2/8/2013: The Impossible Monetary Dilemma: July update

Two charts updating the Impossible Monetary Dilemma through July:

Good luck to all believing tapering will be enough to get monetary policy to mean-revert. Oh, and in case you wonder, mean reverting refers to historical mean - which is skewed downward by the period of historical lows of 2001-2005 and H2 2008- present. Even that historical mean is out of reach for any ordinary tightening.

2/8/2013: June's Great Recession Update

The usual monthly chart from Calculated Risk (h/t for the reminder to check to @businessinsider )... US Great Recession in comparison:

Source: http://www.calculatedriskblog.com/2013/07/june-employment-report-195000-jobs-76.html

Continue to be scared... cause we've been scared for the last 65 months... And a reminder from my previous re-posts of this chart: notice how frighteningly longer are the durations of employment recoveries in recent recessions since 1981.

And while we are on this, here's a good discussion of completely unrealistic US expectations for fiscal recovery: http://www.bloomberg.com/news/2013-08-01/why-the-cbo-s-deficit-forecasts-are-too-optimistic.html via @BloombergView

2/8/2013: Nice uptick in Ireland's risk ratings: ECR

Small thing, but all counts... Ireland's Euromoney Country Risk scores are continuing to improve:

Latest score up at 57.81 ranking Ireland at 42nd in terms of risk, with lower rank / higher score implying lower risk:

 Comparatives:

 Score components on aggregate:

 Historical trend:

Economic Assessment score sub-components:

Political Assessment score sub-components:

Structural Assessment score sub-components:

2/8/2013: Irish Manufacturing PMI: July 2013

Manufacturing PMI for Ireland was out yesterday. And as usual, it was worth waiting and giving the Irish media time to get through their circus of 'analysis'. The excitement of 'growth' predictions aside, here's the raw truth about the numbers (please, keep in mind that shambolic data coverage by Markit press-release is no longer conducive to any serious analysis of the underlying components of the PMIs). Note: PMI for Ireland are released by Investec and Markit.

All we have is the headline number. On the surface, headline Manufacturing PMI moved from 50.3 in June to 51.0 in July. Both numbers are above 50.0 and thus suggest expansion. This marks two consecutive months of growth.

However, there are some serious problems with the above. Read on:
-- At 51.0, July PMI is barely above 12 mo average of 50.7.
-- 3mo average through July is at 50.3, ahead of 49.4 3mo average through April 2013 - which is good news.
-- In July 2012, PMI was at 53.9 which was statistically significantly above 50.0 (in other words, statistically we did have growth in July 2012, which turned out to be pretty disastrous year for manufacturing and industry as we know). And in July 2013 at 51.0 there is no statistically significant difference in current PMI reading from 50.0, which means - statistically-speaking - we do not have growth.
-- Current 3mo MA at 50.3 is not different from 50.0 statistically
-- Current 3mo MA is below that in 2012 (52.7), ahead of that in 2011 (49.9) and below that for 2010 (52.4) - which is not exactly confidence-inspiring, right?
-- M/m (recall, these are seasonally-adjusted numbers) there was a rise in PMI of 0.7 (slightly better than m/m rise of 0.6 in June 2013). Alas, this monthly rise was also statistically indifferent from zero.

Here are two charts that illustrate the above points.

In short - good news is that PMI is reading above 50 and strengthened in July compared to June. Bad news is that statistically-speaking, neither the reading levels (in both June and July), nor increases m/m (in both June or July) are significant. Which means that we simply cannot will away the caution in reading the PMI numbers this time around.

2/8/2013: New Vehicles Registrations and Motor Trade in Ireland: H1 2013

Latest stats on car sales in Ireland are revealing, especially when indices data is put alongside the actual volumes of cars sales. Recall that in 2013, Irish authorities have changed vehicles registration system and instead of full year, new licenses show first half of 2013 and second half of 2013 vehicles. This was done to appease the dealers' fear that superstition over number '13' on the plate will deter people from buying cars. Obviously, the dealers were not too enlightened to figure out that in the current climate, it is the Vehicles Registration Tax and VAT, charged consecutively (to make certain that double taxation becomes triple taxation) might be a greater deterrent from purchasing a vehicle.

So here are the results of the heroic subsidies and supports accorded to motor trade:

Put simply, there has been no change in the rate of decline in new private cars sales since 2011 H1. Sales of new cars in H1 2012 were falling y/y at the same rate as in H1 2013. Sales of used vehicles are at all-time lows and this means that what we are witnessing the figures is not a license plate year effect, but the effect of overall decline in demand for cars.

Why? Well, handy QNHS survey on the impact of the crisis on households (see more on this here: http://trueeconomics.blogspot.ie/2013/08/182013-anatomy-of-personal-crises-qnhs.html) might offer an insight:

Sixth most frequently cited measure to reduce household expenditure is... you guessed it - car usage or/and ownership. Over 12 months through July-September 2012, 36% of all households have cut back on car usage or/and ownership.

Thus, all vehicles registrations in H1 2013 are running at 27% below their 1997 levels, new private cars registrations are down 38% and new goods vehicles registrations are off 45.3% on H1 1997.  The latter, of course, is an indicator of health in SMEs sector...

