19/12/2013: QNA Q3 2013: Expenditure Side and External Trade

QNA results came in strong at the headline levels for Q3 2013. These were covered here: http://trueeconomics.blogspot.ie/2013/12/19122013-good-gdp-gnp-growth-headlines.html

Now, let's take a look at the GDP decomposition by expenditure line. I am referencing throughout non-seasonally adjusted series for y/y comparatives. All in constant prices.

Year on year, personal expenditure on goods and services fell 0.98% in Q3 2013 and the series were up 0.79% on Q3 2011. This is not a good result, but it is an improvement on -1.52 y/y contraction recorded in Q2 2013.

Net Expenditure by Central & Local Govt. on Current Goods & Services rose 0.68% y/y in Q3 2013, after having posted a contraction of -1.73% in Q2 2013. Compared to Q3 2011, net expenditure by Government was down -3.25% in Q3 2013.

Gross domestic fixed capital formation jumped significantly in Q3 2013 up 8.30% y/y albeit from low levels. The series are now up 18.68% on Q3 2011. In Q2 2013, fixed capital formation rose 1.42% y/y, so Q3 2013 data shows some serious improvement.

Exports of Goods and Services (net of factor income flows) rose 0.58% y/y in Q3 2013 and are up only 0.94% on Q3 2011. This is poor given how much we have staked on an exports-led recovery. Worse news: in Q2 2013 exports grew 1.09% y/y, so we are seeing continued slowdown in the rates of growth.

Exports of Goods fell 2.37% y/y in Q3 2013 on foot of a decline of 1.61% in Q2 2013. Exports of goods are now down 7.64% on Q3 2011.

Exports of Services meanwhile picked the slack from Exports of Goods contraction. Exports of Services grew 3.32% y/y in Q3 2013 having previously posted growth of 3.63% y/y in Q2 2013. In other words, strong growth in Q3, but slower than in Q2. Compared to Q3 2011, exports of services are now up cumulative 9.89%.

Imports of Goods and Services fell 1.28% y/y in Q3 2013 and are now up only 0.73% on Q3 2011. The decline was primarily driven by a 3.4% drop in imports of goods and moderated by a decline of 0.11% in terms of imports of services.

Trade Balance grew on foot of stronger trade surplus in services (+EUR747 million in Q3 2013 compared to Q3 2012) and moderated by small decline in trade deficit in goods (-EUR93 million in Q3 2013). Trade balance overall grew by EUR654 million in Q3 2013 compared to Q3 2012, up 6.56% y/y.

Thus, on the expenditure side of the National Accounts, Q3 2013 gains in GDP were supported by 

• Growth in the Net Government Expenditure on Current Goods and Services, Gross Domestic Fixed Capital Formation, and Exports of Services
• Contraction in Imports of Goods and Imports of Services

The GDP dynamics were adversely impacted by declines in:

• Personal expenditure on goods and services,
• Decline in Exports of goods.

Volatility remains a dominant theme in quarterly data analysis, so it is worth looking at the figures for the first 3 quarters of the year. This will be done is the next post.

19/12/2013: Good GDP & GNP Growth Headlines for Q3 2013

Quarterly National Accounts for Ireland were relaxed today by the CSO. The headline numbers are good:

For seasonally-adjusted (allowing for q/q comparatives), constant prices data:
1) GDP at constant market prices rose 1.50% in Q3 2013 compared to Q2 2013, having posted 1.02% growth in Q2 2013 compared to Q1 2013.
2) GNP grew by 1.58% in Q3 2013 compared to Q2 2013, having broken the previous period q/q contraction of 0.13% in Q2 2013 compared to Q1 2013.

For not seasonally-adjusted series (allowing for y/y comparatives), constant prices data:
1) GDP expanded 1.74% y/y in Q3 2013, posting significant improvement on -1.64% y/y contraction recorded in Q2 2013.
2) GNP also posted solid rise, beating increases in GDP. GNP was up 3.87% y/y in Q3 2013 and this is a massive jump on -0.69% contraction recorded in Q2 2013.
3) Q3 2013 marks the first quarter when growth in GDP (q/q terms, seasonally adjusted, constant prices) posted second consecutive quarter growth since Q1-Q2 2011. This is welcome, as the GDP series have been exceptionally unstable in recent years: since Q1 2010 through Q3 2013, there were only two episodes of GDP quarterly growth being consecutively above zero for two quarters period.

In y/y terms, GDP finally broke a string of contractions that lasted 4 consecutive quarters between Q3 2012 and Q2 2013.

CHART 3 to illustrate:

It is also worth noting that GNP expansion was fuelled by decline in MNCs transfers of profits abroad. This is most likely due to a decline in pharma sector profits on foot of patent cliff and, possibly, due to some 'parking' of profits on the side of other MNCs. Retained earnings reflected in the Financial Account of the Balance of Payments rose EUR6.27 billion in Q3 2013.

Two core points, however, so far continued as a trend in the data is that we are still witnessing erratic pattern in growth. The recovery is not convincing, yet, when it comes to trend, but there are some positive signs emerging. These are to be explored in the subsequent posts when I deal with composition of growth sources.

On the net, rebound is encouraging and coupled with expectation for growth in Q4 2013, we might be able to pull off a positive expansion for the year.

