Sunday, November 30, 2008

Mankiw examines Keynes

Greg Mankiw is a professor of economics at Harvard. He was an adviser to President Bush and is generally regarded as one of the foremost economists in the world today. In this morning's New York Times he has written an interesting essay on the ideas of economist, John Maynard Keynes (above), and how they might be applicable in the current economic climate.

Full article

Saturday, November 29, 2008

ECB to cut interest rate next week?

A steep fall in eurozone inflation and a rise in the jobless rate has raised hopes that the European Central Bank (ECB) will cut rates sharply next Thursday. Analysts said the ECB could now cut rates by up to one percentage point from their current level of 3.25%.

Friday, November 28, 2008

Thanksgiving sales begin

Today is 'Black Friday' in the US. Black Friday is the Friday after Thanksgiving, and it is the beginning of the traditional Christmas shopping season. Black Friday is not an official holiday, but many employees have the day off, which increases the number of potential shoppers. Many retailers open very early (typically 5am or even earlier) and offer doorbuster deals and loss leaders to draw people to their stores.

In keeping with tradition, this morning, US stores opened early and offered steep discounts to encourage consumers to part with their cash as the Christmas shopping season kicks off. The day after the Thanksgiving holiday is viewed as an important test of how willing consumers are to spend. Crowds of shoppers turned up at dawn to snare the best deals. A worker died and at least three people were injured after being trampled by a crowd of shoppers at a Wal-Mart in the New York suburbs! Police said a throng of shoppers broke down the doors to the Wal-Mart store in Valley Stream, Long Island, shortly after 5am, knocking the 34-year-old worker to the ground.

Electronics retailer Best Buy and department stores Kohl's and Macy's also opened their doors at dawn. Toys R Us offered up to 60% discounts from 5am to 10am. However, deep discounts are likely to hurt profits even if shoppers turn out in droves. Many retailers have suffered as the US economy nosedives although value chains like Wal-Mart have fared better. US retail sales recorded the biggest monthly decline since 1992 in October as consumers cut back on spending.

Thursday, November 27, 2008

B&Q see lower sales

B&Q-owner, Kingfisher, has seen third-quarter sales fall 9% amid slowing demand for home improvements. Sales are down nearly 9%. Expensive items such as kitchen and bathroom units are the worst sellers, which is hardly surprising as such items have a high YEd (income elasticity of demand), never mind the collapse of the construction industry.

Irish exports to the U.K. are down

Irish exports to the U.K., Ireland’s biggest trading partner, dropped 18% in August as the British economy slid into a recession and the euro’s advance against sterling eroded competitiveness. Weak sterling means Irish products are dearer in the U.K. Sales to the U.K. fell to €958m in August from €1.17billion in the same month a year earlier, according to the CSO today. Figures for the three months through September show sales abroad dropped 3.7% from a year earlier in the third quarter to €20.8billion. The euro has increased 14% against sterling this year, eroding Irish companies' profit margins. A housing slump and the financial crisis have pushed the U.K. to the brink of a recession, cooling demand for imports.

Nokia pull out of Japanese market

Finnish mobile phone giant, Nokia, has said it will stop selling its handsets in Japan after struggling to grow its market share in the country. Nokia said it would continue selling its luxury Vertu brand in Japan, and would dedicate its Japanese business to research purposes. Samsung and LG have also faced problems in Japan - a market dominated by sophisticated domestic phones. Nokia said recently that it would cut costs because of the global downturn. "In the current global economic climate, we have concluded that the continuation of our investment in Japan-specific localised products is no longer sustainable," said Nokia executive vice president Timo Ihamuotila.

Nokia has nearly 40% of the global market for mobile phones, but it reportedly managed to take only 0.3% of Japan's market last year. Foreign companies account for only 5% of the Japanese market, which is dominated by local firms selling phones with features such as TV broadcasting and electronic payment functions. These Japanese manufacturers have only a small presence outside their home market, which also has an advanced third-generation network that makes it difficult for foreign firms to compete. The Nokia-owned luxury brand Vertu was created in 1998 and focuses on one-off specialist phones costing from 3,500 euros to more than 100,000 euros.

Chinese slowdown may fuel social unrest

The accelerating economic slowdown in China will lead to huge unemployment and could fuel social unrest, China's top planner has said. Zhang Ping, head of the National Development and Reform commission, said the impact of the global crisis on China's economy was deepening. "Excessive bankruptcies and production cuts will lead to massive unemployment and stir social unrest," he said. A state think tank said annual economic growth would slow to 8% this quarter.The State Information Centre blamed the fall - from 9% in the third quarter - on slowing export and the property market crisis. The 8% growth forecast for the fourth quarter is still faster than any other leading economy but the Chinese authorities have already had to deal with protests from fired workers.

Wednesday, November 26, 2008

Global downturn causes more sleepwalking!

Financial worries are leading to an increase in sleepwalking, researchers claim. Instances of sleepwalking have increased threefold this year compared with last, according to a poll by the hotel chain Travelodge. Some 3,500 adults and 350 Travelodge hotel managers responded to the poll. Economic fears and worries about being sacked are thought to head the reasons for sleepwalking. The survey also found that 98% of sleepwalkers are naked men, and the optimum time for sleepwalkers is 3.27am.

Iceland's inflation now over 17%

The annual rate of inflation in Iceland has risen to a record high of 17.1% as the country battles the worst financial crisis in its history. The Icelandic statistics agency said prices rose in November alone by 1.74% compared to the previous month. Food prices increased fastest, up 30.6% over the year, as the country's currency plummeted. The agency warned that inflation rate could rise beyond 20% in the future, threatening the economy.

