Saturday , January 18 2020
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Articles by [email protected] (TrueEconomics)

15/1/20: Putin’s Latest Call Option Buy

2 days ago

"Poekhali!" sad Vlad, refraining Yuri Gagarin’s famous phrase. And just like, with a sweep of his hand, Mr. Putin hasRemoved the entire Russian Cabinet, including his long-serving pal, now ex-Prime Minister Medvedev;
Outlined a hefty set of forward-promised reforms; and
Added billions of dollars to the Global GDP by creating a tsunami of Russia-related analysis, opinion pieces, reports and updates in the vast Kremlinology Sector bridging journalism, opinnionism, and think-tankerism.

WTF happened in Moscow today?

Putin has been under some sustained pressure in the last couple of years on the domestic economy front. Russian economic growth has been anaemic, to put it mildly. Let’s take a brief walk through some headline figures (to-date):

Despite the ‘recovery’ from 2015 recession

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15/1/20: What Trade Deal Phase 1/N Says About the Four Horsemen of Apocalypse

3 days ago

Phase 1 of N of the "Greatest Trade Deal" that is "easiest to achieve’ by the ‘stablest Genius’ is hitting the newsflows today. Which brings us to two posts worth reading on the subject:Post 1 via Global Macro Monitor: https://global-macro-monitor.com/2020/01/15/phase-1-of-potemkin-trade-deal-signed-sealed-and-yet-to-deliver/ is as always (from that source) excellent. Key takeaways are:"We never believed for one moment that China would cave on any of the big issues, such as restructuring its economy and any deal would be just some token political salad dressing for the 2020 election."
"Moreover, much of the deal depends on whether the Chinese will abide by Soviet-style import quotas," or in more common parlance: limits on imports of goods into the country, which is is ‘command and

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15/1/20: S&P500 Historical Performance

3 days ago

Via BAML and @tracyalloway, a chart plotting the distribution of annual returns on S&P500, 1872-2019:

The stylised nature of this plot allows us to see the right-skew in the distribution, across all 

‘bins’, especially for the last decade.

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10/1/20: U.S. Tariffs on European Wines: Inflicting Self-Harm

8 days ago

Next week, the  Office of the US Trade Representative is expected to make a determination on the potential imposition of an up to 100% tariff on imports of wine from Europe. Which is a bad thing for the overall state of the global trade, bad news for the European producers of wine, bad news for the American consumers and their European counterparts, and bad news for the U.S. wine industry. But ‘bad things’ do not stop there. There will be costs imposed on restaurants and bars. There will be negative spillover effects – in the long run – to the competitiveness of the U.S. wine making industry competitiveness. In other words, the new tariffs are a perfect exemplification of how poor policies in one sector can hammer the entire complex chain of value added across a much broader economy,

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10/1/20: Eight centuries of global real interest rates

8 days ago

There is a smashingly good paper out from the Bank of England, titled "Eight centuries of global real interest rates, R-G, and the ‘suprasecular’ decline, 1311–2018", Staff Working Paper No. 845, by Paul Schmelzing.Using "archival, printed primary, and secondary sources, this paper reconstructs global real interest rates on an annual basis going back to the 14th century, covering 78% of advanced economy GDP over time."Key findings:"… across successive monetary and fiscal regimes, and a variety of asset classes, real interest rates have not been ‘stable’, and…
"… since the major monetary upheavals of the late middle ages, a trend decline between 0.6–1.6 basis points per annum has prevailed."
"A gradual increase in real negative‑yielding rates in advanced economies over the same

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9/1/20: Herding and Anchoring in Cryptocurrency Markets

8 days ago

Our new paper, with Daniel O’Loughlin, titled "Herding and Anchoring in Cryptocurrency Markets: Investor Reaction to Fear and Uncertainty" has been accepted to the Journal of Behavioral and Experimental Finance, forthcoming February 2020. The working paper version is available here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3517006.Abstract:Cryptocurrencies have emerged as an innovative alternative investment asset class, traded in data-rich markets by globally distributed investors. Although significant attention has been devoted to their pricing properties, to-date, academic literature on behavioral drivers remains less developed. We explore the question of how price dynamics of cryptocurrencies are influenced by the interaction between behavioral factors behind investor