18/12/2013: TrueEconomics' 5th Anniversary

For the day this was: True Economics blog marked its 5th anniversary today, so many thanks to all of the readers and all who contributed their comments to this blog. Thanks to hundreds of journalists who quoted from the blog and cited it, and even to some academic and policy researchers who did the same. Thanks to all students who found some of the ideas discussed here worthy of learning about. Thanks to a small number of contributors and friends who on some occasions posted on the blog.

And special thanks to the person who talked me into starting this blog.

Here's to many more years and many more readers!

18/12/2013: Ireland's risk ratings improve: ECR

Euromoney Country Risk score for Ireland posted one of the largest increase of all countries surveyed in recent weeks. Here are the details:

Details of Ireland score upgrade:

 Note: ignore the glitch in data prior to June 2013.

Sub-factors of the Economic Assessment, Political Assessment and Structural Assessment scores:

18/12/2013: On Big Advisory Firms Role in the Crisis

EUObserver has a very interesting expose of the role played by a handful of large financial consultancies in shaping Europe's responses to the banking crisis: http://euobserver.com/economic/122415

The article quotes from a number of sources, including myself.

Here is a more in-depth version of my position on the issue:

There are two basic reasons for the Central Banks reliance on external assessment and validation of estimated banks losses. The first one is operational and the second one is reputational. 

Operational reason arises from the fact that during the per-crisis boom in credit creation, National Central Banks of countries with rapid credit expansion lost core personnel competencies and skills to staff migration to the private sector financial services providers. As the result, senior staff with skills at professional certification levels (e.g. CFA) and hands-on experience became virtually extinct in the Central Banks and regulatory authorities. The remaining staff largely performed mechanical tasks of collating and repackaging information supplied to the Central Banks by the financial institutions. Forensic analysis and modelling skills were lost. External analysts can supply these skills and provide more up-to-date specialist knowledge, rarely available in the tenured jobs-for-life setting of the Central Banks that was made even more scarce by the staff migrations to private sector. An added operational constraint faced by the Central Banks in crisis-hit countries was the demand for staff time to cover regulatory and policy changes during the crisis and deploying emergency measures. In simple terms, this meant that the Central Banks were short of staff.

Reputational reasons are more complex, spanning a number of areas where Central Banks faced and often continue to face significant deficits. Firstly, reputation ally, Central Banks are not known for possessing specialist forensic analysis skills required to bring together balance sheet analytics and forward business modelling. As such they lack credibility as markets analysts. Secondly, stress testing had two functions: identifying approximate potential losses on banks balance sheets and signalling these losses to the markets. In the case of countries severely hit by the crisis, the latter objective had to be served by supplying a credible signal to the markets. This signal could not rely on the internal assessments by the Central Banks which were at the time seen by the markets as being captive to the incumbent banking institutions. This too required bringing in external validation. Thirdly, as in the case of Greece, there was always concern that more realistic assessment of the banking situation will expose Central Banking authorities to renewed public anger and trigger public retaliations. As the result, a third party often had to step in to provide a public buffer between the losses estimates, the banks and the Central Bank. Fourthly, counterposing potential public backlash, the banks themselves were significantly incentivised (in the context of loss assessment exercises) to attempt influencing the Central Banking authorities to alter the results of the exercise. Perceived objectivity of the estimates, therefore, required more external validation.

18/12/2013: Portugal's Expresso on Irish Strategy for Growth 2014-2020

Portugal's Expresso is featuring Ireland's Strategy for Growth 2014-2020: "Irlanda quer ser o melhor pequeno país para as empresas" with comments from myself & @seamuscoffey :
http://expresso.sapo.pt/irlanda-quer-ser-o-melhor-pequeno-pais-para-as-empresas=f846740

16/12/2013: Russian economy & Ireland-Russia Trade updates

My most recent note on Russian economy is available here: http://irba.ie/2013/12/03/russian-economy-a-slowdown-before-policy-driven-re-acceleration/#more-1245

On Russian inflation: as noted in the above, inflation accelerated in October. This is the first month of re-acceleration since May 2013 when inflation peaked at 7.4% y/y. The cycle low inflation was recorded in September at 6.1% y/y.

Ireland's bilateral trade (goods only) with Russia is covered here: http://irba.ie/2013/12/03/trade-with-russia/

16/12/2013: Troika Consultancies... via EUObserver

A very interesting article on the EUObserver.com today (disclosure: I contributed a comment) on the issue of professional advisory services relating to the banks and fiscal crises: "Troika consultancies: A multi-million euro business beyond scrutiny"

15/12/2013: First-to-Seventh Rate People?... via Schengen

Romania and Bulgaria have once again been rejected from membership in Schengen. Details here: http://www.ceeinsight.net/2013/12/11/romania-bulgaria-rejected-schengen-entry/?utm_source=feedburner&utm_medium=twitter&utm_campaign=Feed%3A+ceeinsight+%28CEE+Insight%29

So as a reminder, we still have a Europe of multiple layers of equality between its members' citizens, residents and foreigners:

1. The "Club Schengen"
2. The Club "Better Than Other Foreigners", includes non-EU states that have Schengen access: Switzerland, Norway, Iceland and Lichtenstein who are full Schengen, plus San Marino, Monaco and Vatican (which are de facto Schengen)
3. The Club "Not Good Enough For Much": including Greenland, and Faroe Islands, French ex-European territories, Aruba, Curacao, St Maarten, the Caribbean Netherlands, Norway's Svalbard which all are parts of Schengen states, yet have no Schengen rights
4. The Club "First Rate Foreigners": non-EU nationals resident in Schengen States who are granted Schengen rights
5. The Club "Second Rate Easterners": EU member states with no Schengen access: Romania, Bulgaria, Cyprus and Croatia but are allowed visa-less travel
6. The Club "Second Rate Westerners": EU member states residents who reside in non-Schengen countries such as UK and Ireland, who are married to a Schengen State national
7. The Club "Third Rate Westerners": EU member states residents who reside in non-Schengen countries such as UK and Ireland, who have no rights to free travel whatsoever and require full visas, unless married to a Schengen State national
8. The Club "Third Rate Easterners": EU member states residents with no citizenship (aka some national minorities in some Baltic States)

I'd say we have a pretty extreme case of the Abridged Seven Commandments of the Animal Farm where "All animals are equal, but some animals are more equal than others"... one might wonder if even Napoleon would find it hard to deal with eight tiers of 'equality'.

14/12/2013: WLASze: Weekend Links on Arts, Sciences & zero economics

This is WLASze: Weekend Links on Arts, Sciences and zero economics


Amazing work of experimental architect and artist Lebbeus Woods drawing on his work from the 1980s: http://www.dezeen.com/2012/11/08/lebbeus-woods-early-drawings/. Lebbeus traces back to the Chicago 'Bauhaus' and worked under Eero Saarinen. He later co-founded and led http://www.riea.ch/ which seeming became largely inactive back around 2009-2010, but left a marked legacy of daring innovation. Woods' site is here: http://lebbeuswoods.net/. His work is going to be profiled in November-March 2014 exhibition at the Michigan State University: http://www.archdaily.com/444068/exhibition-lebbeus-woods-architect/

Another wonderful feature from dezeen, with nice home connection: Dublin-based designers Notion have set up own brand NTN. The inaugural collection is brilliant, although short: http://www.dezeen.com/2013/12/08/first-collection-from-new-dublin-design-brand-includes-a-table-with-a-hammock-underneath/
Occasionally whimsical, often challenging, and frequently truly non-derivative in originality, this is an excellent start for what is promising to be a bright, light, creative design shop. And it is a much needed boost to Dublin design community which generally lacks brands that can stand on their own internationally, but has so much real potential. Let's hope Enterprise Ireland is paying attention!
My favourite of the lot:

The brand design base is here: http://www.designbynotion.com/
And NTN brand collection is here: www.ntn.ie



Unlike design in Dublin, which moving toward real sustainable life, life on Mars has taken a turn for the worse in recent years (rather billions of years). Nonetheless, fascinating bit of news from NASA's Curiosity rover is that "a crater found on Mars is actually an ancient lake bed that could have contained the proper conditions to have supported life on the Red Planet."

NASA scientists basically claim that they "have discovered the fossil remains of a lake inside Gale Crater. The scientists say that this lake would have existed for as long as tens of thousands of years, which is long enough for life to have evolved." And, allegedly, the lack "contained chemical and mineral conditions needed to support microbial life. The lake waters held low salinity at just the right acidity and all the chemicals needed to support living organisms." Read more on this here: http://www.redorbit.com/news/space/1113023177/life-bearing-ancient-lake-discovered-mars-120913/

Let's hope Irish Water will too contain the right acidity and all the chemicals needed to support living organisms… and deliver these to us at a price that won't turn Ireland into a Martian 'Gale Crater'…

Fabian Oefner show at the whimsically inimitable MB&F M.A.D. gallery, Geneva (through May 2014) is based on pain tacking deconstruction of classic sports cars and re-assembly of their deconstructed images into a static representation of dynamic motion called 'explosion'… See the brilliant video of the work here:
http://www.designboom.com/art/fabian-oefner-explodes-views-of-classic-sports-cars-11-29-2013/
And MB&F gallery link is here:
http://www.mbandf.com/mad-gallery/explore/disintegrating-by-fabian-oefner/

His other work is here: http://www.mbandf.com/mad-gallery/explore/hatch-by-fabian-oefner/
and his personal page is here: http://fabianoefner.com/
So now you know, when that Lambo no longer fits the driveway… go 'Boom' instead of 'e-Bay'… for some serious visual impact.



Of course, the concept of destruction as artistic expression is not novel. Perhaps surgical nature of Oefner's work makes it rather more technically advanced, but the idea traces back centuries, including historical alterations and defacements of the ancients. One good example from the past is this article on "The seeds of destruction" or "Art Under Attack: Histories of British Iconoclasm at Tate Britain" covering the recent exhibition of the Tate:
http://www.tate.org.uk/context-comment/articles/seeds-destruction
I love this work by Jake and Dinos Chapman:

And here's a feature about Capmans show in Kiev earlier this year: http://www.designboom.com/art/the-sum-of-all-evil-by-jake-and-dinos-chapman/

Not a cheerful note to end, but superb art…

Enjoy!

12/12/2013: Measuring the Mortgages Crisis in Ireland

As the readers of this blog would know, I rarely comment on articles in Irish press, and rarer yet on articles in the Irish Times. So here is a rare occasion, not because of the article itself, but because of what it suggests about our national treatment of statistics.

