Saturday , October 19 2019
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Articles by [email protected] (TrueEconomics)

16/10/19: Recalling the Celtic Tiger

2 days ago

Recalling the Celtic Tiger, edited by Brian Lucey, Eamon Maher and Eugene O’Brien is coming out this week from the series of Reimagining Ireland Volume 93, published by Peter Lang, DOI 10.3726/b16190, ISBN 978-1-78997-286-3.The book includes 12 mini-chapters by myself and multitude of contributions from some top-level contributors. Wroth buying and reading… and can be ordered here: https://www.peterlang.com/view/title/71254.

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16/10/19: Euromoney Risk Survey Q3 2019 Results

2 days ago

Euromoney analysis of Q3 2019 results for country risk surveys and risk outlook forward, with lots of comments from myself and others: https://www.euromoney.com/article/b1hjf7xr90tdkj/ecr-survey-results-q3-2019-us-china-canada-mexico-punished-by-tariffs.

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16/10/19: Ireland and the Global Trade Wars

2 days ago

My first column for The Currency covering "Ireland, global trade wars and economic growth: Why Ireland’s economic future needs to be re-imagined": https://www.thecurrency.news/articles/1151/ireland-global-trade-wars-and-economic-growth-why-irelands-economic-future-needs-to-be-re-imagined.

Synopsis: “Trade conflicts sweeping across the globe today are making these types of narrower bilateral agreements the new reality for our producers and policymakers.”

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16/10/2019:Corporate Bond Markets are Primed for a Blowout

2 days ago

My this week’s column for The Currency is covering the build up of systemic risks in the global corporate bond markets: https://www.thecurrency.news/articles/1962/constantin-gurdgiev-corporate-bond-markets-are-primed-for-a-blowout.

Synopsis: "Individual firms can be sensitive to the periodic repricing of risk by the investors. But collectively, the entire global corporate bond market is sitting on a powder keg of ultra-low government bond yields, with a risk-off fuse lit by the strengthening worries about global economic growth prospects. Currently, over USD 16 trillion worth of government bonds are traded at negative yields. This implies that in the longer run, market pricing is forcing accumulation of significant losses on balance sheets of all institutional investors holding

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7/10/19: Bitcoin, ethereum and ripple: a fractal and wavelet analysis

11 days ago

Myself and Professor Shaen Corbet of DCU have a new article on the LSE Business Review site covering our latest published research into cryptocurrencies valuations and dynamics: https://blogs.lse.ac.uk/businessreview/2019/10/07/bitcoin-ethereum-and-ripple-a-fractal-and-wavelet-analysis/.The article profiles in non-technical terms our paper "Fractal dynamics and wavelet analysis: Deep volatility and return properties of Bitcoin, Ethereum and Ripple" currently in the process of publication with the The Quarterly Review of Economics and Finance (link here).

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29/9/19: Divided ECB

20 days ago

Divided they stand…

Source: https://www.bloomberg.com/news/articles/2019-09-29/lagarde-inherits-ecb-tinged-by-bitterness-of-draghi-stimulusThe ECB is more divided than ever on the ‘new’ direction of QE policies announced earlier this month, as its severely restricted ‘political mandate’ comes hard against the reality of VUCA environment the euro area is facing, with: Reduced forward growth forecasts (net positive uncertainty factor for QE)
Anaemic inflation expectations (net positive risk factor for QE), but reduced expectations as to the effectiveness of the QE measures in their ability to lift these expectations (net negative uncertainty factor)
Low unemployment and long duration of the current recovery period (net negative uncertainty factor for QE)
Relative strength of the euro,

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28/9/19: Evidence of Systemic Risk from Major Cybersecurity Breaches

20 days ago

In our post for Columbia Law School’s CLS Blue Sky Blog, myself and Shaen Corbet explain in non-technical terms our ground-breaking findings on systemic nature of cybersecurity risks in financial markets:LexBlog link: https://www.lexblog.com/2019/09/26/evidence-of-systemic-risk-from-major-cybersecurity-breaches/
CLS link: http://clsbluesky.law.columbia.edu/2019/09/27/evidence-of-systemic-risk-from-major-cybersecurity-breaches/
Original working paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3033950
Published paper: https://www.sciencedirect.com/science/article/pii/S1057521919300274.