Tuesday, November 25, 2008

Jobs lost in Tuam

A car component factory in Tuam in Co Galway is to lay off 25 of its 260 strong workforce. Valeo Vision Systems, which specialises in the manufacture of in car camera systems, says the lay-offs are as a result of falling sales in the international car industry. Valeo, whose headquarters is in France, employs 61,000 worldwide. It bought the Tuam factory, which was previously known as CEL, last July. In a statement, the company says the job losses will be mainly in the production area of the plant.

Ryanair credit cards

Ryanair today launched Ireland’s first prepaid MasterCard service which will allow users to make purchases in shops, restaurants and online. Ryanair Prepay, which costs €85 and attracts a reduced stamp duty rate of just €10 (compared to €30 for traditional MasterCard and Credit card products), allows users to place credit on their MasterCard through An Post, online or via mobile phone. The card does not require credit checks or even a bank account and those who sign up will receive four free Ryanair flights as a well as a host of online discounts and cash back offers. The card is ideal for those who wish to have the flexibility and convenience of a credit card but don’t want, or can not access a traditional credit card.

Monday, November 24, 2008

Economics on the TV tonight (Monday)

For those interested in development economics, this should be worth watching. Over the last 50 years Western governments have paid out more than £400bn of tax payers' money in aid to Africa, but according to figures released by the World Bank this year, half of sub-Saharan Africans still live in extreme poverty, a figure which has not changed since 1981.

Panorama
BBC 1 NI (Sky Digital Ch.141)
Monday 24th November 2008
8:30 pm to 9:00 pm

Addicted to Aid:
Reporter Sorious Samura visits Uganda and his home country of Sierra Leone to reveal how aid money is lost, stolen and frittered away. He stops at a showpiece hospital, run by a well-funded health department, that looks like a warzone - yet in the nearby car park of the Ministry of Health there are dozens of new 4x4s for ministry staff. He questions a former minister accused of stealing funds and offers his vision of how Africans can take control of their own destiny.

Further details on the show (plus a trailer)

Manchester United to get new sponsors?

Reports in the English press this morning claim that Korean electrical LG and Saudi Telecom are interested in taking over the sponsorship of Manchester United. United’s current sponsors AIG are in serious financial trouble and have had to be propped up by the American government following the global credit crunch. AIG signed a 56.5 million pound deal in 2006 with the current Premier League and Champions League holders.

Manchester United already have strong links with Saudi Telecom who agreed a five-year deal in August worth £10m for advertising on its website and at Old Trafford. United also sent a team to Saudi Arabia last year on a 'PR trip'. Man United chief executive David Gill denied, at the time, that trip was money-motivated: 'People can level what they want at us, but we're relaxed about that. People don't understand how these decisions are taken.' We will see.

Sunday, November 23, 2008

Darling lowers VAT

British Chancellor, Alasdair Darling (pictured), will announce a reduction in their rate of VAT tomorrow. It's not known when it will come into effect but I suspect it will be with immediate effect. The cut is expected to see the rate drop from its current level of 17.5% to 15% for at least a year - and possibly for as long as two years. That's as low as current EU law allows. He is doing this in an effort to help stimulate the economy by persuading consumers to buy again. The move will cost the British government a hefty £12.5bn a year but they see it as essential to increase consumption/demand, although it is debateable if the move will actually be effective.

From our point of view, along with a weak Sterling, and the fact that Lenihan's VAT increase in the budget (21% to 21.5%) comes into effect on 1st December, all mean this will only increase the number of shoppers from the Republic travelling down the north to Enniskillen, Newry, Strabane, Belfast, etc. for bargains in the run-up to Christmas and beyond.

By the way, if your ATM card has a 'cirrus' logo on it and you intend to shop in the North, remember to use your card up there to get your Sterling. That way, there are no bank fees - as long as you stay away from the building society atm machines.

McWilliams cautions Lenihan

David McWilliams is an economist, whose articles I usually enjoy reading. In this morning's Sunday Business Post, he again doesn't fail to deliver. 'Time to face up to reality' details what he feels the next steps in our banking crisis should be. The main points of the piece are:
  • Caution needs to be exercised by Lenihan in putting money into recapitalising the banks now. While now might seem to be the perfect time to do so with their shares so low, the problem is that we still don't know what we are putting money into. The banks' bad debts are going to be far worse than they're admitting now. To demonstate this, the above graph shows how the US banks tried unsuccessfully to deal with their bad debts over the past year. It shows that banks are invariably always wrong when it comes to bad loans, because they underestimate the difficulties in their loan books. The difference between the banks’ forecasts and reality was enormous.
  • Massive defaults on mortgages will occur over the coming 2-3 years due to the rising unemployment rate. We cannot tolerate thousands of young people (in many cases, young families) defaulting on their mortgages and being kicked out of their houses. Neither can we entertain the prospects of those people languishing in negative equity for a decade. McWilliams advocates that we reset the principal of these mortgages down to 50%, of their peak value. The banks’ shareholders would take on the lion’s share of this pain, with the state taking a proportion. As people move houses over their lifetimes and tend to trade up, the capital gain when the mortgage holder sells on the starter home to the next generation goes to the state. Therefore, the state is protected, the system is preserved, the banks take the hit and the mortgage holder keeps his house today at the price of significantly lower capital gain tomorrow. It is a bitter pill for the banks to swallow, but so be it. Better to have someone paying some interest on a smaller amount of principal than paying nothing on a big loan.
Full article

Saturday, November 22, 2008

Honey makes the world go round

An article from the BBC examines the economic consequences of the huge drop in the global bee population. As they explain, the phenomenon is far more serious than simply a rise in honey prices.