Let's start from the top. The New York Times published an article on Irish crisis today. Here's the link: http://www.nytimes.com/2013/12/12/business/international/as-bailout-chapter-closes-hardships-linger-for-irish.html?pagewanted=2&_r=1&rref=business&hpw&pagewanted=all

Irish Times - in some ways correctly took the New York Times article to task: http://www.irishtimes.com/news/ireland/irish-news/are-we-really-reduced-to-shooting-pigeons-for-food-1.1625588

Let me take up one point in the two articles. Original version of the NYT article cited - quoting from the IT response - that "most startling is the assertion that two-thirds of homeowners have not paid their mortgage “on time for the last two years”".

IT correctly points that this is not true, saying that "The bank’s most recent arrears figures suggest 18.5 per cent of mortgage holders are in arrears of some sort or other.
They also indicate that 22 per cent of those currently in arrears are behind in their payments for at least two years or more."

The NYT published correction to their original claim. Story ends there.

But from the point of view of reality, it does not. This is pivotal to our narrative about the crisis.

Mortgages arrears have many meanings in the economy. But in the social context and in relation to mapping out the extent of the crisis here's what matters: Mortgages arrears are a signifier of the extent of the crisis. In this, they are neither the only indictor, nor are they a relative indicator. Let me explain.

1. Assume we want to identify the extent of the crisis as it impacted the households holdings of property.
2. Assume we have official data to do so only.

From (1) and (2), identifying the crisis extent is simple and yet hard. 

Take an analogy of identifying the crisis in the macroeconomy. That would be GDP. Or rather, the size of the crisis = the gap between the GDP at pre-crisis peak to GDP at crisis-period trough. One thing that does not matter to this analysis is where the GDP is today (post-trough). Should in the future the GDP hit a new trough and should the drivers for this be consistent with the drivers for the original crisis, then that new trough becomes the crisis metric. Should GDP recover to pre-crisis highs (as it will one day), the magnitude of the crisis will not be zero, it will still be GDP pre-crisis less GDP at trough.

Variants on the above are possible by looking at various GDP metrics and/or pre-crisis and trough metrics (trend, potential etc). But the essence of analysis is the same: GDP pre-crisis - GDP at trough = Crisis Impact.

Now, back to the original issue: How shall be measure the impact of the crisis when it comes to mortgages?

The IT comments can suggest (and usually the media obliges to take this as given) that Arrears Current = Crisis Impact. But are they?

My view is that they are not. Let's compute the total impact:

1. Peak of arrears (we are yet to reach that) = part of impact
2. Restructured mortgages that are not in arrears = part of impact for two reasons: (a) they face high probability of going back into arrears (just under 50:50 chance currently and declining slowly); and (b) restructured mortgages are no longer the original pre-crisis mortgages, so the mere fact of restructuring them is a sign of the crisis impact
3. Repossessed homes = direct impact; and
4. Voluntary surrenders = direct impact.

What do we know from official sources: Total mortgages outstanding: 915,746 per CBofI (composed of 768,136 principal residences-linked mortgages and 147,610 BTLs), of these:

1. Total mortgages in arrears: 181,946 per CBofI (composed of 141,520 principle residences and 40,426 BTLs)
2. Restructured, not in arrears: 56,186 (composed of 43,034 principal residences and 13,152 BTLs)
3. Repossessed homes - we have no numbers for aggregates repossessed - neither the CBofI, nor Department of Finance report these on any regular basis. But in Q3 2013 we had 1,566 properties in repossession (1,050 residences and 516 BTLs). These are properties held in possession by the banks. We do not know how many they have sold since the beginning of the crisis.
4. Voluntary surrenders - we have no data on these from any official source, but the properties that are surrendered and are still in the possession of the banks are aggregated into (3) above.

So, with incomplete information on (3) and (4), to-date, the extent of the crisis is for all types of properties:

181,946 in arrears + 56,186 restructured, not in arrears + 1,566 repossessed and surrendered = 239,698 accounts or, ca 26% of all accounts outstanding.

And the number is growing...

This is not 2/3rds as claimed originally in the NYT, not even 1/3rd, and it is certainly not the percentage of mortgages in trouble over 2 years... and the above 26% include BTLs too... But the true extent of the crisis is that 26 out of 100 mortgages in the country have been directly impacted by it. And the crisis has not peaked, yet.

But here's what this tells us about our psychology when it comes to measuring the extent of the crisis: we commonly interpret arrears alone (and often only arrears in excess of 90 days) as the metric of the crisis. This is an error - an error based on the implicit anchoring of the idea of the crisis to the news and thus, to relative position in time. This is simply wrong. The crisis of WW2 is measured by the absolute level of destruction wrecked at the peak, cumulatively, not by where the losses were in 1955 or in 1948.


Actually, should you be interested, I track the evolution of the above metric (I call it mortgages in default, defaulted or at risk of default) in my regular posts on CBofI quarterly data. The latest was provided here: http://trueeconomics.blogspot.ie/2013/11/28112013-irish-mortgages-arrears-q3-2013.html.

And for the conclusion: I recall in 2007 CEO of AIB at the time stating in a meeting with analysts that "Irish people do not default on mortgages. They never do." I replied: "Never is a very precise term. Is there any uncertainty around this claim?" and he retorted: "None." Back to that 26% figure, then?..