Our study is the first in the literature showing evidence of systemic contagion from cyber attacks on one company to other companies and stock exchanges.

Based on these findings, we have a

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20/9/19: New paper: Systematic risk contagion from cyber events

28 days ago

Our new paper, "What the hack: Systematic risk contagion from cyber events" is now available at International Review of Financial Analysis in pre-print version here: https://www.sciencedirect.com/science/article/pii/S1057521919300274.Highlights include:We examine the impact of cybercrime and hacking events on equity market volatility across publicly traded corporations.
The volatility generated due to cybercrime events is shown to be dependent on the number of clients exposed.
Significantly large volatility effects are presented for companies who find themselves exposed to hacking events.
Corporations with large data breaches are punished substantially in the form of stock market volatility and significantly reduced abnormal stock returns.
Companies with lower levels of market

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20/9/19: New paper on Cryptos pricing

29 days ago

Our paper "Fractal dynamics and wavelet analysis: Deep volatility and return properties of Bitcoin, Ethereum and Ripple" is now available in The Quarterly Review of Economics and Finance – early stage print version – here https://www.sciencedirect.com/science/article/abs/pii/S1062976919300730.

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9/9/19: Ireland and OECD: Income Tax Rates Comparatives

September 9, 2019

Based on the OECD data for 2018, Ireland is the second worst OECD country to earn income from work at the upper margin of earnings (167% of the average annual gross wage earnings of adult, full-time manual and non manual workers in the industry), compared to lower earners (67% of the average wage earnings). And although this story is not new (we were in the same position back in 2014), the gap in effective marginal taxes charged on the higher earners relative to lower earners is getting worse.Here is the chart for 2014 data:

And a comparative 2018 data:

Back in 2014, nine of the OECD countries had zero or negative upper marginal tax rate penalty on higher wage earners. In 2018, the number rose to ten. In 2014, seven countries, including Ireland, had a tax rate penalty on higher

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6/9/19: Small Cap Stocks EPS: racing to the bottom of the MAGA barrel

September 6, 2019

Everything is going just plain swimmingly in the Land of MAGA, where American companies are now expected to do their duty by President Trump’s agenda for investment in the U.S. because, you know, this:

As ‘share’ part of the EPS ratio has shrunk (thanks to buybacks and M&As tsunami of recent vintage), earnings per share should have gone up… and up… and up. Instead, small cap stocks’ EPS has collapsed. To the lowest levels since the 2007-2008 crisis.But never mind, more money printing by the Fed will surely cure it all.Source for the above chart: @soberlook and WSJ.

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2/9/19: Trump’s Tariffs of War…

September 2, 2019

Two charts summarizing the effects of the ongoing Trump Trade War on U.S. tariffs (overall, first chart) and on bilateral U.S.-China trade (second chart)

Source: @Soberlook

Source: https://www.piie.com/blogs/trade-investment-policy-watch/trump-trade-war-china-date-guide

In the mean time, China’s tariffs vis a vis the rest of the world are falling:

Source: ibid.

Someone is winning in this war (maybe Europeans https://trueeconomics.blogspot.com/2019/08/15819-winning-trade-wars-round-3.html or others https://trueeconomics.blogspot.com/2019/08/19819-import-zamescheniye-replacing.html) but it ain’t the U.S.

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2/9/19: One view of Austerity

September 2, 2019

A picture is worth a thousand words, some say. So here is a picture of austerity we’ve had (allegedly) in recent decades:

Source: @Soberlook 
The things are savage: debt is up from ca 70% to over 110%. Cost of debt carry is down from just under 4% to under 1.75%. So where are all those fabled public investments? And who has benefited from this massive increase in debt? Virtually all – financialized (a nice euphemism for being absorbed into financial assets valuations). Austerity, after all, is just the old-fashioned transfer of resources from the broader economy to the select few, made more palatable by the superficially low cost of borrowing.

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1/9/19: U.S. Non-Financial Corporate Sector: Stagnation in Net Value Added

September 1, 2019

Value added by the U.S. non-financial corporates has been languishing well below the cyclical peak for some months now:

In fact, since Q3 2016, net value added by the non-financial corporations has been running below long run trend, and has been basically flat. This suggests substantial pressures build up in the economy, consistent with all previous early indicators of a recession. Interestingly, there is zero evidence of any improvement in the non-financial economy in the U.S. since 2016 election.

