Wednesday , April 1 2020
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[email protected] (TrueEconomics)



Articles by [email protected] (TrueEconomics)

26/3/20: Why “Families First Coronavirus Response Act” Can’t Fix America

6 days ago

I have written extensively about the fact that U.S. public has severely restricted access to healthcare and other basic services, primarily because of the illusion of insurance: the fact that many people in the U.S., even when covered pro-forma by insurance contracts, have no cash to cover the massive deductibles carried by these contracts.Here is some recent (2018) evidence on the fact, via https://www.axios.com/newsletters/axios-markets-3c6856b0-31c2-485d-a8be-0f0b0dae267c.html/:"AARP’s latest study tracking U.S. household savings is based on a “yes” or “no” response to the following question: “Does your household have an emergency savings account?” … A majority of respondents answered "no," and even respondents who answered "yes" may not have a significant amount

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25/3/20: More than €3bn: The Need for Stimulus in Ireland

7 days ago

"€3bn a month or more – the cost of offsetting the Covid-19 shock" my article for @thecurrency on the size of the fiscal/monetary stimulus required for Ireland. Available atr: https://www.thecurrency.news/articles/12547/e3bn-a-month-or-more-the-cost-of-offsetting-the-covid-19-shock.

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24/3/20: Q2 2020 S&P 500 Earnings Outlook: Not As Ugly as It Will Be

8 days ago

Per Factset March 23 report, "the aggregate earnings growth rate for Q2 2020 changed from slight year-over-year earnings growth on March 12 (+0.8%) to a slight year-over-year earnings decline on March 13 (-0.7%)." Note: back at the end of January 2020, the expectation was for y/y growth of 5.9 percent. Worse, "expectations for earnings growth for Q2 2020 have been falling over the past few months. On September 30, the estimated earnings growth rate for Q2 2020 was 8.0%. By December 31, the estimated earnings growth rate had fallen to 5.7%. Today, the estimated earnings decline is -3.9%."

"Four of the 11 sectors are now projected to report a year-over-year decrease in earnings for the second quarter: Energy (-68.4%), Consumer Discretionary (-14.4%), Industrials (-9.9%), and Financials

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23/3/20: Private Consumption Gets the Virus. Heads to an ICU…

9 days ago

Via @bkollmeyer, Deutsche Bank’s Research chart on discretionary spending across the global economy:

I have no access to the primary data on this, but if the chart is true, the global economy is ‘borked’. One notable line here is for Ireland. Ireland’s economy is heavily dependent on personal consumption expenditure. Here are the latest data:    PC as % of     modified     total    demand        PC as %          of GNI*     1995-199958.857.6     2000-200754.755.2200754.156.7     2008-201462.863.8     2015-201859.455.4201958.7               NA
My estimate is that 2019 Personal Consumption to GNI* ratio was around 55.2%. If true, coupled with the above-cited DB research, Irish economy has taken a nosedive of around 4 percentage points for FY 2020 just on personal consumption side of

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$5.9 trillion and counting: the scale of Monetary Easing

9 days ago

Updating my previous post: https://trueeconomics.blogspot.com/2020/03/20320-46-trillion-and-counting-scale-of.html listing all measures monetary authorities around the world have unleashed in response to the Covid19 crisis:23/3/2020 Federal Reserve Bank of the U.S.: 
Commitment to continue asset purchasing program “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy”. Basically, an open-ended pledge, with no USD amount. This does not move the needle on its prior commitment if USD 700 billion in purchasing, for 2020. But it does expand the program, should the crisis continue unabated, and probably allows for bringing the committed purchases forward
The Fed also will be buying corporate

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22/3/20: COVID2019 in Numbers

10 days ago

Updating numbers for Corona Virus infections and related deaths:

Next up, comparing Italy and U.S. numbers in terms of their dynamics from the start of the infection detections in each country (date 30) to today:

Note, while the U.S. infections dynamics have overtaken Italy already, U.S. death rates remain well below those in Italy. This is due to a range of factors, none of which are particularly satisfactory for the U.S. healthcare system assessment:Italian demographics and deaths cases suggest that Italian patients were more likely to die from the disease earlier on after the detection than the U.S. patients.
Higher population density and concentration of the virus cases in Italy mean greater strain on healthcare resources in specific locations in Italy than in the U.S.
rates of

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20/3/20: $4.6 trillion and counting: the scale of Monetary Easing