"Bees not only produce honey, they pollinate many of the plants and vegetation which we then go on to consume. And the continental breakfast? Well, bees pollinate almond trees, so if bees were to die out, the almond filling for our croissants would disappear. The one-euro cup of coffee would suddenly rocket in price, as would the orange juice, because bees pollinate the majority of coffee plants and orange trees. Even milk would be more difficult to come by, because bees pollinate most types of animal feed, and the alternatives dairy farmers would have to use, probably cereals, are far more expensive. The threat to breakfast is very real. The bee population of Europe has been falling at an alarming rate. In the UK, it dropped by around 30% between 2007 and 2008, according to the British Bee Keepers Association. Scientists thinks bees ae dying off due to something called the varroa mite. They suck the blood of infected insects, weakening their immune systems. However, it is thought there may be other pressures on bees, including some pesticides and the prolonged spells of wet weather which have been seen during the last two European summers".

Further evidence, if it were needed, came yesterday when it was announced that Canada produced 62 million Ibs of honey this year, down 10% from the 69 million Ibs produced in 2007. The average yield per colony was only 106 Ibs, more than 10 Ibs less than last year.

Full BBC article

'Economist Intelligence Unit' on Ireland

This week's Economist magazine has a highly-recommended and comprehensive overview of the current contraction of the Irish economy. Their Economist Intelligence Unit expects Irish GDP to decline by a substantial 2.5% over 2008. While in 2009 and 2010 they forecast further contractions of 2.3% and 0.5%, respectively. Factors that will negatively impact on purchasing power and consumer sentiment are falling employment levels, rapidly rising joblessness, strains in the banking system, further tax increases and the negative equity due to declining house prices.

'The Tiger Tamed', The Economist, 20th November, 2008

Demand for first class airline tickets skydives

The worsening economy is squeezing Europe’s major airlines, with dwindling sales of premium-class tickets starting to take their toll. On Thursday, Air France-KLM followed British Airways and Lufthansa in reporting a steep fall in quarterly earnings, largely because of high jet fuel prices last summer. Jean-Cyril Spinetta, chief executive of Air France-KLM, said the airline had also started to notice in August “a slide” from the front of the plane to the back as passengers switched to cheaper seats. He said about 8% of the airline’s corporate clients were banks, which had been on the front line of the financial crisis. “When there’s an economic crisis, businesses always want to reduce their general expenses, and individuals are more careful about their spending,” he said.

Airlines do not provide estimates of how much their revenue depends on first and business-class travelers. But a drop in such ticket sales is particularly damaging because major airlines often rely on the expensive seats to offset the lower-margin seats at the back. Global economic turbulence is forcing BA and many other airlines into a series of difficult decisions. The income elasticity of demand for airline travel is likely to be strongly positive especially for luxury travel and on routes where there is genuine competition the price elasticity of demand is also likely to be a constraint on how high fares can be.

'For European Airlines, Decline in Premium Ticket Sales Takes a Toll on Earnings', New York Times, 20th November 2008.

Friday, November 21, 2008

I saw this clever sign on another site the other day and thought I'd post it here. Apparently, the homeless guy is Aaron, a heroin addict living on the streets of New York city.

Endgame for Irish banks

Ireland's banks were given a clear message tonight that the Government regards consolidation of the country's six Irish banks as key to their long term stability due to the current banking crisis. The Minister for Finance, Brian Lenihan, is meeting with the country's senior bankers at Farmleigh House, in Co.Dublin. Speculation is now rife that we could end up with AIB and Bank of Ireland totally dominating the banking scene. Since the State's guarantee for banks the Finance Minister has the power to force mergers between financial institutions. Various mergers have already been touted such as Bank of Ireland taking over Anglo Irish and Irish Life & Permanent. AIB would take control of the EBS and Irish Nationwide.

The PriceWaterhouseCoopers report in to the banks, is understood to have recommended Bank of Ireland takeover Anglo Irish while AIB would assume control of Irish Life & Permanent, in what would be the biggest overhaul of the banking sector in nearly 50 years. The expectation is that a major wave of consolidation would also have to be linked with fresh capital for the banks. But there is still no clear picture of how a final deal would be put together or how long it will take.

Thursday, November 20, 2008

Oil price lowest in three years

Oil prices have fallen below $50 a barrel for the first time since May 2005 amid fears of a recession and expectations that demand will drop. US light sweet crude fell to $49.75, while London-traded Brent crude fell to to $48.90 a barrel. The price of oil is around two-thirds cheaper than in July, when it hit a record above $147 a barrel. As economic slowdown has destroyed fuel demand, oil companies face the prospect of storing millions of barrels of unwanted oil. The falls on oil have mirrored weakness on equity markets, which dropped again today when European stocks hit their lowest level since March 2003.

The decline in the value of oil is good news for motorists and consumers. The price of petrol is likely to fall and utility bills will also come down if the price remains low. The fall is also likely to reduce inflationary pressure and makes more interest rate cuts more likely. Investment banks such as Deutsche Bank have warned that oil prices could fall to $40 a barrel early next year as the credit crisis hits the real economy, with the economic slowdown spreading from the US and Europe into emerging markets such as China.

Wednesday, November 19, 2008

African free trade zone created

The leaders of three African trading blocs on Wednesday agreed to create a free trade zone of 26 countries with a GDP of an estimated $624bn (£382.9bn). It is hoped the deal will ease access to markets within the region and end problems arising from the fact several countries belong to multiple groups. The deal also aims to strengthen the bloc's bargaining power when negotiating international deals. Analysts say the agreement will help intra-regional trade and boost growth. The three blocs which struck the deal were the Southern African Development Community (SADC), the East African Community (EAC) and the Common Market for Eastern and Southern Africa (Comesa). The three blocs are already well-established in their own right but cover varying swathes of land and numbers of people.