12/12/2013: BlackRock Institute Survey: S. America & Asia-Pacific, December 2013

BlackRock Investment Institute released its latest Economic Cycle Survey for EMEA region was covered here: http://trueeconomics.blogspot.ie/2013/12/12122013-blackrock-institute-survey.html.

Survey results for North America and Western Europe region were covered here: http://trueeconomics.blogspot.ie/2013/12/12122013-blackrock-institute-survey-n.html


Now: Asia-Pacific and Latin America.

"This month’s Asia Pacific Economic Cycle Survey presented a mixed outlook for the region. Out of the 14 countries covered, only India is currently described to be in a recessionary state; however over
the next 2 quarters it is expected to transition to an expansionary phase.

With regards to China, over the next 12 months, a net of 24% of 21 economists expect the economy to
weaken compared to 30% in the October."

Note: The red dot represents Hong Kong, Japan, Malaysia, New Zealand, Singapore and the Philippines, where no economists describe the country at hand to be in a recessionary state at present or over the next 6 months.

"This month’s Latin America Economic Cycle Survey presented a mixed outlook for the region.
Brazil, Colombia, Peru, Mexico, Brazil and Chile are described to be in expansionary phases of the cycle and expected to remain so over the next 2 quarters, while Argentina’s growth is expected to deteriorate from expansion to contraction over this horizon."

"Venezuela is described by the consensus to be in a recessionary state, with no improvement to this outlook at the 6 month horizon."

The global growth outlook remains positive from both regions analysts' perspective, though Asia-Pacific analysts are more bullish on global recovery than Latin America's analysts.


Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

12/12/2013: BlackRock Institute Survey: N. America & W. Europe, December 2013

BlackRock Investment Institute released its latest Economic Cycle Survey for EMEA region was covered here: http://trueeconomics.blogspot.ie/2013/12/12122013-blackrock-institute-survey.html.

Now, on to survey results for North America and Western Europe region:

"This month’s North America and Western Europe Economic Cycle Survey presented a positive outlook on global growth, with a net of 71% of 115 economists expecting the world economy will get stronger over the next year, (6% higher than within the October report)."

Forward outlook:

• "The consensus of economists project a shift from early cycle to mid-cycle expansionary over the next 6 months."
• "At the 12 month horizon, the positive theme continued with the consensus expecting all economies spanned by the survey to strengthen except Norway, where we currently have a low participation rate."

Euro area: "The consensus outlook for the Eurozone continued to improve, where the 6 month forward outlook shifted from 87% to 90% expecting the currency-bloc to move to an expansionary phase. Within the bloc, most respondents expect only Greece to remain in a recessionary phase at the 6 month horizon."

North America: "Over the Atlantic, the consensus view is firmly that North America as a whole is in mid-cycle expansion and is to remain so over the next 6 months."

Note Ireland's position: vis-à-vis euro area (weaker) in the first chart and overall (strong) in the second chart.

 Note: Red dot denotes Austria, Canada, Germany, Norway and Switzerland.

Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

12/12/2013: BlackRock Institute Survey: EMEA, December 2013

BlackRock Investment Institute released its latest Economic Cycle Survey for EMEA region.


"With caveat on the depth of country-level responses, which can differ widely, this month’s EMEA Economic Cycle Survey presented a bullish outlook for the region. The consensus of respondents describe Slovenia, the Ukraine, Croatia, Egypt and Russia currently to be in a recessionary state.

Forward expectations:

• Over the next 6 months, "the consensus shifts toward expansion for Russia and Egypt and an even split between expansion and contraction for Croatia."
• "At the 12 month horizon, the positive theme continues with the consensus expecting all EMEA countries to strengthen or remain the same, with the exception of Slovenia and Ukraine."

Global economy view from the region: "Globally, respondents remain positive on the global growth cycle, with a net 74% of 58 respondents expecting a strengthening world economy over the next 12 months, unchanged from last month’s report. The consensus of economists project mid-cycle expansion over the next 6 months for the global economy"

Note: Red dot represents Slovakia, Poland, Romania, Israel, Kazakhstan, and South Africa

Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

11/12/2013: Irish Patenting Activity: November 2013

Reading Pictet's latest monthly, covering the topic of Swiss competitiveness... it is awesome - with interviews from academics, watchmakers, artists, museums directors, company that makes engines for Mars rovers, biotech giant, and so on. And it reminded me to update the data set on Irish patenting activity from NewMorningIP for November.

Here are the results:

Monthly data shows that November 2013 patenting activity in Ireland fell to its third lowest level since the records maintained by NewMorningIP started in August 2012. At 183 patents filed, November 2013 is down on 197 a year ago. So far, Q4 2013 results are running at the lowest level for all quarterly results.

It is worth noting that the data can be throwing seasonal variation. We can't tell due to short nature of series.

Not spectacular numbers at any rate. Big overseas inventions fall-off to 100 in November, the third lowest month on record. Irish inventions are down also.

On annual basis, 2013 is shaping up to post around 2,600 patents, up on 2012. All increases are due to increased overseas patents activity, with Irish patents falling. We shall see how December plays out, however.

11/12/2013: Will Europe Have Any Firepower for Banks Bail Outs?