12 days ago

The monetary largesses to-date: Central Banks across the world have slashed interest rates in the past few weeks, provided additional emergency liquidity supports for the markets, ranging from equity markets to bond markets to municipal debt markets and money markets. They also announced trillions worth of direct asset purchasing and debt monetization programs. Ex-international / multinational lines and direct swaps lines, total amounts of monetary and financial channels supports deployed so far is around USD 4.582 trillion. This number also excludes open-ended (unbounded) measures, such as programs to purchase securities to guarantee specific price/yield ranges.Here is the summary of these (and direct Government lending) programs to-date:20/03/2020  Banco de México: rate cut bps = -50,

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20/3/20: Central Banks are Failing to Reinflate the Deflating Bubble

12 days ago

In the last 5 days, central banks around the world have announced 2020 monetary stimuli to the tune of USD 4 trillion (inclusive of measures continuing from those announced back in late 2019). This is what this bought them in the markets:

The problem with ‘doing more of the same and expecting different results’ is that the measures being deployed by the monetary authorities are predominantly skewed on simply increasing the total quantum of debt in the global economy already croaking under a mountain of debt. The markets see this. The markets know this. And, at long last, the markets are not buying any more of this.On what timeline will the central bankers and their masters in the governments recognize the same?..

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18/3/20: What’s Scarier? Corporate Finance or COVID?

14 days ago

Larger corporates in the U.S. are seeking public supports in the face of COVID19 pandemic, from airlines to banks, and the demand for public resources is likely to rise over time as the disease takes its toll on the economy.Yet, one of the key problems faced by companies today is down to the long running strategies of creating financial supports for share prices that companies pursued over the good part of the last decade, including shares buybacks and payouts of dividends. These strategies have been demanded by the activist investors across numerous campaigns and by shareholders, and have been incentivized by the pay structures for the companies executives.Artificial supports for share price valuations are financially dangerous in the long run, even though they generate higher

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18/3/20: Past Recessions and COVID19 Crisis

14 days ago

As governments around the world are revising the expected duration of the extraordinary restrictive measures aimed at containing COVID19 pandemic, it is worth looking back at the history of past recessions by duration:

The chart above clearly shows that U.S. recessions (generally historically shallower and less prolonged than those in Europe) have been lengthy in duration, with only two recessions lasting < 8 months and only six lasting less than 10 months. The 1918-1919 recession was preceded by the Spanish Flu epidemic, but the recovery from the recession was also supported by the end of the WW1. Some more on the Spanish Flu pandemic effects on the economy can be found

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15/3/20: Acute beds and hospital beds capacity

17 days ago

With Covid-19 cases worldwide reaching almost 143,000 worldwide, it is worth examining some of the data on healthcare systems’ capacity to absorb the influx of patients in weeks to come.Here is an interesting set of data from OECD comparing the numbers of hospital beds per 1,000 population across the range of countries (I highlight some interesting comparatives):

These are not ICU beds with specialized equipment, of course, but it is hard to imagine that the relationship between ICU beds and general counts of beds is non-linear. Some people on Twitter claimed that the U.S. has higher number of acute care beds, than, say Italy or S. Korea. Which is simply, factually, false. Here’s OECD data:

U.S. has 2.44 acute care beds per 1,000 population, Italy has 2.62, while S. Korea has 7.14.

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9/3/20: BRIC PMIs 1Q 2020: The Test of Covid2019

23 days ago

BRIC PMIs for February 2020 are out and showing massive strains of #COVID2019 on Chinese economy and the twin supply and demand shocks impact on the Global economy:Starting with Manufacturing:

India is the only BRIC economy that provided strong support to the upside for Global Manufacturing PMI, with India 1Q 2020 Manufacturing PMI reading so far at 54.9, the strongest since 2Q 2012. Brazil Manufacturing PMI was at 51.7 – marking a moderately strong expansion – roughly in line with 51.8 ad 51.9 for 4Q 2019 and 3Q 2019, respectively. In contrast, Russian Manufacturing PMI continued to show contracting sector activity at 48.1, marking the third consecutive quarter of sub-50 readings. Last time Russian Manufacturing reported cautiously positive PMIs was in 1Q 2019.The real story,

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9/3/20: Irish February PMIs: Baseline for the Covid2019 Impact

23 days ago

With the start of March and with corona virus impacting the global economy, I have decided to restart coverage of Irish PMIs – something I did not do for some years now. So here are some of the 1Q 2020 results based on January-February data.First off, Sector and Composite PMIs on a quarterly average basis. As reminder, Composite PMIs are computed by me based on Markit and CSO data as GDP share-weighted averages for each sub-component, namely Manufacturing, Services and Construction:

Services clearly lead the recovery from 4Q 2020 weakness, with both Manufacturing and Construction nominally in the expansion territory, but statistically too close to zero growth to be congratulatory.

