More great ‘unexpected’ news today from the UK where George Osborne’s wise stewardship has seen a dramatic turnaround in public finances. It looks like there will be another significant undershoot in borrowing this year. Record employment has led to a rapid rise in tax receipts.
I was in London last week. The bitterness among North London New Labour types about the success of Tories is something to behold. A lot of them are actively hoping for failure in the UK economy, regardless of the harm that will causes to the lives of ordinary people. They await each employment report with dread, and when new spectacular drops in claimants and rises in employment are announced they retreat to the nearest wine bar and weep gently into their Margaux.
I think that this is just a particular instance of a general trend towards headlines being about how people react to an event or failed to fully anticipate an event, rather than about the event itself and its objective primary impact. It used to be “Big Earthquake, thousands killed”, now its “Aid agencies struggle respond to earthquake”, or “Earthquake warning too late to save city”.
Chris Giles of the FT says today: “Some choices are simple. Such has been the unexpected strength of the economy since the Budget, Robert Chote, the OBR (the independent public forecaster) chairman, will scrap his 0.6% 2013 growth forecast and replace it with a number closer to 1.5%. The 1.8% forecast for 2014 will be revised to about 2.6%. These will be the largest upward revisions of any forecast since the millennium.”
This week the OECD added 1% to its 2014 UK forecast while it downgraded Eurozone forecasts.
So let’s rejoice!
The Confederation of British Industry’s monthly industrial trends survey was published today and it showed that growth in the UK’s manufacturing sector was the strongest for 18 years.
“Caveat emptor” (let the buyer beware) should however be the watchwords for all reports on economies. “Doveryai, no proveryai” (trust but verify) became President Ronald Reagan’s watchwords for the relationship with Mikhail Gorbachev, Soviet Union president, in the 1980s.
As for the UK manufacturing sector, which is down about 300,000 jobs since 2007, the recent success has been mainly dependent on the foreign-owned car sector and it too has shed jobs.
But it is important to analyse what the essential policy differences are between the UK and the EZ, that is causing growth to emerge in one and stagnation/recession in the other.
One of the key differences has been QE in the UK, and QM (Quantitative Morality) in the EZ.
The remarkable thing about the UK recovery is how balanced it is. The naysayers would like to pretend it is just another housing bubble but in fact industry is going through a boom over there. All much to the chagrin of the Little Irelanders for whom good news from the UK is always a sickener. And yet it’s our only real hope at the moment.
A fine wine which grows ever more refined with age. Very much like a country singer from Donegal.
Robert Skidelsky in the Guardian puts his finger on some of the things about economics that have been bothering me for a while:
“Post-crash economics: some common fallacies about austerity”
“So how are we to distinguish between true and false propositions in economics? Perhaps the dividing line should be drawn between propositions that hold only if people expect them to be true and those that are true irrespective of beliefs. The statement, “if we all saved more in a slump, we would all be better off,” is absolutely false. We would all be worse off. But the statement, “the more the government borrows, the more it has to pay for its borrowing,” is sometimes true and sometimes false.
“Or perhaps the dividing line should be between propositions that depend on reasonable behavioural assumptions and those that depend on ludicrous ones. If people saved every extra penny of borrowed money that the government spent, the spending would have no stimulating effect. True. But such people exist only in economists’ models.”
Gavin, I think a big part of the problem is the education system (with a small ‘e’). Finance/Economics students want to ‘understand’ what appears in textbooks or on their lecturers’ projector screens, so they latch on to things which seem intuitively obvious or logical. Arguments that are “easy to understand” are easy to remember for the exam (and easier for politicians to remember and to sell to voters).
“the more the government borrows, the more it has to pay for its borrowing,”
is a classic.
It’s a bit like saying “the more often a driver applies the brake, the slower the car will be going”
It sort of sounds right - right enough to be remembered, but it is dangerously incomplete: what if the car is being driven by The Stig round a track - does it work then?
If you have the data, you can build models using many variables, including government borrowing, to try to mimic actual bond market movements over decades to guide asset allocations. Personally, I found that giving government borrowing much weight was a good way to make your model very unreliable and occasionally, ridiculous.
This sort of reality check can elicit some interesting reactions.