The SADC was first established as the Southern African Development Coordination Conference in 1980 in order to reduce independence on apartheid South Africa. It was reincarnated as the SADC in 1992. It covers a population of some 248 million people and a zone whose cumulative GDP is $379bn in 2006. The SADC's members include South Africa, Tanzania, Zambia and Zimbabwe.

Comesa was established in 1994 and replaced the Preferential Trade Area. It includes 398 million people and the area has a combined GDP of $286.7bn in 2006. Among its members are Zimbabwe, Zambia, Uganda and Sudan.

EAC is the smallest of the group in terms of GDP, and had a GDP of $46.6bn in 2006. Set up in 1967, disagreements between founding members Uganda, Kenya and Tanzania led to its collapse. A treaty was signed for its re-establishment in 1999 and the new EAC was formed in 2000.

Tuesday, November 18, 2008

The mouse ate it!

I must admit, my own students can be fairly boring with their excuses, if they don't have their homework done. Reasons usually involve missing locker keys, lost sheets, temporary amnesia and a lack of time due to football/rugby/basketball matches (usually of at least five hours duration). However, according to new research in Britain by pixmania.com, teachers hear fifteen homework excuses a week, on average, and it seems, blaming technology is becoming increasingly popular. The top five most popular tech-related reasons for not doing homework are:
  • My computer crashed and I lost it;
  • I finished my homework but then I deleted it by accident;
  • I could not print it out;
  • My internet was down so I could not do any research;
  • I lost my laptop.
Teachers revealed other tech-related excuses including:
  • My dad's computer was hacked by the Russians and they stole my homework;
  • A burglar stole my printed-out homework along with the computer;
  • The PC exploded when our dog went to the toilet on it;
  • I accidentally tipped a bottle of cider over the computer and it broke.
Full article

Car sales drop again

The Central Statistics Office figures show that the number of new cars licensed in October almost halved compared with the same month last year. 2,699 new cars were licensed last month, down 49% on the 5,301 recorded in October last year. Almost 55% of the new cars were diesel, with just over 43% using petrol.

Monday, November 17, 2008

Japan joins the recession club

Japan, the world’s second-largest economy, has officially slipped into recession, hurt by weak export growth and steep cuts in corporate spending amid the worsening global slowdown. It is its first recession since 2001 after the GDP shrunk by 0.1% in the third quarter (had previous shrunk by 0.9% in the April to June quarter). Until now, Japan has stood apart from most other developed nations because its banks were relatively unscathed by the financial crisis. But Monday’s data showed that America’s woes reached Japan via its exports, as Americans spend less on Japanese cars, televisions and machine tools. The decline adds to the grim outlook for the global economy, after Hong Kong and the European Union released data on Friday that showed they were in recession. Europe’s largest economy, Germany, also announced last week that it was in recession.

Crustacean recession

It has emerged, the credit crunch is having a negative effect on Scotland's prawn fishing industry at a time traditionally known for high prices. There is uncertainty over sales as households in Ireland, the UK and throughout Europe spend less. Continental Europe represents more than 80% of the market. Demand for prawns and other shellfish normally increases in winter because catches are limited by bad weather coupled with customers who want the seafood for the festive season. The situation is affecting sales in prawns, scallops, crab and lobster.

Sunday, November 16, 2008

Now for the canine crunch

Brian Brady writes in this morning's London Independent that as day-to-day upkeep, vets' bills and insurance costs rise, animal shelters are reporting thousands of owners giving up their pets. Animal shelters across Britain report a steep increase in pets being left with them over recent months, as well as a decline in the numbers of people willing to take on their abandoned dogs and cats.

Full article

Saturday, November 15, 2008

Spam and other inferior goods rally

Earlier, this week, we saw Aldi announce the opening of many new stores in Ireland next year. Of course, this is hardly surprising, in the current economic climate, as Aldi (and Lidl) concentrate mainly on selling inferior goods. Remember, 'inferior' is purely an economic term - it implies nothing about the actual quality of the good itself. From an economics perspective, inferior goods are goods whose demand has an inverse relationship with the consumer's income, i.e. as the consumer's income increases, demand decreases and vice-versa. Inferior goods exist because as people's incomes rise they tend to move onto more expensive goods and away from cheaper ones, e.g. own-brand cereals. Likewise, if incomes are decreasing, these inferior goods will become more attractive to consumers.

Here is an example of the growth in demand for an inferior good in the US — Spam. Spam is a cheap canned precooked meat product. The labeled ingredients are: chopped pork shoulder meat with ham meat added, salt, water, sugar, and sodium nitrite to help keep its color. As it is vacuum-sealed in a can, it does not require refrigeration; Spam can last for years. The product has become part of many jokes and urban legends about mystery meat, which has made it part of pop culture and folklore.

However, the makers of Spam, the Hormel Foods Corporation, have never had it so good. Employees in their factories are working at a furious pace and piling up all the overtime they want. Why? Well, through war and recession, Americans have turned to Spam as a way to save money while still putting something that resembles meat on the table. Now, in a sign of the times, it is happening again, and Hormel is cranking out as much Spam as its workers can produce.

Even as consumers are cutting back on 'normal goods', Spam is among a select group of 'inferior goods' that are selling steadily. Pancake mixes and instant potatoes are booming. So too are vitamins, fruit and vegetable preservatives and beer, according to data compiled, in October, by Information Resources, a US market research firm.“We’ve seen a double-digit increase in the sale of rice and beans,” said Teena Massingill, spokeswoman for the Safeway grocery chain. Kraft Foods said recently that some of its value-oriented products like macaroni and cheese, Jell-O and Kool-Aid were experiencing robust growth.