The Banking Union debate drags on and on and on and the further we travel in time into this debate, the more apparent is the pathetic nature of the undertaking, and with it, the pathetic state of leadership across Europe... Here's the latest instalment:
http://blogs.ft.com/brusselsblog/2013/12/eu-bank-bailout-fight-more-leaked-documents/

Key quotes in this latest instalment:

"Both the European Commission and the European Central Bank – along with most eurozone finance ministries – believe a “break in case of emergency” backstop needs to be in place to provide a safety net for the bank rescue fund since, even when it’s completely full, it will only have €55bn in it. Given the recent crisis experience, that might only be enough to bail out two or three mid-sized European banks."

Laugh! or Cry! or both. The entire circus is about EUR55 billion. Not enough to backstop another Ireland (based on the 2008-2010 crisis dimensions). Not enough to backstop the retail division of the Deutsche Bank alone (based on 5% loss over capital cushion). Not enough to backstop anything, really. Administration, compliance, enforcement and other bureaucratic functions associated with this backstop (and the necessary Banking Union spoking it to the ECB and the eurosystem) will be running at somewhere around 5-10 percent of the entire fund, annually. If this is a form of insurance, you might getter better quote on insuring Titanic in its current state for passenger traffic.

"In addition, the fund will take 10 years to completely fill through levees on European banks, meaning some kind of backstop needs to be in place in the interim. The “SRF Backstop” paper basically says: we need a backstop, but we’re still not sure what it should be or how it would work."

Two things. Unless euro area hopes to remain in the Great Stagnation for the next 10 years, we shall see growth in banks balancesheets. Over 10 years horizon (even if balancesheets grow at 1.5% = real GDP growth expectation for euro area + HICP target, so 3.5% nominal growth pa in balancesheets), the banking assets side (covered liabilities from the SRF perspective) will have expanded by 41 percent. In other words, to provide the same cover as today's EUR 55 billion the fund will require EUR 78 billion. Forget the idea that in its current vision SFR will only be sufficient to bailout two or three mid-sized European banks. We'll be lucky if it can bailout 1 or 2 of mid-sized European banks in 10 years time.

9/12/2013: Irish Construction Sector PMI, November

Irish Construction sector PMI (Ulster Bank & Markit) is out today for November. The numbers are good.

Overall Index is down to 58.8 in November from 59.4 in October, but the reading remains firmly above 50.0 and this markets the third consecutive month of above 50.0 readings. All readings since September are statistically significantly above 50.0.

Dynamics are good, indicating solid upward trend:

• 12mo MA through November 2013 is at 48.0 against 44.4 for the same period in 2012
• 6mo MA improved to 52.4 in November 2013 against 42.1 a year ago
• 3mo MA is up at 58.0 in November 2013 against 46.9 in 3mo through August 2013.

Total Activity Index is strongly driven by upward trends in Housing Construction:

• Housing Activity index is at 60.4 in November, which is down on massive 61.7 in October.
• 12mo MA is at 50.4 against 43.0 for the same period in 2012
• 6mo MA is at 55.4 against 41.7 12 months ago
• 3mo MA is at 60.5 against 50.3 for 3mo through August.

Another major driver for the upward momentum in overall Construction PMI was Commercial Activity - running in line with Housing (chart above):

• Commercial activity index moderated to 60.0 from 61.6 in October. Commercial and Housing Activity sub-indices have been running jointly above 50.0 for 4 months in a row; in statistically significant terms this dynamic is present for three months in a row.
• 12mo MA for Commercial Activity index remains below 50 at 47.9, but this marks a major improvement on 42.9 for 12mo average through November 2012.
• 6mo and 3mo MAs are outperforming y/y and period-on-period. 

Only disappointment is Civil Engineering sub-index which recorded accelerated rate of decline in November at 45.7, compared to October when the reading was 47.2. November marks second consecutive month of accelerating falls.

However, November rate of decline is much shallower than was recorded a year ago (31.1).

In general, strong news on PMI front. and This supports overall Manufacturing and Services trends (see here: http://trueeconomics.blogspot.ie/2013/12/5122013-services-and-manufacturing-pmis.html)

8/12/2013: Exiting EFSF: Check.

So it's official - today we exited EFSF http://www.efsf.europa.eu/about/operations/ireland/index.htm

As I said on twitter: this is a big first step for Ireland. There are many more to be taken in the future, long future... from EFSF's perspective - we are not free until 2042...

What is worth noting in the above table is the extent to which the EFSF has already managed to restructure our debts - maturities extensions mean that the earliest repayment date - previously falling on 04/02/2015 now falls on 01/08/2029. That is a massive restructuring of debt, which, taken together with other changes, explains why we were able to avoid an outright default to-date.

Another thing to note: from my personal perspective, there is a sizeable chance, I and many of my friends (for some that chance is even greater), will not be here to toast the day when Ireland finally repays (or rather rolls over) the full EFSF debt. That's a 'generation lost'... right there... touch it... give it a hug... its us.

8/12/2013: Is Ireland also a German (Federal) Not-a-Tax-Haven?

Irish tax system continues to percolate through international news. Here are two recent articles:

1. ZDNet coverage of Tech sector corporate tax payments in Ireland: http://www.zdnet.com/representation-without-taxation-tech-giants-and-their-loopy-business-of-innovative-tax-avoidance-7000023539/
2. Irish Times story on Germany official use of Irish tax system for balancing the budget: www.irishtimes.com/business/economy/german-ministers-used-irish-shell-firms-to-balance-budget-1.1613637

Which of course begs a suggestion: may be Ireland is not a corporate tax haven... afterall, Germany is not a corporation...