Composite PMIs ex-Construction are statistically within long term average and consistent with subdued

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8/3/20: Global Economy’s Titanic: Meet Your Iceberg

24 days ago

Here’s that iceberg that is drifting toward our economy’s Titanic… and no, it ain’t a virus, but it is our choice:

Via: @Schuldensuehner

Years of easy credit, easy money. The pile of debt from Baa to lower ratings is the real threat here, for its sustainability is heavily contingent on two highly correlated factors: cost of debt (interest rates) and availability of liquidity. The two factors are closely correlated, but are also somewhat distinct. And both are linked to the state of the global economy.There are additional problems hidden within A and even Aa rated debt, since these ratings are vulnerable to downgrades, and current Aa rating shifting to Baa or Ba will entail a discrete jump in the cost of debt refinancing and carry.

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8/3/20: COVID-19: Global Growth Trends

24 days ago

So far, one thing is clear: we are in an exponential growth (not linear) when it comes to #Covid-19, everywhere, except for Japan…

Here is the full data set through March 7th:

Two observations worth making: ex-China data is exponential. The doubling rate remains at around 4 days since February 24th, prior to that, it was at 6-7 days. Which indicates acceleration in the exponential trend. With China data included, the trend is a bit more complex: we have exponential sub-trends of different steepness, with the first period through February 8th, followed by the step-function (on average still exponential) through February 17th, a linear sub-trend over 18th-24th of February and a new exponential trend since February 25th.Post-February 25th trend is dominated by global infections, as

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2/3/20: BRIC Manufacturing PMI: February 2020

March 2, 2020

A quick post: Manufacturing PMIs are out for the BRIC economies and, unsurprisingly, things are tanking in China and remain seriously under pressure in Russia:

This is the first snapshot of the effects of Coronavirus #COVID19 #CoronaOutbreak on Chinese top-level economic activity figures. The data plotted above is quarter-based averages of the monthly indicator published by Markit. The BRIC quarterly index is computed by me using relative economy size weights for each BRIC economy. In the preceding 3 quarters, BRICs led global manufacturing activity. In 1Q 2020 so far, the BRIC economies as a group have been a drag on global growth.

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25/2/2020: No, 2019-nCov did not push forward PE ratios to 2002 levels

February 25, 2020

Markets are having a conniption these days and coronavirus is all the rage in the news flow.  Here is the 5 days chart for the major indices:

And it sure does look like a massive selloff.Still, hysteria aside, no one is considering the simple fact: the markets have been so irrationally priced for months now, that even with the earnings being superficially inflated on per share basis by the years of rampant buybacks and non-GAAP artistry, the PE ratios are screaming ‘bubble’ from any angle you look at them.Here is the Factset latest 20 years comparative chart for forward PEs:

You really don’t need a PhD in Balck Swannery Studies to get the idea: we are trending at the levels last seen in 1H 2002. Every sector, save for energy and healthcare, is now in above 20 year average

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23/2/20: Fake Data or Faking Data? Inflation Statistics

February 23, 2020

As economists and analysts, almost all of us are trying – at one point or another – make sense of the, all too often vast, gap between the reality and the economic statistics. I know, as I am guilty of this myself (here’s a recent example: https://trueeconomics.blogspot.com/2020/02/18220-irish-statistics-fake-news-and.html).An interesting and insightful paper from Oren Cass of the Manhattan Institute dissects the extent of and the reasons for the official inflation statistic failing to capture the reality of the true cost of living changes in the U.S. over recent years (actually, decades) here: https://www.manhattan-institute.org/reevaluating-prosperity-of-american-family). It is a must-read paper for economics students, analysts and policymakers.His key argument is that: "Economists

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23/2/20: The ‘Fundamentals’ of the Financial Markets Are Hardly Changed by the COVID2019, So Far…

February 23, 2020

An informative chart via Holger Zschaepitz @Schuldensuehner on the Global equity markets impact of the continuously evolving threat of the nCov-2019 or #COVID2019 virus epidemic:

Looks not quite as dire as it might sound, folks.