G-20 Summit or Bretton Woods II?

World leaders are in Washington today for a G-20 summit. The G-20 is basically a group of leaders of emerging economies, the traditional economic powerhouses of the G8, and the EU. Collectively, the G-20 economies comprise 90% of global GNP, 80% of world trade (including EU intra-trade) and 65% of the world population.

Some of the media is calling the summit 'Bretton Woods II'. In 1944, the Bretton Woods Agreement followed a 21-day meeting of major world economies to recreate a global financial system which had been all but destroyed by the Great Depression and WWII. British economist John Maynard Keynes was very influential at the meeting.

The members at the summit this weekend are vowing to work together to again reform the global financial system, wrestle the global economy from recession and avoid future meltdowns. The event is being hosted by US President Bush (President-elect Obama won't be in attendance), so hopes of quick joint action are pretty low.

Below, is a report from Al-Jazeera which explains the link between this summit and Bretton Woods 64 years ago.


The Guardian, this morning, analyses the G-20 members, the state of their economies and how desperate each one is for a solution to be found (the fewer stars, the better!).

Argentina - $150bn public debt
Attending: Cristina Fernandez de Kirchner, President
Argentina last month decided to nationalise its 10 largest private pension funds, taking $30bn of assets into public ownership. Shares then lost a fifth of their value in two days. Argentina defaulted on its debts in 2001 and investors fear it may do so again.
Desperation rating: Five stars

Australia - $141bn public debt
Kevin Rudd, Prime Minister
Australia has eliminated net public debt but runs a gross one of about 15% of GDP. Tough regulation meant its banks had little exposure to the US subprime mortgage market but the fall in commodity prices is hurting. Australia could face recession next year.
Desperation rating: Three stars

Brazil - $590bn public debt
Luiz Inacio Lula da Silva, President
Brazil's economy is growing at 5% this year but is expected to slow sharply next year. Central bank is making credit available to help firms boost sales and it has intervened in the market to meet demand for the US dollar.
Desperation rating: Three stars

Canada - $900bn public debt
Stephen Harper, Prime Minister
The Bank of Canada warned that growth would hit zero next year. Weaker oil prices and lower US demand are hurting Canada. Last month, it guaranteed bank lending in a move that could leave the taxpayer liable for up to US$175bn.
Desperation rating: Four stars

China - $580bn public debt
Hu Jintao, President
China is taking a big spending $586bn approach as industrial growth hits a seven-year low. As holder of the world's largest foreign exchange reserves ($1,900bn) China is under pressure to aid global finances but stands to be the biggest winner from the crisis.
Desperation rating: Three stars

France - $1.63tr public debt
Nicolas Sarkozy, President
The French economy grew by 0.1% between July and September but recession may only be temporarily avoided. Paris has made a €320bn guarantee for bank lending and a $40bn fund to recapitalise banks. Sarkozy has announced the creation of a fund to protect French companies from foreign "predators".
Desperation rating: Four stars

Germany - $2.07tr public debt
Angela Merkel, Chancellor
Europe's largest economy officially entered recession this week after GDP shrank by 0.5%, the second quarter of decline. Germany has seen exports plunge. It is providing €400bn in guarantees for bank lending, plus a further €100bn to recapitalise its banks.
Desperation rating: Four stars

India - $637bn public debt
Manmohan Singh, Prime Minister
India is being tipped as a key player in helping bolster the global economy. Growth is expected to be 7.5% this year, down from 9% and disguising the slowdown in the industrial sector. Along with China, a big gainer.
Desperation rating: One star

Indonesia - $147bn public debt
Susilo Bambang Yudhoyono, President
Jakarta unveiled an emergency package last month in response to increasing pressure on its currency and stock market - including export tax cuts and ordering state-owned companies to repatriate foreign currency earnings.
Desperation rating: Two stars

Italy - $2.19tr public debt
Silvio Berlusconi, Prime Minister
The economy has contracted for a second quarter, by a worse than expected 0.5%. It is Italy's fourth recession in seven years. The government has set aside up to €40bn to recapitalise its banks and created a €650m fund to guarantee lending to companies.
Desperation rating: Five stars

Japan - $7.45tr public debt
Taro Aso, Prime Minister
The world's second biggest economy may be on the brink of recession. Despite this, Japan is prepared to take a leading role in helping get the global economy going, standing ready to offer $100bn in loans.
Desperation rating: Three stars

Mexico - $203bn public debt
Felipe de Jesus Calderon Hinojosa, President
The government is increasing spending by more than 13% to $231bn next year in a bid to boost the economy. The slump in the oil price hurt Mexico as oil revenues finance around 40% of its spending. The US slump has also cut the amount expatriate Mexicans send home.
Desperation rating: Four stars

Russia - $76bn public debt
Dmitry Medvedev, President
Russia has pledged a $200bn package for the economy and financial markets while the central bank has raised key interest rates to try to halt capital flight. Share prices have slumped while the rouble has been under heavy pressure. Russia has financial firepower but a fall in commodity prices hurts.
Desperation rating: Four stars

Saudi Arabia - $91bn public debt
King Abdullah
Its stock market is down 40% this year and the government has made $40bn available to its banks. However, the focus has been on Saudi pumping money into the IMF so that it can in turn bail out struggling countries.
Desperation rating: Three stars

South Africa - $88bn public debt
Petrus Kgalema Motlanthe, President
Its financial system is largely unscathed and could use its stronger bargaining position to press for more African voices in international forums such as the IMF. A potential gainer.
Desperation rating: Two stars