Free access is not to be sneezed at! By the way, in your recent paean to Aldi and Lidl, you forgot to mention the chocolates. Those pretending to be either Italian or French, rather than German, are the best.
Could you give us the figures on the amount of taxpayers’ money currently being raised to service the national debt?
“The naysayers would like to pretend it is just another housing bubble but in fact industry is going through a boom over there. All much to the chagrin of the Little Irelanders for whom good news from the UK is always a sickener.”
They should all go and commit Bertie Ahern.
Who was it that said that the plural of anecdote is not data?
Things are in a state of flux at the moment and a lot of people who run models are lost. “That’s what we did last time” is usually fine. Some models are very complicated and it’s hard when people start asking questions.
The MBTI system divides thinkers by 4 different planes , one of which divides into Sensors vs Intuitives.
Sensors concentrate on what can be seen, heard, felt, smelled or tasted. They trust whatever can be measured or documented and focus on what is real or concrete. Sensors trust their 5 senses to inform them and they rely on their own experience. They are oriented to the present and concentrate on whatever is happening at the moment.
Intuitives read between the lines and look for meanings in all things. Focus on implications and inferences, value imagination. Intuitives are oriented to the future. They will look at a situation and want to know what it means and what its consequences might be.
In today’s macro conditions, a Sensor would run the model the way it was run last time (in 2006 say). An Intuitive would dump the model.
Winston … er …. yes Winston … (bit of a sensor) is quoted as stating that ‘things are going swimmingly in Oceania at the mo; the beer ration has been increased and all citizen_serfs will receive a half kilo of sugar’ for the upcoming celebrations.
Winston is also delighted the Ireland is sending Katie Taylor and Derval O’Rourke to the upcoming ‘EZ Hunger Games’ …. methinks the others will get some surprise from these two competitive ladies!
“I don’t think the right reading of the British situation would emphasize austerity. I think the British economy is not as strong as the way you just spoke would suggest. I think insofar as it is, it goes to easy monetary policy and it goes to the consequences of a much weaker pound. It goes to a number of structural reforms. I don’t think you’ll find many economists taking the position. I don’t think you’ll find many objective observers making the case that it was the austerity that was responsible for anything that’s positive that’s happening in Britain.”
Those who sell news must strive to present it as both important and unexpected. Will the day ever come when we hear RTE 9pm news announce that “As expected, nothing of unimportance happended today.” Nope!
UK exports have not shown any marked response to the sterling devaluation and they have had to deal with much higher inflation than elsewhere. Summers is dead wrong if he thinks a weak pound has anything to do with it.
That was me praising Aldi and Lidl. I often tell the following true story to illustrate the difference between Germans and Irish. A German guy I know, long resident in Ireland, acts as a tour guide for Germans visiting Ireland. One day, at a stop in a village in rural Ireland, the tour bus parked on a street where there were two petrol/filling stations almost side by side. One advertised diesel at €1.39 a litre and the one beside it at €140.5 (or whatever the price was at that time). The Germans were amazed and started taking photos of this phenomenon. They could not believe such a thing could exist and wondered how the filling station selling at €140.5 could possibly continue to survive. My Irish/German friend - long resident in Ireland and married to an Irish woman - tried to explain that locals might know the owner of the higher price filling station or they might have a preference for Texaco vs. Topaz (or whatever). The Germans were not convinced and saw this as evidence of the madness of Irish people. To them it was incredible that anyone would buy diesel at the higher price when there was a lower price alternative just a few metres away. Incidentally, I occasionally drive through Portarlington in Co. Laois and there are two filling stations side by side (close to the new Aldi!) where you will see this very phenomenon. I should take a photo some day and post it here.
Many middle-class Irish people are still embarrassed to be seen shopping in Aldi or Lidl and, in general, arguing over price or seeking a bargain is frowned upon. A very common reaction of Irish people is to sneer at anyone considered wealthy who might shop in Aldi or Lidl. There is almost a celebration of waste and excess e.g. the drinks piling up on the counter of a bar when ‘last orders’ is called. In Ireland it would be quite a common ‘put down’ to refer to someone’s thriftiness or ‘meanness’. I’m afraid the Swabian housewife would be persona non grata at most Irish social gatherings.