Global equities lost some $470 billion worth of market value this week. 
Which is 0.537% of the market cap at the start of the week 
The market is still up more than 3 percent year to date
The market is massively up on 2020 to date lowest point (+3.7 percent)
Most of the effect is in Asia Pacific – not to discount it, but it is material since AP region has much more capacity for a rebound (higher savings, investment and potential growth rates) from the crisis effects than slower moving advanced economies.

Looking at longer terms within the advanced

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19/2/20: Facebook becomes another Ireland Inc’s reforms test case

February 19, 2020

First the ‘anti-American’  EU Commission’s moved against a wonderful U.S. company washing tens of billions of tax free money through Ireland (see: https://www.reuters.com/article/us-eu-apple-stateaid/apple-says-14-billion-eu-tax-order-defies-reality-and-common-sense-idUSKBN1W1195) and now, the U.S. IRS (‘anti-American’ as they are) have moved against another wonderful U.S. company washing billions of tax free money through Ireland.The latest case is, of course, the anti-American IRS suing Facebook over its shenanigans in Ireland: https://www.reuters.com/article/us-facebook-tax/facebook-faces-tax-court-trial-over-ireland-offshore-deal-idUSKBN20C2CQ. Per report: "The IRS argues that Facebook understated the value of the intellectual property it sold to an Irish subsidiary in 2010 while

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19/2/20: Early effects of the 2020 Berlin rent controls changes

February 19, 2020

New research from Germany’s ifo Institute and Immowelt looked at the effects of the new rent caps (rent controls) in Berlin. The findings are consistent with what we observe in other major cities with rent controls:"In Berlin, the rent for almost all apartments advertised on real estate portal immowelt.de (96.7 percent) is above the rent cap."
"In 83.5 percent of cases, the rent exceeds the cap by over 20 percent."
"Rent on apartments covered by the law has risen considerably more slowly since the cap was announced".
But, "rent on apartments outside the scope of the cap is still rising strongly" (note: these are new construction units).
As the new rent controls come into effect later this year, the ifo study predicts that "a large number of these apartments to be withdrawn from the

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18/2/20: Irish Statistics: Fake News and Housing Markets

February 18, 2020

My latest column for The Currency covers the less-public stats behind the Irish housing markets: https://www.thecurrency.news/articles/9754/fake-news-you-cant-fool-all-of-the-people-all-of-the-time-on-property-statistics.

Key takeaways:
"Irish voters cast a protest vote against the parties that led the government over the last eight years – a vote that just might be divorced from ideological preferences for overarching policy philosophy.""The drivers of this protest vote have been predominantly based on voters’ understanding of the socio-economic reality that is totally at odds with the official statistics. In a way, Irish voters have chosen not to trust the so-called fake data coming out of the mainstream, pro-government analysis and media. The fact that this has happened during the

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14/2/20: Pandemics, Panics and the Markets

February 14, 2020

In my recent article for The Currency I wrote about the expected market effects of the 2019-nCov coronavirus outbreak: https://www.thecurrency.news/articles/8490/constantin-gurdgiev-pandemics-panics-and-the-markets.

While past pandemics are not a direct nor linear indicators of the future expected performance, the logic and the dynamics of the past events suggest that while the front end short term effects of pandemics on the economies and the markets can be significant, over time, rebounds post-pandemics tend to fully offset short run negative impacts.Key conclusions from the article are:"…The market appears to worry little about public health risks, after their impact becomes more visible, although the onset of a pandemic can be associated with elevated markets volatility. This

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13/2/20: Civil Services Effectiveness Index 2019 and Ireland

February 13, 2020

Analysis of public sector efficiencies and effectiveness is a hard and empirically imprecise exercise, with severe risks of running against the very powerful interest groups. Nonetheless, with governments and public sector taking an ever expanding role in management of our society, economy and geopolitical spheres, this task is hugely important.2019 International Civil Services Effectiveness Index is trying to do exactly that. The index can be accessed via https://www.bsg.ox.ac.uk/about/partnerships/international-civil-service-effectiveness-index-2019.Ireland (score 0.62) ranks overall respectably above the 38 countries average, in the 14th place, below Switzerland (score 0.65), tied with France and Austria, and just ahead of Spain (score of 0.60). Chart below maps Ireland against

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