South Korea - $269bn public debt
Lee Myung-bak, President
No bank nationalisations but the government said yesterday it was ready to provide liquidity to the sector amid fears of mounting bad debts and slowing growth. Wobbling.
Desperation rating: Three stars

Turkey - $257bn public debt
Tayyip Recep Erdogan, Prime Minister
Turkey's debt was downgraded by credit rating agencies this week. It might need further IMF cash. Its currency lost a third of its value against the dollar last month alone.
Desperation rating: Four stars

UK - $1.2tr public debt
Gordon Brown, Prime Minister
Amid bank bail-outs and interest rate cuts the country sits on the brink of recession. The FTSE has lost around 40% since last summer. Desperation rating: Five stars

US - $8.4tr public debt
George Bush, President
The origin of the subprime crisis. Washington has drawn up a $700bn bail-out plan for the nation's banks, including a fund to buy toxic assets. Needs a solution fast.
Desperation rating: Five stars

EU
The eurozone is now officially in recession. The economy of the 15 countries using the euro shrank by 0.2% between July and September compared with the previous quarter.
Desperation rating: Four stars

Recession prediction in 2006

This is a TV show, Kudlow & Company, from August 2006 where cool guy, Peter Schiff, predicts the US recession pretty much bang on the money. The other guy, the dumbass, is Art Laffer, Economic Advisor to President Reagan in the 1980s.



By the way, this is what Schiff was saying a couple of weeks ago (over two videos):



Friday, November 14, 2008

Batman to sue the Dark Knight

The mayor of a city in Turkey called Batman, is suing The Dark Knight director, Christopher Nolan for copyright infringement. Huseyin Kalkan, wants compensation from Nolan and the producers of the film for using his city's name without permission. Even if the case never goes to trial, the free publicity could win Batman a tourism windfall.

Mayor Huseyin has apparently tried this before; he first gained international notoriety after it was revealed that he had filed a lawsuit against DC Comics for using his city's name in their Batman Comic book franchise. In 2007, DC Comics confirmed that they had settled with the city for an undisclosed amount. In February, 2008, the mayor was sentenced to 10 months in jail for promoting terrorism. Prosecutors speculated that Kalkan may have used money from his settlement with DC Comics to fund terrorism.

All's not well at Dell

A very interesting article in this morning's 'Guardian', by Charles Arthur, raises the issue of the viability of Dell.

"I'm a bit worried about Dell. Dell Computers, that is, not its eponymous head Michael. I wonder if his company is running, a bit Wile E. Coyote-style, off the edge of a cliff. Not that I'm saying it's going to go bust in a hurry. But it is showing signs of thrashing around to try to break out of its self-imposed straitjacket of being the company where you get your stuff cheaper than elsewhere. The problem is, if people aren't buying things, they'll not buy them. And Dell isn't getting out of it..."

Full article

The best recession-proof jobs in the US

According to a new book called '150 Best Recession-Proof Jobs', by US Careers' expert, Laurence Shatkin, the best recession-proof jobs are those that are least sensitive to economic downturn, and which have the highest combined scores for pay, projected workforce growth, and number of openings. The top 20 jobs are listed above. Thanks to Time magazine, you can view the whole list here and read an interview with the author here.

Economics on the TV tonight (Friday)

Credit Crash Britain: Property: The End of the Affair?
BBC 2 NI (Sky Digital Ch. 142)
Friday 14th November
Time: 7 p.m.
The Money Programme's Max Flint investigates the property market and asks if renting is the answer for people buffeted by its troubles. For a decade, millions of us have used the seemingly unstoppable rise in property prices to fund a consumer spending boom, but the credit crunch and global slump has put a stop to that. Max Flint meets the people who are hanging on to the dream of home ownership and those who are convinced that long-term renting makes more financial sense. Also with exclusive research, it reveals if we would have been better off all along renting rather than buying.

Recession hits Germany

The German economy, the largest in Europe, has entered a recession, according to data published yesterday that showed its gross domestic product shrank for a second consecutive quarter. The Federal Statistics Office reported that German GDP contracted 0.5% in the third quarter, more than the 0.2% decline that had been anticipated. That follows a decline in the second quarter of 0.4%, a slight revision from the 0.5% decline announced previously. The contraction was caused by the negative impact the global financial crisis was having on German exports, which had been the engine of the country’s growth. At the same time, there was a surge in imports, and the balance of exports and imports had a negative impact on the development of the gross domestic product.

The Organization for Economic Cooperation and Development (OECD) forecast on Thursday that all the world’s major industrial countries were headed for a major slowdown. The organization, based in Paris, said the United States and Japan, as well as the eurozone, would undergo economic contractions in 2009 before recovering slightly in 2010. Figures expected later today from Britain, Italy and the Netherlands were likely to show declines as well.

Thursday, November 13, 2008

Paddy Power's Profits Prediction

Bookmaker, Paddy Power, has said it is on track to record profits of around €75m for this year. In a trading update, the company said this assumed a 'normal run' of sporting results. Paddy Power said this would translate into earnings growth of 10% for the full year, despite a €5m hit to profits from a weaker sterling. The bookmaker said deteriorating economic conditions were affecting its business, but it was responding by tightly managing costs. It also said online betting now accounted for over 60% of its profits, but turnover in betting shops has declined. It said the increase in betting tax announced in the Budget would hit its profits by €9m/€10m next year. Paddy Power was created by the 1988 merger of three bookmakers and expanded beyond Ireland in 2000, when it first bought a UK outlet. Britain's biggest bookie, Ladbrokes, reported a 2% fall in revenues from bets placed at the window in the four months to the end of October, as it revealed the amounts being staked are falling.