Pretty much no one is embarrassed to be seen shopping in Aldi or Lidl and these cultural differences pushed by the likes of francis are clearly nonsense, imo
But cultural arguments are impervious to evidence, so we’l stick with them
‘Persistently above target inflation contributes to a continued decline in real earnings in 2013 and 2014, making six successive years of negative real growth. We would expect a gradual recovery in real earnings in 2015-2017, but the level of real earnings in 2017 would still remain around 6% below its peak level in 2008 in our main scenario.
Subdued real earnings growth should help to keep total UK employment growing at a healthy rate over the next four years, despite continued public sector job losses over this period’
Internal deflation through CPI. Lovely.
I actually believe that I am here more often correcting (national) stereotypes like the “swabian housewife”, so I would be interested, if you would have an example, where I pushed one.
When Tony Owen pointed out, that the people he knows in Germany celebrate this “thriftiness” to a certain degree, I pointed to
a) OECD Annex 58, where the German non-mortgage debt is median to the G-7 Household wealth/debt data. And
b) that the lower mortgage fraction is perfectly explained by the lower homeownership, understandable as well by the denser settlement structure. We have here about 100 000 case of personal insolvency per year. But Tony and Mickey Hickey probably don’t know these people.
And I have also never talked about it with anybody here. Such things happen mostly silent and invisible. When a nearly 300 year old business in the distant family went bankrupt, that also led to many people not talking any longer to each other, and some going somewhat weird.
The “swabian housewife” was coined by Angela Merkel, campaigning in Swabia, to a skeptic local catholic public(they still lost to the present green prime minister), and it reflects to a certain degree her upbringing, as the daughter of a Lutheran pastor, who went from west to east in the 1950ties.
Allegedly she sometimes serves up her “mean” potato soup in private meetings, and there was an interview, I do not find a reference for, that at some point one western jeans was her only valuable possession.
There is a certain streak of evangelical Prussian socialism, (Fredericus Rex calling himself “the first servant of the state”), which has its virtues, but becomes intolerant and intolerable, when turned into demanding and lording it over to the rest. The dark side of “social cohesion”.
I apologize for not having looked back for your name. I am bad with names, I have no picture to it. I mixed up the Brian Wood’s as well.
This whether it s OK for the upper income folks to buy at Aldi/Lidl, I see more as a time shift.
This changed in my small cobble stone birth town as well, about 13 years ago. Visiting from the US only about once a year made those changes easier to spot for me. I could see this for people with very solid pensions, who certainly would not have to do any penny pinching. Previously trotting out their rectitude of “buying local”, it became normal with the majority of people around them, because of the pressure after reunification, and the same is happening now in Ireland, just a little later, in your years of discontent.
I loved your example with the two gasoline stations, because I actually can’t recall any memory of two stations side to side here, after the 1970ties (Disclosure: I am a casual driver, because I really don’t need a car here). We have presently 14100 gas stations for 82 mio people, actually stabilizing after 2008, whereas Irish gas stations decreased dramatically by half until 2008 as well. The number of German gasoline stations went down from 56000 in 1935, the very typical <= 2% per year. http://www.nacsonline.com/News/Daily/Pages/ND0821133.aspx#.UpC9W8T_O9Q
Business is stabilizing, because they became more and more the 24/7 shopping opportunity, alcohol, warm sausage, frozen pizzas, etc., with gas becoming more of a side business for the store operator.
“One day, at a stop in a village in rural Ireland, the tour bus parked on a street where there were two petrol/filling stations almost side by side. One advertised diesel at €1.39 a litre and the one beside it at €140.5 (or whatever the price was at that time). The Germans were amazed and started taking photos of this phenomenon. They could not believe such a thing could exist and wondered how the filling station selling at €140.5 could possibly continue to survive.”
Spheroids. http://www.adac.de/ give realtime petrol and other fuel prices station by station online. Have a gander. Even in wettbewerbsfähigsten land SHOCK HORROR fuel prices differ along the same strasse. But maybe thats a myth.
Coming back from slovenia friday evening via frankfurt two Irish businessmen on the seats behind me : 4 days in a Hilton in Frankfurt, 1500e. They suggested severe violence to the “next feckin german complains to me in galway about hotel prices”. And thats a quote.
National stereotypes do generally have at least some grain of truth and sometimes a lot.