You can track series of articles featuring Irish tax regime in international media starting from this link: http://trueeconomics.blogspot.ie/2013/10/28102013-back-in-news-double-irish.html

8/12/2013: Forbes Claims v Reality

I wrote about Forbes' ludicrous 'rankings' relating to Ireland last week (here: http://trueeconomics.blogspot.ie/2013/12/5122013-that-forbes-folly-of-global.html). But there is more to it than what I covered in the first post.

Forbes makes an assertion that Irish labour costs have declined over time. Have they? Really?

Here's CSO latest data (through Q2 2013) based on occupation and sector of employment. Not perfect, but tells us two things:

1. Have earnings declined?
2. If yes, have they declined in areas that are of relevance to investors?

Here are some charts:

Key occupational level of skills, traditionally associated with foreign investment in Ireland (we are not a cheap manufacturing location, after all, and make a claim that we compete on high skills) are Managers, Professionals and Associated Professionals. Chart above shows that for all sectors in the economy, average weekly wages in this occupational category rose between Q2 2010 and Q2 2013. The rate of increase ranges from 11.1% for Business & Services, to 10.9% for Industry, to 10.4% for all sectors. Public Sector posted weakest increase of 5.2%.

So, Forbes: no, there was no relevant decrease in wages that investors can be concerned with in deciding that Ireland is Numero Uno...

But, may be investors reading Forbes are into lower skilled occupational categories? Call centres and generic sales? So, take a look at the Clerical, Sales and Service Employees category next:

 
Things are a bit volatile here, but trends are all up, with exception for Public Sector. Industry - up 7.6%, Business & Services up 1.7%, all economy: up 0.4%, as Public Sector is down 9.9%.

So, Forbes: no, there was no relevant decrease in wages that investors can be concerned with in deciding that Ireland is Numero Uno...

However, of course Forbes investors might look toward Ireland as a manual workers paradise? While I have no idea why they would do so, let's just entertain this possibility:

Forbes' investors won't be looking at employing Production, Transport, Craft and Other Manual Workers in Ireland in Industry were they concerned with wages inflation. In this category, Irish weekly wages rose, on average, 1.5% in Q2 2013 compared to Q2 2010. Across Business and Services sector, wages for this category of least-skilled workers fell over the last 36 months, but by only 0.6%. Not exactly spectacular 'gains in competitiveness'. And across all economy - these were down just 0.7%. In Public Sector we registered a significant decrease of 6.6% in this employment category, but it is unlikely to be a point worthy of consideration for Forbes' investors...

So can anyone from Forbes, perhaps, explain, how on earth can these trends suggest massive competitiveness gains?

Lastly, there is the actual claim made by Forbes: "Nominal wages fell 17% between 2008 and 2011, which helped keep labor costs in check." In Q1-Q3 2013, average weekly wage in Ireland stood at EUR687.87 against same for Q1-Q3 2008 of EUR702.34. In other words, average wages have declined (based on Q1-Q3 averages) only 2.06%. In Q3 2013 average weekly earnings were 3.04% lower than in Q3 2008. Where do 17% come from, one wonders?..

7/12/2013: WLASze: Weekend Links on Arts, Sciences & zero economics

This is WLASze: Weekend Links on Arts, Sciences and zero economics


Let's start with some art… Brilliant students work from the Bartlett School of Architecture of UCL who won the RIBA President's Medals Student Awards with a range of projects:
http://www.dezeen.com/2013/12/04/riba-presidents-medals-student-awards-2013-winners/
More here: http://www.bartlett.ucl.ac.uk/architecture/news/bartlett-sweep-2013-riba-presidents-medals
I love the Kizhi Island piece:

The timeline itself is a work of art:

While on deezen, a fantastic feature on 'liquid light'
http://www.dezeen.com/2013/06/28/the-liquid-light-of-diego-garcia-by-viktor-westerdahl/
also via Bartlett School of Architecture graduate - Viktor Westerdahl

Innovative, imagination-driven and utterly detached from utilitarian constraints…


Edward Burtynsky's 'Water' reviewed in GuernicaMag is worth reading - fantastic photographer with a deep obsession for human impact on landscape: http://www.guernicamag.com/art/edward-burtynskys-water/
Some images of his work:

 
And his iconic...

From his Water series:

And his webpage: http://www.edwardburtynsky.com/

A quote from GuernicaMag: "Landscape, here, meaning not just the genre of art, but—more importantly—the medium of exchange through which we conceive and represent the physical environment and our relationship to it. A landscape is that which we see and the way in which we see it—a natural scene mediated by culture."

A bit too much of 'academism' there. I prefer to describe this work as forcing the landscape into the frame: powerfully transformative and, thus, powerfully narrative. The visual literally screams at us, and there is not a moment of reprieve from its potent brutality. Which makes it all amazingly beautiful... a sort of hot-cold ice...