Inflation rate in Ireland drops again

In what will become the norm over the coming months, official figures today show that the annual rate of inflation fell back to 4% last month from 4.3% in September. The Central Statistics Office said lower petrol and diesel prices and falls in the prices of clothes and footwear were the main factors in the fall. The CSO said the figures did not include rises in excise duties announced in the Budget as they took effect after the figures were calculated.

The main factors contributing to the monthly change were as follows:
  • Clothing & footwear, furnishings, household equipment and routine household maintenance decreased due to sales.
  • Transport fell due to lower petrol and diesel prices and a decrease in airfares.
  • Education rose due to the increases in primary, secondary and third level education.
  • Miscellaneous goods & services rose due to an increase in childcare costs and higher house insurance premiums.
HICP inflation – the euro area standardised measure – was 2.7% year-on-year (note that it does not include a mortgage component). Inflation would actually be lower were it not for the Budget and the wage-price spiral in the public sector.

Entrepreneurs' brains are different

Scientists at Cambridge University have found that entrepreneurs’ brains work differently. Research published this month in Nature Magazine found entrepreneurs' brains are more active in the region responsible for making snappy decisions. These entrepreneurial traits have been linked to the release of dopamine in the brain: the same chemical that swamps your system when you eat chocolate or listen to music. Drugs could be developed to enhance entrepreneurial traits by mimicking these reactions. According to Barbara Sahakian, who headed up the research, entrepreneurs had more developed “medial and orbital sectors of the prefrontal cortex”. But she added that the mental processes required to take greater risks could be taught, or enhanced with drugs.

Wednesday, November 12, 2008

Aldi invest in recession

Discount retailer Aldi has unveiled plans for a significant Irish expansion with 35 new stores and 650 new jobs over the next three years. The German owned group is also setting up its second Irish distribution centre which will be located in Mitchelstown, Co Cork, to supply outlets in the south of the country. Today, Aldi says it will spend €350m as it increases its presence in Ireland. It currently has 59 stores here and will open a further 17 by the end of next year.

Unlike conventional outlets discounters, Aldi and its rival Lidl, usually offer one brand of each product. They also have relatively low numbers of staff per store with Aldi employing an average of 14. Over the past decade the two discount retailers have grown their market share at the expense of existing players. Aldi says it has currently a 4.5% share of Irish grocery spending.

In recent months, as the Republic entered a recession for the first time in more than 15 years, the store has done particuarly well with the numbers of customers up 25% in October 2008 compared with the same period last year. The managing director of Aldi UK and Ireland Paul Foley new customers were "trying Aldi because they’re more conscious of seeking out value for money”. He said Aldi customers could expect to spend €60 less on a trolley of goods which would cost €200 elsewhere.

The dangers of deflation

Ireland and most western economies will find itself dealing with the problem of deflation next year. It is widely believed inflation will tumble during 2009 as oil and energy costs drop. Collapsing demand is symptomatic of poor business conditions. Those who anticipate deflation see it occurring because of people losing their jobs, and a continuation of the recession that we've been having. It occurs when the economy is in deep trouble. Irish inflation could even turn negative for the first time since 1946!

Shoppers coping with the increased inflation of late could be forgiven for welcoming the potential boost to the euro in their pocket, but they may not be so keen on the prospect of falling wages while saddled with the burden of debts piled up in the good times. The one silver lining for homeowners with inflation was that the value of their big debts such as mortgages was eaten away more quickly. With deflation the opposite is the case. A prolonged bout can lead to businesses and consumers deferring spending amid expectations that prices fall further still.

Deflation is far more difficult to control than inflation, unfolds at a faster rate and leaves more havoc in its wake. So what are the consequences of deflation?

  • Along with deflation we get a contracting economy and badly run businesses will fail as will others that use old methods and technology.
  • Business activity will decline, resulting in lower sales and profits, and many companies will declare losses.
  • Commercial property will fall in price due to lack of demand and lack of credit.
  • House prices will continue to fall and housing turnover will continue to remain low. This will be due to people seeing houses as a place to live, rather than an 'inflation hedge' or investment.
  • Rising unemployment and the possibility of lower pay levels will also hit house prices.
  • Commodities will fall in price, particularly base metals, as the production of goods that contain them will drop.
  • The price of antiques and works of art could fall dramatically as the contraction in the economy and the difficulty in obtaining credit would make this market come to a virtual standstill.
  • Benefit payments such as the state pension are also pegged to the cost of living. A period of deflation next year could herald much smaller increases for many people.

When $700 billion just isn't enough

The US Treasury Dept is quickly running out of money to invest in troubled banks. A Time magazine study today shows that nearly one-third, or $216 billion, of the $700 billion that Congress approved to be spent just six weeks ago has already been spent or will soon be spent on just 67 banks. That's a small fraction of the up to 1800 financial firms that are expected to apply for government assistance. It seems very likely that the fund needs to double in size. While the Treasury still has about $480 billion to spend, it's not clear how much of what is left will be used for direct investments into banks.

Full article

Tuesday, November 11, 2008

UK credit card companies increase interest rates

UK banks have increased interest rates on credit and debit cards held by tens of millions of shoppers despite the cost of borrowing falling to its lowest level for more than 50 years, research for the London Independent reveals today. The Bank of England has almost halved its base rate from 5 to 3% since May, but during the same period the average annual percentage rate for credit cards has climbed from 17.2 to 17.6%. More than £200 billion is owed by Britons in unsecured borrowing, including personal loans, overdrafts and credit and store cards - almost one-fifth of total lending. While the banks have been heavily criticised for failing to pass on the Bank of England's interest rate cut to their customers, so far providers of "plastic" have escaped scrutiny for failing to do likewise with their credit cards. The credit card companies are probably attempting to recoup the cost of bad debts, rising levels of fraud and customers making use of 0% balance transfer discounts.

