much of an expansion at all, then you live in the world we inhabit, closely related to the Gross Domestic Demand. If you felt things were just fine then, you might live in Australia, or read too much of the Department of Finance presentations on their web site, or... I have no idea...

As I commented on earlier post by Brian Lucey: That light at the end of the tunnel did turn out to be an incoming train...

Update: Meanwhile, Minister Noonan thinks that the above (3 consecutive quarters of contraction in the economy, official fourth dip in the Great Recession and 6th dip in Total Domestic Demand) is "certainly disappointing but it's one set of statistics" (link). How long till Enda pops up to greet us with Dude's famous return: http://www.youtube.com/watch?v=QsogswrH6ck

25/6/2013: ECR Latest scores

Euromoney Country Risk scores, latest changes (higher score implies lower risk):


UP:
Luxembourg score 87.21 up by (+0.22)
Canada score 82.47 up by (+0.12)
US score 75.53 up by (+0.10)
Chile score 75.18 up by (+0.06)
Belgium score 71.69 up by (+0.03)


DOWN:
Greece score 34.08 down by (-0.01)
Spain score 53.60 down by (-0.01)
Finland score 84.39 down by (-0.03)
Italy score 55.26 down by (-0.03)
Portugal score 50.81 down by (-0.03)
UK score 72.53 down by (-0.03)

Australia score 81.53 down by (-0.04)
Japan score 68.02 down by (-0.04)
India score 52.47 down by (-0.05)
Austria score 79.77 down by (-0.06)
Netherlands score 81.51 down by (-0.06)
Sweden score 86.55 down by (-0.07)

China score 59.49 down by (-0.10)
France score 71.93 down by (-0.10)
Malta score 66.30 down by (-0.21)
Brazil score 59.81 down by (-0.27)

26/6/2013: SVT was the only form of property tax promised to the Troika

The previous Government of the FF/GP did not shower itself in a glory of competence. However, someone recently sent me a document from the Department of Finance which clearly shows that when it came to structuring the tax changes under the Troika programme, the FF/GP Government did understand the arguments in favour of the Site Value Tax (as opposed to the Property Tax) that were presented to them by, among others, myself.

http://www.finance.gov.ie/documents/publications/other/2012/eulettertrichet.pdf page 2 contains a reference solely to the Site Value Tax and no reference to the property tax.

This implies that the Troika had no objection to the SVT being the only tax on real estate in Ireland, and that the currently instituted system of property taxation (that exempts large land ownership from tax and induces a system of charges wholly unrelated to economic, environmental and social costs of property) was installed based on the current Government decision absent any pressure or compulsion from the Troika.

You can read on the benefits of SVT over the traditional property tax here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2029515

25/6/2013: IMHO Open Letter to Minister Noonan

Irish Mortgage Holders Organisation have published an open letter delivered to Minister for Finance, Michael Noonan, TD concerning the revised Code of Conduct. Here is the link to the letter:
https://www.mortgageholders.ie/media/130624-letter-to-minister-noonan.pdf

This comes on foot of our earlier submission to the consultative process on the same, available here:
https://www.mortgageholders.ie/media/130409-IMHO-submission-letter.pdf



Disclosure: I am a director and one of five founders of the organisation.