1/8/2013: Strategic defaults...

This is "I am not drowning puppies for fun" note concerning my view on the problem of 'strategic defaults':

1. I do not allege there are no 'strategic defaults' in Ireland.
2. I do state that at this moment, there is no evidence of these defaults being a systemic problem of specific dimension.
3. Absence of evidence is not in my view evidence of absence.
4. I am aware that some people prioritise payments of unsecured debt over secured debt. This can be for a number of reasons. 
5. However, (4) does not automatically imply that a person doing so is out to 'game the system' to their advantage. They might be prioritising payment of unsecured debt for a number of reasons, other than personal gain, e.g.: (a) their credit cards or small credit union loans fund their day-to-day living expenses and as such they need their credit flowing to survive, or (b) their unsecured creditors exerted more pressure on them and they simply caved in, or (c) they are afraid of losing their last line of credit, etc.
6. I do not allege that doing (4) above (including for the reasons outlined in (5))  is a correct or a good or an acceptable course of action. In fact, in my opinion, it is not.
7. I am aware of at least one instance where an organisation I am working with faced a case of a wilful and strategic default. We advised the bank to pursue all legally available courses of action to stop the person from continuing to engage in such activity.
8. I am aware of the study that used US research (not US data) to extrapolate to Irish case. I find such an approach a good point for a debate, but I do not accept it as a robust evidence to base any policy design or analysis on. It is not an evidence and thus (2) and (3) above continue to apply.
9. I am aware of the statements by media and analysts that the problem of 'strategic defaults' in Ireland is growing and is already significant. 
10. My view is that (9) is an unsubstantiated claim, not backed by any real evidence and as such it has to be treated as just a conjecture. Anyone is free to make a conjecture. Some might even opt to be so kind as to seek evidence to back one up. None have a right to impose their conjecture onto actual solution or policy mechanism.

I hope this explains my position on the issue and ends the nonsensical accusations that I am denying the problem. 

My personal conjecture on the topic (backed by anecdotal evidence, so not different from any conjectures on the topic presented in the media to-date) is that there can be borrowers attempting to game the system. We do not know how many are. We do not know who they are. The correct way f dealing with them is to penalise them at the point of discovery. Before such a point, however, everyone is innocent, until proven guilty.

1/8/2013: Anatomy of the Personal Crises: QNHS Q3 2012

CSO has published Q3 2012 survey concerning the Effect on Households of the Economic Downturn: here.

Some core findings:

• 82% of households cut spending on at least one of the main categories of expenditure as a result of the economic downturn in the 12 months before July-September 2012. 
• Nearly a quarter of all households indicated that they had cut back on five or more categories of spending out of 9 categories listed.
• Over 1/3 of households who used a car had cut back on their expenditure on this means of transport.
• "Some 14% of owner occupied households with a mortgage were unable to make mortgage repayments on time at least once in the previous twelve months due to financial difficulties." This number is strangely well below the current rate of mortgages arrears by accounts. Does this suggest that households tend to overstate their financial health?
• "On the rental side 19% of all renting households failed to pay rent on time at least once."
• 43% of households "indicated that they had experienced difficulties in keeping up with their bills and debts."
• "Two fifths of individuals were concerned about their level of personal debt. Over half of these said that they were currently more concerned than they had been twelve months previously. Only 5% indicated that their level of concern had decreased."
• "households consisting of one adult aged 65 or over said they had the least difficulty" paying bills and funding debt (27%).
• "Of households where the reference person was at work 41% experienced difficulty [paying bills and funding debt] compared with 73% where the reference person was unemployed." Note that 41% is a frightening number, still.
• "Looking specifically at those households which had experienced difficulty in managing bills and debts, 47% of them said that it was due to loss of income, 73% said it was due to higher than expected or additional costs and 5% said the difficulty was due to other reasons."
• "Looking more deeply into the type of higher or additional costs mentioned by those households for whom it caused difficulty, 90% of those households mentioned higher or additional utility bills , 32% mentioned higher or additional school, college or university costs, 17% mentioned higher or additional medical or dental costs and 15% mentioned higher or additional loan or mortgage repayments" Now, run through these again. All of them are state-controlled and state-regulated services, ex mortgages and loans. That's the cost of Irish State policy of extracting rents out of already stretched households.

And a handy chart summarising demographics of debt crisis:

That's right: core crisis impact on debt side - 25-54 year olds, majority with kids and homes, just the crowd that the Government is targeting for cash extraction via higher prices and charges for services like health, health insurance, transport, energy, utilities, education... you name it.

And as you read data in Table 1.1.1. showing details of the households experiencing financial difficulty due to loss of income, classified by main reasons over 12 months prior to July-September 2012, keep in mind - almost all 'employment creation' in the labour market that the Government and 'green jerseys' keep talking about is taking place in the part-time jobs, which cannot cover the true cost of living in this country.

Finally, take a look at Table 1.2. This shows the extent of debt restructuring delivered by the 'reformed' banks. At 7% total - it is laughably low.