For example the impression that the Irish drink and talk a lot is supported by data - the latter in recent times provided by mobile phone firms.
The problem with stereotypes is that everyone gets tarred with the same brush.
I wouldn’t presume to know more about Germany than Francis but there is evidence that the ‘Swabian housewife’ is not a fiction.
One survey in 2012 found that almost 70% of Germans still have a conventional savings book with next to no interest paid. Other popular forms of safe, but low-yield, investment are life insurance and building loan contracts.
Less than 7% of Germans are direct owners of shares and only about one-third use online banking compared with over 80% in Norway and almost 80% in the Netherlands.
Deutsche Bank economists speculated that the almost 14% plunge in the number of children in the decade (a stunning 29% in the former East Germany) to 2010 partly reflected risk.
Stefan Schneider and Jonas Sobott also said that anecdotal evidence such as the Germans’ reluctance to move - from either their job or their home - as well as the large significance attached to formal qualifications in the hiring of staff points to a general risk aversion (if one disregards some serious and wrongful deviations from this general trend in Germany’s history). The economists said the “rather extreme reaction in Germany - at least compared with the rest of the world - to the Japanese nuclear catastrophe in Fukushima also points in this direction.”
World Values survey data also point to risk aversion in Japan and Germany.
On the other hand….
A European survey of planned Christmas household spending, carried out for Deloitte, the Big 4 accounting firm, over a decade, shows that the Irish have been the biggest spenders through boom and bust.
In 2007, Irish households in the sample said they planned to spend on average €1,431 on Christmas.
The Irish spend compared with €411 in the Netherlands; €624 in Belgium; €420 in Germany; €592 in Switzerland; €556 in France and €951 in Spain.
In 2013, the findings show that the average spend per household in Ireland, excluding any spend on travelling, will be €894, with an average of €484.81 spent on gifts, €258.84 spent on food and €150.76 spent on socialising. In line with previous years, consumers in Luxembourg will spend €825 this year, followed by consumers in Finland, who will spend on average €692 (after all, Santa Claus lives there).
The company’s spending survey, which questioned 17,354 people across 16 countries around continental Europe as well as in South Africa, revealed that Swiss family spending is expected to grow 3% to an average of €656. German consumers are also expected to increase their budgets with an increase of 6.7% more than 2012 to €399.
In Spain, where unemployment is at 26%, consumers expect to spend an average €567. In recession-hit Italy, meanwhile, the figure is €477.
do you MH have a better cross national longitudinal study on RA? If so, lets have it.Tell ya what, ill give it a special accellerated review in Journal of Behavioral and Experimental Finance if you do your own? Or, you could sneer.
WTF does Japans loss of market share to SK mainly have to do with RA?
You might have noticed that all the countries rose in RA after 2001-2. I wonder why that is?
Honestly, your contempt for analyses that dont fit whatever IN BOLD preconception is stunning.
John Gallagher nailed that. I bet they weren’t businessmen in the ‘real’ traded goods sector. Probably with MNC’s, semi-states, some sheltered business/profession, but definitely not from Dunnes Stores, Xtravision, Supermacs, Easons, or your local restaurant or dry cleaners. I once worked for a US MNC (Lotus Development now owned by IBM) and had a company credit card. There was a European meeting in Munich one particular Monday and my boss told me to go on the Friday evening and stay in the Bayerischer Hof in Munich (a luxury hotel) over the weekend. Now that was luxury and the room had a great minibar. I’ve no idea what it cost - I didn’t even look at the bill. Austerity is probably now where I would at least look at the bill.
Of course we were essentially ‘assembling’ bits of cardboard and fancy coloured packaging out in Santry and selling that abroad for several hundred US dollars per package (anyone out there remember the spreadsheet Lotus 1-2-3?). So there were fake Irish exports long before Michael Hennigan started pointing this out.
This is one of the fetishes of certain parts of the German public.
It is too expensive, and observing differences from one station to another, and from day to day is perceived as price gouging, and unjust, and the government has do to something about it.
And in the Bundeskartellamt, the anti-cartel office, we have at least 5 guys who only watch those prices and try to find some issue with them.
Telling the story in chronological order, please have a little patience, when I moved back from upstate NY to Dresden in the early 2000s, I also put down some prices there and here, to get some read of whether my new salary is really so bad.