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8/1/20: Creative destruction and consumer credit

10 days ago

My new article for @TheCurrency_, titled "Creative destruction and consumer credit: A Fintech song for the Irish banks" is out. Link: https://www.thecurrency.news/articles/6150/creative-destruction-and-consumer-credit-fintech-song-for-the-irish-banks.Key takeaways: Irish banks need to embrace the trend toward higher degree of automation in management of clients’ services and accounts, opening up the sector to fintech solutions rather than waiting for them to eat the banks’ lunch. Currently, no Irish bank is on-track to deploy meaningful fintech solutions. The impetus for change is more than the traditional competitive pressures from the technology curve. One of the key drivers for fintech solutions is also a threat to the banks’ traditional model of business: reliance on short-term

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7/1/20: Tax cuts, trade and growth: The Trumponomics Effect

11 days ago

My article on U.S. economy and the implied risks to investors for Manning Financial and Cathedral:https://cfc.ie/2019/12/10/tax-cuts-trade-and-growth-the-trumponomics-effect/.

#USEconomy #Economics #Markets #USgrowth #GlobalGrowth #GlobalEconomy #SecularStagnation @cathedrlfinance @sheehymanning

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7/1/20: BRIC Composite PMIs 4Q 2019

11 days ago

Composite Global economic activity, as measured by Composite PMI has slowed down markedly in 2019 compared to 2018. In 2018, average Composite Global PMI (using quarterly averages) stood at 53.6. This fell back to 51.7 in 2019. In 4Q 2019, average Global Composite activity index stood at 51.3, virtually unchanged on 51.4 in 3Q 2019. Overall, Global Composite PMI has now declined in 7 consecutive quarters. 

This weakness in the Global economic activity is traceable also to BRIC economies.

Brazil’s Composite PMI has fallen from 52.0 in 3Q 2019 to 51.5 in 4Q 2019. Things did improve, however, on the annual average basis, 2018 Composite PMI was at 49.6, and in 2019 the same index averaged 51.4. 

Russia Composite PMI has moved up markedly in 4Q 2019, thanks to booming reading

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7/1/20: BRIC Services PMIs 4Q 2019

11 days ago

BRIC Services PMIs have been a mixed bag in 4Q 2019, beating overall Global Services PMI, but showing similar weaknesses and renewed volatility.Brazil Services PMI slipped  in 4Q 2019, falling from 51.8 in 3Q 2019 to 51.0. Statistically, this level of activity is consistent with zero growth conditions. In the last four quarters, Brazil’s services sector activity ranged between a high of 52.3 and a low of 48.6, showing lack of sustained growth momentum in the sector.Russia Services sector posted a surprising, and contrary to Manufacturing, robust rise from 52.0 in 3Q 2019 to 54.8 in 4Q 2019, reaching the highest level in three quarters. Statistically, the index has been in an expansion territory in every quarter starting with 2Q 2016. 4Q 2019 almost tied for the highest reading in 2019

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5/1/20: BRIC Manufacturing PMIs 4Q 2019

13 days ago

As global manufacturing sector activity barely stayed above the recession line in 4Q 2019, BRICs manufacturing PMIs indicated a cautious upswing in activity, with exception for Russia and India. Here are the core details:Brazil’s 4Q 2019 Manufacturing PMIs averaged 51.8, statistically unchanged on 3Q 2019 figure of 51.9. Both 3Q and 4Q readings were statistically above 50.0, indicating modest growth, and above historical average of 50.3. Nonetheless, 4Q 2019 reading was the second lowest in six consecutive quarters.
Russia posted its second consecutive quarter of recessionary growth readings for manufacturing sector, with quarterly average PMI slipping to 46.8 in 4Q 2019, down from 48.2 in 3Q 2019, making 4Q contraction the sharpest since 2Q 2009. All in, the last time Russian

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5/1/20: EU’s Latest Financial Transactions Tax Agreement

13 days ago

My article on the proposed EU-10 plan for the Financial Transaction Tax via The Currency:

Link: https://www.thecurrency.news/articles/5471/a-potential-risk-growth-hormone-what-the-financial-transaction-tax-would-mean-for-ireland-irish-banks-and-irish-investors or https://bit.ly/2QnVDjN.Key takeaways:"Following years of EU-wide in-fighting over various FTT proposals, ten European Union member states are finally approaching a binding agreement on the subject… Ireland, The Netherlands, Luxembourg, Malta and Cyprus – the five countries known for aggressively competing for higher value-added services employers and tax optimising multinationals – are not interested.""The rate will be set at 0.2 per cent and apply to the sales of shares in companies with market capitalisation in excess of

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19/12/19: Irish Planning Permissions 3Q 2019: Some Goods, Some Bads

29 days ago

The latest Irish data for Planning Permissions approvals is a mix of some good news, some bad news and some ugly trends. Here is the summary of them for 3Q 2019:Overall, planning permissions numbers for housing applications are up 4.02% y/y – this is the good news. Better news: cumulative 1Q-3Q 2019 numbers are up 7.12%  on the same period in 2018.
New dwelling planning permissions are up 6.01% y/y – this too is the good news. Also exciting: cumulative 9 months permissions are up 6.33% y/y.
Other new construction ex-dwellings permissions are up 6.29% – another bit of good news.
Extensions and alterations-related planning permissions are up only 1.42%. But this is offset by the cumulative 9 months gain of 7.65% y/y. Which is a nice number.
Bad news: private homes permissions are up only

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18/12/19: Winning Trade [Price] Wars: Updated Data

December 18, 2019

With the recent announcement of the so-called Phase 1 ‘Trade Deal’ with China, the U.S. President has claimed that his Administration is winning the trade war with Beijing and that the U.S. economy is gaining from the rounds and rounds of tariffs and trade restrictions imposed on its bilateral trade with China.Here is a tangible set of metrics showing the cost indices for U.S. trade (exports and imports) over the period of President Trump’s tenure, compared to the track record of his predecessors:

In basic terms, the adverse movements in imports prices have been more than offset by the positive movements in export prices since the start of the Trump presidency. However, two caveats to this warrant more cautious analysis of this data:Mr. Trump’s presidency has not been associated with

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16/12/19: There is no Inflation, folks… none…

December 16, 2019

There is no inflation, folks. This is what the Fed been telling us for some time now. And the CPI figures, on aggregate, say the same.

Unless it is if you need health services or health insurance, or if you happen to *want* education. These discretionary items of spending, avoidable by choice of a prudent consumer, are, of course, exceptions to the rule…

Note, of course, the standard inflation measurements of price changes in healthcare are a bit obscure too, as they average-out effects of private insurance inflation by adding old-age and low-income insurance purchases by the state:

But, never mind, as I said above, these are purely discretionary spending items, so we should not let them cloud out the net official results that show ‘no inflation’.

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15/12/19: Under the Hood of Irish National Accounts: 3Q 2019 Data

December 15, 2019

CSO have released the latest (3Q 2019) data for the National Accounts. The headlines are covered in the release here: https://www.cso.ie/en/releasesandpublications/er/na/quarterlynationalaccountsquarter32019/ and are worth checking. There was a massive q/q increase in GNP (+8.9%) and a strong rise in GDP (+1.7%).Official value added q/q growth figures were quite impressive too:Financial & Insurance Activities value added was +5.7 percent in volume, all of which, judging by the state of the Irish banks came probably from the IFSC and insurance premiums hikes
Professional, Administrative & Support Services +5.1 percent (this sector is now heavily dominated by the multinationals)
Public Administration, Education and Health sector lagged with a +1.5 percent 
Arts & Entertainment +1.8

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14/12/19: Governance and Government Debt

December 14, 2019

What I am reading this week: a new paper via EFMA, titled "Governance and Government Debt" by João Imaginário and Maria João Guedes, available here: https://efmaefm.org/0EFMAMEETINGS/EFMA%20ANNUAL%20MEETINGS/2019-Azores/papers/EFMA2019_0184_fullpaper.pdf.The paper looks at "the relationship between Worldwide Governance Indicators [a proxy for governance quality] and Government Debt in 164 countries for the period between 2002 and 2015." Using fixed effects (FE) and generalized method of moments (GMM) models the authors show that "governance quality is negatively and statistically related with government debt. For Low Income countries was found evidence that better governance environment is associated with lower public debt levels."More specifically, "for a set of 164 countries on a

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13/12/19: World Bank and WEF reports highlight relatively poor competitiveness rankings for Ireland

December 13, 2019

The latest World Bank "Doing Business" report rankings and the WEF’s "Global Competitiveness Report" rankings show Ireland in a mid-tier 1 position (24th ranked in both tables) in terms of competitiveness – hardly an enviable position.