And in the same vein of human transformation of landscape, here's AtlasObscura story on Goats of Cingino Dam: http://www.atlasobscura.com/places/goats-of-the-cingino-dam

Having mentioned ice above, here is another landscape photographer: Michael Quinn, profiled in MyModernMet blog: http://www.mymodernmet.com/profiles/blogs/michael-j-quinn-greenland-reflection

Now onto science: given the beauty of surreal Earth-scapes, time to move to astronomy and get us some Saturn-scapes…
http://www.theguardian.com/science/video/2013/dec/05/saturn-north-pole-hexagon-jet-stream-nasa-video?CMP=twt_gu

Full story via NASA, absent annoying commercials: http://www.nasa.gov/jpl/cassini/saturn-north-pole-hexagon-20131204i.html#.UqOKMGRdVBw


What beats what: books vs films… I had a nice discussion with a friend recently about two films based on one same book… the merits of Stanisław Lem's original Solaris (the book) are indisputable. The merits of Tarkovsky's interpretation of Solaris (the movie) are of their own accord… and since no one remembers the first Solaris (the movie) by Boris Nirenburg, the debate was really about Steven Soderbergh's third version (the movie)… I am not a fan… my friend is… we had great breakfast chat about it…

Alas, in real life, merits of movies over books (unlike in the case of Tarkovsky's sheer genius) are dubious. And there is 'scientific' proof to this conjecture: http://www.shortlist.com/entertainment/books-vs-films-the-infographic


So WLASze advice for the weekend - switch off that TV and grab a book…

And don't forget to smile, while reading… or reading for the sake of smiling… here's a candidate:
"‘Beauty is in the eye of the beer holder’: People who think they are drunk also think they are attractive" http://onlinelibrary.wiley.com/doi/10.1111/j.2044-8295.2012.02114.x/abstract
That's right: we fancy ourselves as being hot, when we are drunk… which begs a question: what do we think about our beauty quotient when we are so drunk, we no longer believe we are drunk?..

Enjoy WLASze sensibly...

7/12/2013: Global Manufacturing PMIs: Summary for October-November

In previous posts I covered PMIs for Ireland for both services and manufacturing: http://trueeconomics.blogspot.ie/2013/12/5122013-services-and-manufacturing-pmis.html Also, detailed PMIs coverage is linked in the above.

Here is a neat summary of global Manufacturing PMIs via Markit:

5/12/2013: Services and Manufacturing PMIs for Ireland: November 2013

Yesterday, Markit and Investec released the second set of Purchasing Managers' Indices (PMIs) for Ireland covering Services sector. As usual, here is the analysis of combined Manufacturing and Services PMIs.

Detailed analysis of Manufacturing PMIs was covered here: http://trueeconomics.blogspot.ie/2013/12/2122013-manufacturing-pmi-for-ireland.html. Also, note, I covered actual services activity index (latest data through October) here: http://trueeconomics.blogspot.ie/2013/12/5122013-irish-services-index-october.html

Manufacturing PMIs in November 2013:
- Slipped to 52.4 (still in expansionary territory) from 54.9 in September.
- 3mo Average through August 2013 was 52.1 against 3mo average through November 2013 at 53.3.
- 6mo average through November 2013 is up 4.6% on previous.

Services PMIs in November 2013:
- Slipped to 57.1 from 60.1 in October.
- 3mo average for the period through August 2013 was at 55.4 and 3mo average through November is at 58.0
- 6mo average is up 6.6% on previous.

Both, Manufacturing and Services PMIs are now above 50 for 6 consecutive months. In statical terms, the two PMIs are above 50.0 for 6 months for Services and 3 months for Manufacturing.

Overall, the picture is consistent with upward sub-trend over 3 months for both series.

However, changes in 3mo averages warrant caution on sustainability:

Joint evolution of the series y/y is still encouraging:

And 24-months rolling correlation between series is rising once again - currently at 0.340, the highest since December 2011 when both series were in sub-50 territory.

So net is that the PMIs are still strong, trend is still upward and the short-run uplift continues. Big question is whether this is going to translate into real activity on the ground or mark another period of booming PMIs and stagnant economy. Time will tell...

5/12/2013: Irish Services Index, October 2013

So Services PMIs are booming… they are positively booming…

…while in the real world, per CSO:

"The seasonally adjusted monthly services value index decreased by 1.4 % in October 2013 when compared with September 2013 and there was an annual decrease of 1.2%."

M/m on September 2012:

• Accommodation and Food Service Activities (+1.6%) 
• Wholesale and Retail Trade (+0.8%) 
• Professional, Scientific and Technical Activities (-6.0%), 
• Other Services Activities (-3.5%), 
• Transportation and Storage (-2.9%), 
• Information and Communication (-2.5%) and 
• Administrative and Support Service Activities (-0.3%) 

On an annual basis to October 2012:

• Administrative and Support Service Activities (+15.4%) 
• Information and Communication (+0.9%) 
• Professional, Scientific and Technical Activities (-14.3%), 
• Other Service Activities (-7.0%), 
• Transportation and Storage (-3.0%), 
• Accommodation and Food Service Activities (-2.0%) and 
• Wholesale and Retail Trade (-0.8%)  

Oh, and do notice the 'Smart economy' bits... the Professional, Scientific and Technical Activities down -6.0% m/m and 14.3% y/y. And the area of growth in employment known as Accommodation and Food Service Activities down -2.0% y/y... this data is bizarre and will require confirmation once we have full quarter results to make any sense of... but one thing is clear: Irish Services PMI is just not that good at measuring anything that registers as Services sector in Ireland.