Those were the times, my friend, where you could get a gallon for 1.0 Dollar. And I made a short calculation how much of the difference to 1.1 Euro per liter can be explained with taxes: all of it.
The price of crude oil, the WTI index at 30%/barrel, the exchange rate, taxes, and the remainder for refining, distribution, sales, and gosh a little profit, at 10%, and actually relatively 10% more of it in the US. Nothing fancy, a trivial calculation.
In May 2008, when some people here went bonkers about a gas price of 1.515 Euro per liter, at that time WTI was at 126, I typed the numbers in again, and gosh, that explained it all. At those times the US WTI index and the European Brent were usually just a dollar or two apart.
Until December 2008 WTI crashed to 43, recovering to 75 end of 2009. During that time I bought gasoline on a more regular basis, and my simple formulae worked surprisingly well.
In 2010, those 5 guys in the cartel office were apparently asked to justify their jobs, and write a little report of what they are doing.
They wrote it in a little investigate style, left out the cost calculation, and common market concenctration measures like the HHI, being deep in the green OK area, describing the parts of that apparently the largest player is often setting the new price of the day first, everybody a little looking at what the guy at the next station is doing, along the Autobahn one cent more, the non-brand and foreign chains close to the border one cent cheaper, and on the weekends and during vacation season, when you have people not driving around for finding the one cent cheaper station, trying to take 2 or 3 extra cents.
Daily Detail: Thinking about this post I read the gas / diesel prices at the nearest gasoline station at noon to 154.9 (exactly my little formula, since they ratch it only by 1 cent) and 142.9 for diesel. I looked up Brian Lucey’s ADAC link, oops 3 and 2 cent difference. I made a second stroll, and at 6 pm, the prices were at 151.9 and 140.9, exactly the ADAC values, looked up at 5 pm.
Basically exactly how I would expect it to work.
Some media made a big fuss about it, evidence of price gouging, and even the FDP (that would be the “neo liberal” in Shay Begorrah’s lingo) economics minister demanding the government to fix the prices. Huuugh?
And 2 weeks later there was another thing they could get excited about, and all of the hulahoop went to nothing, in the public news.
I had noticed before, that they go on the same day to 3 or 4 sausage makers, bakers, because this guy makes this type the best, and the other the other type …. After more and more people bought at Aldi/Lidl, about half of the local town butchers and bakers, etc. went out of business, and these places were not longer sufficient to operate as the local rumor mills.
Because standing around at the Aldi for bitching is still not socially attractive, in full view of the hoi polloi.
And then this driving around in the country side started. This sausage in this village, the best in the world (just fatty in my eyes), that best vollkorn bread in the other one 10 km further (sticky heavy crap for me), typically done from 10 to 11, to maximize the chance to meet like minded, basically to stay in the loop of the local rumor mill, my mean interpretation.
At some point, I tried to explain the gasoline cost calculation to folks, and showed them my excel sheet, irritation, indignation about talking back to their righteousness.
Pointing out that this driving around is economic nonsense, even if you count only the gasoline costs, they would never admit that this is not about some better quality or a better price.
Half a year later the same yak, yak, yak. I still made some small comment, and I sent the excel sheet to a few people who have at least a master degree in physics and engineering, being careful.
And then the divergence of WTI to Brent started, end of 2010, up to 26$ in August 2011. At first interpreted as some short term political fear because of the Arab Spring. Adjusting to Brent made the excel sheet work again nicely, I communicated that. Later it became clear, that with the shale gas coming own, the WTI price was distorted, they couldn’t operate the Gulf-Cushing pipeline in reverse direction for a while, and US gasoline prices in the North East were actually tracking European Brent prices. Then the Gulf pipeline was able to operate in reverse, WTI – Brent - Delta went to zero on 7/19/2013, back today at 16, hmmm?
During 2011 so many European refineries went out of operation, due to shrinking business, permanent losses, that the final one, Petrobras (brasilian company) in Ingolstadt, Bavaria tipped the scale, going out of business 2/9/2012. Suddenly they had pricing power and used it, with adders of 5 cent and seasonal patterns acting up with some additional 5c, collapsing to zero 6 weeks after it restarted, after being bought by some obscure Russian entity.