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1/9/19: Priming the Bubble Pump: Extreme Credit Accommodation in the U.S.

September 1, 2019

Using Chicago Fed National Financial Conditions Credit Subindex (weekly, not seasonally adjusted data), I have plotted credit conditions measurements for expansionary cycles from 1971 through late August 2019. Positive values of the index indicate tightening of credit conditions in the economy, while negative values denote loosening of credit conditions.

Since the start of the 1982 expansionary cycle, every consecutive cycle was associated with sustained, long term loosening of credit conditions, which means the Fed and the regulatory authorities have effectively pumped up credit in the economy during economic expansions – a mark of a pro-cyclical approach to financial policies. This trend became extreme in the last three expansionary cycles, including the current one. In simple

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26/8/19: ifo Survey Shows Increasing Business Concerns in Germany

August 26, 2019

Ifo Institute’s Business Climate indicator for Germany is falling off the cliff:

In simple terms, current business situation assessment has now fallen to its lowest reading since March 2015, forward business expectations are the lowest since June 2009, and overall Business Climate index is at its lowest reading since November 2012.August 2019 marks fifth consecutive month of decline in the overall Business Climate index, current Business Situation index, and Business Expectations index.Overall, the indicator is still pointing to a downturn in growth, as opposed to a recession:

The Dispersion Index – a measure of the degree of businesses-perceived uncertainty about the future direction of the economy – has now risen to the levels last seen in April 2010.

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22/8/19: Irish Economy is Now Fully Captured by the Multinationals

August 22, 2019

Just as in the years prior, 2018 was another year of massive dominance of the foreign-owned multinational corporations in Irish official economic growth statistics. Per latest data from CSO (see the link below), in 2018, MNEs-dominated sectors of the Irish economy have contributed 5.6 percentage points to the overall growth in Gross Value Added in Ireland, against domestic sectors contribution of 2.3 percentage points. This marks an increase on 2017 growth contribution by MNEs (4 percentage points against domestic 2.9 percentage points), and 2016 figures (2.4 percentage points growth for MNEs against 2.3 percentage points for domestic).

Over the last 5 years, overall share of real Gross Value Added in the Irish economy accruing to the multinationals-dominated sectors has risen from

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20/8/19: Public Spending in the Euro Area: Post-Crisis Austerity?

August 20, 2019

Given the never-ending repetition of the ‘austerity narrative’ in European economic analysis, it is virtually impossible to conclusively address the issue of changes in public spending during the crisis and the post-crisis periods and the relationship between fiscal policies and economic growth. Thew reason for this is the lack of singular set metrics that can capture these dimensions of the debate.However, this lack should not be a reason for not trying.Here is an interesting chart (based on the IMF WEO data and 2019 forecasts), plotting average Government expenditure as a share of GDP for two periods for euro area economies. The two periods under consideration are: 2000-2007 and 2013-2019. I am also showing two metrics for Ireland: the GDP (a measure of economic activity that vastly

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19/8/19: Import Zamescheniye: Replacing Imports with Imports in the Age of Trade Wars

August 19, 2019

Trump trade wars have led to increasing evidence of substitution by Chinese exporters to the U.S. with exports via third countries and supply chain outsourcing from China to other destinations. While direct evidence of these trends is yet to be provided (data lags are substantial for detailed flows of goods across borders) and is never to be treated as fully conclusive (due to differences in trade goods designations), here is some macro-level snapshot of latest data on U.S. imports shares for selective countries:

The chart above shows that based on trends, U.S. imports arrivals from China are down in 2017-2019, and they are up, significantly for Vietnam and Taiwan, with less pronounced evidence of imports substitution from other Asia-Pacific countries.Given several caveats (listed

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18/8/19: Migration Policy vs the Law of Unintended Consequences