Ireland’s position marks a deterioration from 23rd rank in WEF table, driven by relatively poor performance in ICT adoption (hmmm… Silicon Docks economy is ranked 49th in the World), macroeconomic stability (ranked 34th), product markets competitiveness (35th), and financial system (42nd).

Full WEF report here: http://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2019.pdf and full WB report here: https://openknowledge.worldbank.org/bitstream/handle/10986/32436/9781464814402.pdf WB country profile for

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13/12/19: UK Vote and Younger Voters

December 13, 2019

On foot of the UK General Elections results, here is a telling sign of the changing generational effects on voting with some questions for the U.S. 2020 election:

Given the above numbers, the ‘younger voters tide of change’ expected in 2020 in the U.S. elections is a function of two factors: turnouts and demographic concentrations. We are, of course, yet to get this data from the UK polls.Worth thinking about these, if you are a political analyst.

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12/12/19: Ireland’s Jobs Creation Track Record: Raising Some Questions

December 13, 2019

Doing some research on the state of precariat in modern labor markets, I came across some interesting data from the ‘poster country’ of the post-GFC recovery: Ireland.

Ireland’s economy and its recovery from the crisis are both characterised by the huge role played by the internationally-trading multinational corporations. In recent years, these companies have been gearing up for the upcoming OECD-led BEPS reforms (more on this coming up next month in my usual contribution to the Manning Financial publication, but you can read academic-level analysis o the BEPS here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3406260). The strategic shift this entails involves MNCs domiciling into Ireland intangible property and new business functions to create a larger ‘footprint’ in the

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11/12/19: Private Sector Leads Electrification of Transport in Ireland

December 11, 2019

Ireland’s uptake of electric vehicles has risen dramatically in 2019 (to-date, data through November), according to the data release from CSO.

Based on annualized numbers, Ireland is on track to add 3,790 new electric vehicles in 2019, of which 3,998 are expected to be private vehicles. In general, across all years we have data for, private sector (households) leads uptake of electric vehicles, with public sector lagging.In 2019, new electric vehicles will account for ca 3% of the total new vehicles registered in Ireland. In the private sector, electric vehicles will account for 2.53% and in the public sector the share of electric vehicles in all new vehicles registered will rise to 1.07%. This marks major increases over 2015-2018 cumulative additions share of 0.44% total, 0.53%

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10/12/19: Irish Banks: Part 2

December 10, 2019

Continuing with the coverage of the Irish banks, in the second article for The Currency, available here: https://www.thecurrency.news/articles/4810/a-catalyst-for-underperformance-how-systemic-risk-and-strategic-failures-are-eroding-the-performance-of-the-irish-banks, I cover the assets side of the banks’ balancesheets.The article argues that "The banks are failing to provide sufficient support for the demand for investment funding, and are effectively removed from financing corporate investment. In this case, what does not make sense to investors does not make sense to society at large." In other words, strategic errors that have been forced onto the banks by deleveraging post-crisis have resulted in the Irish banks becoming a de facto peripheral play within the Euro area financial

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10/12/19: Irish Banks: Part 1

December 10, 2019

Returning back to the blog after a break, some updates on recent published work.In the first article on Irish banking for The Currency, titled "Culture wars and poor financial performance: examining Ireland’s dysfunctional, beleaguered banking system", I argued that "The financial performance of the Irish banks has been abysmal. Not for the lack of profit margins, but due to strategic decisions to withdraw from lending in the potential growth segments of the domestic and European economies." The article shows the funding side of the Irish banks and the explicit subsidy they receive from the ECB through monetary easing policies – a subsidy not passed to the end credit users.In simple terms, high profit margins are underpinned – in Irish banks case – by low cost of funding.

Conclusions:

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16/10/19: Recalling the Celtic Tiger

October 16, 2019

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

October 16, 2019

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

October 16, 2019

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

October 16, 2019

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

October 7, 2019

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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