But how do you explain such market, economics principles to people, who believe in that the government should set the price, never made a business calculation, AND think that they know the world because they are 60 years old and have seen the world, on multiple bus tours like Elia mentioned, UNESCO trips, meetings of this and that cultural organization?
This is my frustration, that I can’t, and at some point, if one experiences a few of similar things (official government inflation numbers, income distribution, allegedly horrible numbers of empty offices in Hamburg, etc. ), I just give up and let the “juste Milieu” let do their rants.
But this 5 -10 % of the population is what you get on those bus tours, taking pictures.
It is a long story, and I was unable to write it shorter, but I think it explains the difference between what you often see from german contacts, and way more sobering OECD and low median household wealth numbers for Germany.
“Galapagos tech is for losers “is not one of your better efforts . The Motorola patents turned out to be quite valuable. Samsung are on top in the smartphone biz now but competition is brutal and another company could be top.of the pile next year. What is to stop a Japanese company buying HTC or one of the other strugglers?.
Honestly, your contempt for analyses that dont fit whatever IN BOLD preconception is stunning.
My reaction to the Allianz paper was not one of contempt. I usually reserve that for hypocrites.
You want everyone to accept conventional wisdom, just like yourself?
You’re the one that appears to be intolerant of dissenting views and your childish interjections as regards for example public pay regrettably make you seem closer to a joker than an academic in a university that aspires to be in world class leagues.
As regards the issue of Japan, the main focus of the Allianz paper are financial transactions and even at the height of the carry-trade in the last decade, the investments by the fictional ‘Mrs Watanabe’ were not significant relative to overall household savings.
Japanese companies have been weighed down with cash for years and with almost zero rates, searching for some yield was hardly a sign of a high propensity for risk.
What is striking as regards the demise of the once hugely important Japanese electronics sector is that all the past top brands are struggling after losing leadership positions because their structures did not support innovation risk.
NEC, once the world’s biggest IT and telco giant; Sony, once the world’t top electronic giant, had its debt last year reduced to junk; Panasonic is floundering and Sharp is on a respirator.
The arrival of smartphones has put digital camera companies on the back foot.
They have gone from 100% of the flat-screen TV market to 10%.
It looks like it’s too late to make an impact now in the smartphone market unless they can come up with a product with features that cannot be replicated in a shot time - in China there are a number of big name local companies already.
Samsung and Apple dominate in shopping centres in the rest of Asia and it appears Apple will remain a high price product ex-US and content to have a big market share in the US.
giving it another try, what part of my attempted post, the website algorithm doesnt like:
part 3 :
At some point I proposed, that I give the son of a relative, as a gift, a minimal portfolio, just one DAX ETF, and a German bund ETF, to just generate over the years some data showing the variable but much larger growth of stocks, and that you don’t have to watch this day and night, what for, if you don’t take decisions. And they refused the gift, “You are not turning my son into a capitalist”.
They were carefully avoiding to be exposed to data, which would challenge their left/green belief systems. I have seen this pattern repeatedly, and I don’t think it is an accident, that the Swabians elected first a Green prime minister. There will be more trouble ahead with this.
And so the dumb behavior, fueled by self righteousness and selective perception (like the Solarworld stock), continues to be replicated.
I don’t think it is genuine risk aversion, and I don’t know what to do about it.
I thought about what you said, and it is a plain fact that the stock ownership rate in Germany is horrible. Is this genuine risk aversion or just the endless replication of certain behavioral patterns?
I went to the US in the second half of the nineties, we had collaboration with IBM, and there were about 100 German semiconductor engineers, nearly all a PhD in physics or electrical engineering most male, early 30ties old, socially an extremely homogenous group. Many of us embraced the American stock market culture, tech bubble, dot.com bubble, discussing this over the coffee breaks, and I am pretty sure that those with a German wife were a lot less into it. That seemed to be enough to keep people to their old habits.
Coming as a single, it took me about half a year to take stocks into my 401k contributions, and over 2 years to buy individual stocks. I got burned a little, enough to be more careful, but not enough to exit the sector.
At that time it became also more popular to own stock in Germany, people went into Deutsche Telekom at a late stage (30 , 60, it is now below 12) internet startups (the famous “neuer Markt”) and got burned severely. No wonder, they were not thinking or understanding anything, just following the herd.