August 19, 2019

President Trump’s policies are a rich field for sowing evidence on the application of the law of unintended consequence in economic policies. Take his Trade War with China that so far resulted in ca USD20 billion in fiscal receipts and USD26 billion payouts in subsidies to U.S. farmers, netting a fiscal loss of USD 6 billion (https://trueeconomics.blogspot.com/2019/06/17619-lose-lose-and-lose-some-more.html), while generating gains for European exporters (https://trueeconomics.blogspot.com/2019/08/15819-winning-trade-wars-round-3.html) and shrinking net real exports for the U.S. economy (https://trueeconomics.blogspot.com/2019/08/1919-losin-spectacularly-trump-trade.html) and driving losses to the U.S. exporters

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16/8/19: Post-Millennials and the falling trust in institutions of coercion

August 16, 2019

A neat chart from Pew Research highlighting shifting demographics behind the changing trends in the U.S. public trust in core institutions:

Source: https://www.people-press.org/2019/07/22/how-americans-see-problems-of-trust/Overall, the generational shift is in the direction of younger GenZ putting more trust in scientists and academics, as well as journalists, compared to previous generations; and less trust in military, police, religious leaders and business leaders. Notably, elected officials have pretty much low trust across all three key demographics.

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16/8/19: U.S. Military Presence Worldwide

August 16, 2019

Generally, I do not find Politico to be a great source for geopolitical analysis and data, but here is one exception – a handy map of U.S. military bases, smaller deployment platforms and unconfirmed deployment platforms worldwide:

Thirty years after the end of the Cold War, one country remains completely and comprehensively surrounded by the U.S. military deployment platforms (and these exclude non-U.S. Nato platforms): Russia.The map does not show the U.S. navy and airforce reach zones, nor does it include Nato’s non-U.S. troops bases.Some ‘Peace Dividend’ this is, especially given the threat rhetoric from Washington. And any wonder, Russian geopolitical stance remains that of a country under the siege?Source for the

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15/8/19: Winning Trade Wars: Round 3

August 15, 2019

A couple of days ago, Germany’s info Institute published two scenarios estimating the impacts of the latest President Trump threats to China, the imposition of a 10% tariff on Chinese exports to the U.S.Per ifo’s Scenario 1: "If the US imposed 10 percent tariffs on additional imports worth USD 300 billion, this would mean additional income of EUR 94 million for Germany, EUR 129 million for France, EUR 183 million for Italy, EUR 25 million for Spain, and EUR 86 million for the United Kingdom. It would amount to EUR 1.5 billion for the EU28 and EUR 1.8 billion for the US. China would see losses of EUR 24.8 billion." Note: the U.S. ‘gains’ do not account for U.S. agricultural subsidies supports increases announced by the Trump Administration, but include estimated consumer impact.

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12/8/19: OECD Tax Plans: Some Bad News

August 13, 2019

My column for the Cayman Financial Review covering OECD latest tax reforms proposals: https://www.caymanfinancialreview.com/2019/08/02/oecd-led-tax-reforms-a-prescription-for-a-less-competitive-economy/

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10/8/19: Irish Debt Sustainability Miracle(s): ECB and MNCs

August 10, 2019

As a part of yesterday’s discussion about the successes of Irish economic policies since the end of the Eurozone crisis, I posted on Twitter a chart showing two pivotal years in the context of changing fortunes of Irish Government debt sustainability. Here is the chart:

The blue line is the difference between the general Government deficit and the primary Government deficit, which captures net cost of carrying Government debt, in percentages of GDP. In simple terms, ECB QE that started in 2015 has triggered a massive repricing of Eurozone and Irish government bond yields. In 2012-2014 debt costs remained the same through 2015-2019 period, Irish Government spending on debt servicing would have been in the region of EUR 49.98 billion in constant euros over that period. As it stands,

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8/8/19: Irish New Housing Markets Continue to Underperform

August 8, 2019

New stats for new dwelling completions in Ireland are out today and the reading press releases on the subject starts sounding like things are getting boomier. Year on year, single dwellings completions are up 15.5% in 2Q 2019, scheme units completions up 2.6%, apartments up 55.6% and all units numbers are up 11.8%. Happy times, as some would say. Alas, sayin ain’t doin. And there is a lot of the latter left ahead.Annualised (seasonally-adjusted) data suggests 2019 full year output will be around 18,000-18,050 units, which is below the unambitious (conservative) target of 25,000. And this adds to the already massive shortage of new completions over the last eleven years. Using data from CSO (2011-present), cumulated shortfall of new dwellings completions through December 2018 was

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