Permanent TSB offers paid breaks to employees!

In an unique initiative, Permanent TSB, one of the largest retail banks in the country, is offering its staff a paid career break in an effort to cut costs. The bank hopes the initiative helps it through a period where it expects less business volumes in the months and years ahead arising from the recession in the Irish economy. It is offering to pay employees up to €20,000 to take a two year 'career break' (€10,000 a year) or €35,000 for a three year break. Permanent TSB hopes the career break will appeal to younger employees who might take the opportunity to travel.

Economics on the TV tonight (Tuesday)

Crunch Time: The Great Property Crash
TV3 (Sky Digital: Ch.103)
Tuesday 11th November 2008
, 10 p.m.

We, in Ireland, waited a long time for an economic boom. When the ladder of success was eventually put in place, we wasted no time in leaping on the first rung and climbing up as high and as fast as we could. Forget pensions, forget savings, forget safe and solid jobs - property was a fast track stairway to heaven a gateway to good times. It couldn't last and it hasn't. This programme will sift through the debris of the crash. We will talk to the people who can't afford to pay their mortgages, the people who can't sell their properties, the people who are living in empty housing estates. We will ask why the banks and building societies threw money at anyone who wanted it. Why did no-one shout stop? Where did it all go wrong?

Monday, November 10, 2008

Sterling hits new low against the euro

Sterling hit a new low against the euro this evening. At the low point in trading today, £1 bought just under €1.22 - marking the UK currency's weakest performance against the euro since its launch in 1999. The euro's strength comes in the wake of UK interest rates being slashed by 1.5% to 3% last week by the Bank of England. By 6pm, the euro was trading at $1.2766 and at £0.8167. This means of course that shopping up the north is cheaper but its bad news for Irish companies exporting to Britain because their goods become more expensive there.

Bolivia to hit the jackpot with lithium?

Here's an interesting article which appeared on the BBC site today. It concerns Bolivia's resources of lithium and how they could transform the wealth of the country. Why? Well, lithium is a limited resource but one which could help power electric or petrol-electric hybrid vehicles of the future.

Full article

China pumps huge money into its economy.

China announced an absolutely huge economic stimulus plan on Sunday aimed at bolstering its weakening economy, a sweeping move that could also help fight the effects of the global slowdown. At a time when major infrastructure projects are being put off around the world, China said it would spend an estimated $586 billion over the next two years — roughly 7% of its GDP each year — to construct new railways, subways and airports and to rebuild communities devastated by an earthquake in the southwest in May.

Following the news, the price of oil climbed more than $4 a barrel today to $65.32. Although analysts had been expecting China to announce a stimulus package, they had not been expecting anything of this magnitude or aggression.

Sunday, November 9, 2008

McWilliams savages Irish banks

In his Sunday Business Post article, this morning, David McWilliams, savagely attacks the Irish banks in a manner which I haven't seen in the Irish media for a while. Those who have been reading McWilliams of late will be aware, it is he who recommended the bank guarantee scheme a couple of weeks before it was announced by Lenihan. He said, soon after that, the next necessary stage was for the Irish banks to come clean about their bad debts following the collapse in construction here - but this isn't happening to any great extent. The brunt of his piece is that he believes management of Irish banks won't release the true extent of the bad debts on their books because that will affect their tier one capital ratio, which will mean credit rating agencies downgrading the banks, which will call into question the position of the bank's management. Basically, he's saying management of Irish banks are covering their own ass rather than doing what they can to get the country out of the mess we find ourselves in, and what's worse, they are damaging our economy even more in the process.

"...The problem is simple: if the bank admitted that the problems were as bad as they were, the management and board would have to resign because they would need new capital. New investors would not trust the same people who got the banks into this mess in the first place. So we are experiencing a game of cat-and-mouse between the market and management and, all the while, share prices keep falling. For the sake of clarity, let’s cut to the chase and do some little calculations. The reason Irish banks are in difficulty is because they are stuffed with Irish - and, to a lesser extent, British - property that nobody wants to buy. AIB has development loans in Ireland of just over €18 billion, as well as €5 billion of development loans in Britain. In all property crashes, development land falls further in value than house prices. Let’s take a conservative view: that house prices will fall by just 25 per cent (it is likely to be far greater, but let’s be positive). This means that the development loan book of AIB will have bad debts of at least 30 per cent and, given a total development loan book of €23 billion, that means bad debts of about €7.5 billion. To date, AIB has provided for €1 billion of bad debts. So it is hardly surprising that the share price has fallen again.

...Our bankers are petrified of the following scenario. If they admit how bad things are and make proper provisions, their tier one capital ratio will fall. The reason for this is that the more bad loans there are on the books, the more these eat into capital adequacy ratios. If their capital adequacy ratios fall to, say, 5 per cent, when similar British banks have a ratio of 9 per cent, the game is over for the management. This means the banks will be downgraded by the rating agencies. Some of the banks will have to look for state help to recapitalise and the positions of the management, chairman and board will be called into question. So it’s simple: all this prevarication is about self-preservation. The banks are hoping to spoof now and recover their tier one capital ratios by reducing lending. This is what we do not need, because our economy will seize up without credit and we may face the Japanese long recession scenario, which is precisely what the guarantee was designed to avoid. Ireland’s financial Know Nothings - the lads who blithely brought us to the abyss - are trying to save their own skins and, in the process, are risking the future of the economy. This is the worst of all worlds".

Full article