Capital One hack- did you ever apply for a Cap One card?

here we go again… another security hack of a financial company that pledged to protect your data… but didn’t.
First, freeze your credit. This is the most
important step to protecting your information. 

Call Equifax,
Experian or TransUnion or go to their websites to do this.

Freezing your credit will prevent new lines of
credit from being opened in your name, and it doesn’t affect your credit
score. It is free and guaranteed by federal law. 

Write down the PIN the credit bureau gives you
when you freeze your credit so you can lift the freeze. 

You also can
place a fraud alert when you are contacting the credit bureaus, which
will make it harder for someone to open an account or credit card in
your name.

Change your passwords! 

Even if you weren’t affected by the Capital One breech… Do these protective steps anyway!

31/7/19: Canary in the Treasuries mine

Judging by U.S. Treasuries, things are getting pretty ugly in the economy:

The gap between long-dated bond yields and short-dated paper yields has accurately predicted/led the last three recessions (the latter are marked by red averages in the chart).

27/7/19: A Cautionary Tale of Irish-UK Trade Numbers

Per recent discussion on Twitter, I decided to post some summary stats on changes in Irish total trade with the UK in recent years.

Here is the summary of period-averages for 2003-2017 data (note: pre-2003 data does not provide the same quality of coverage for Services trade and is harder to compare to more modern data vintage).

So, overall, across three periods (pre-Great Recession, 2003-2008), during the Great Recession (2009-2013) and in the current recovery period (2014-2017, with a caveat that annual data is only available through 2017 for all series), we have:

  • UK share of total exports and imports by Ireland in merchandise trade has fallen from an average annual share of 23.31 percent in pre-Great Recession period, to 18.06 percent in the post-crisis recovery period.
  • However, this decline in merchandise trade importance of the UK has been less than matched by a shallower drop in Services trade: UK share of total services exports and imports by Ireland has fallen from 64.86 percent in pre-crisis period to 62.97 percent in the recovery period.
  • Overall, taking in both exports and imports across both goods and services trade flows, UK share of Irish external trade has risen from 41.43 percent in the pre-crisis period to 45.4 percent in the current period.
  • Statistically, neither period is distinct from the overall historical average (based on 95% confidence intervals around the historical mean), which really means that all trends (in decline in the UK share in Goods & Services and in increase across all trade) are not statistically different from being… err… flat. 
  • Taken over shorter time periods, there has been a statistically significant decline in UK share of Merchandise trade in 2014-2017 relative to 2003-2005, but not in Services trade, and the increase in the UK share of Irish overall trade was also statistically significant over these period ranges. 
  • Overall, therefore, Total trade and Services trade trends are relatively weak, subject to volatility, while Merchandise trend is somewhat (marginally) more pronounced.

Here are annual stats plotted:

Using (for accuracy and consistency) CSO data on Irish trade (Services and Merchandise) by the size of enterprise (available only for 2017), the UK share of Irish trade is disproportionately more significant for SMEs:

In 2017, SMEs (predominantly Irish indigenous exporters and importers who are the largest contributors to employment in Ireland, and thus supporters of the total tax take – inclusive of payroll taxes, income taxes, corporate taxes, business rates etc) exposure to trade with the UK was 51.2 percent of total Irish exports and imports. For large enterprises, the corresponding importance of the UK as Ireland’s trading partner was 13.62 percent. 

In reality, of course, Irish trade flows with the UK are changing. They are changing in composition and volumes, and they are reflecting general trends in the Irish economy’s evolution and the strengthening of Irish trade links to other countries. These changes are good, when not driven by politics, nationalism, Brexit or false sense of ‘political security’ in coy Dublin analysts’ brigades. Alas, with more than half of our SMEs trade flows being still linked to the UK, it is simply implausible to argue that somehow Ireland has been insulated from the UK trade shocks that may arise from Brexit. Apple’s IP, Facebook’s ad revenues, and Google’s clients lists royalties, alongside aircraft leasing revenues and assets might be insulated just fine. Real jobs and real incomes associated with the SMEs trading across the UK/NI-Ireland border are not.

Whilst a few billion of declines in the FDI activity won’t change our employment rosters much, 1/10th of that drop in the SMEs’ exports or imports will cost some serious jobs pains, unless substituted by other sources for trade. And anyone who has ever been involved in exporting and/or importing knows: substitution is a hard game in the world of non-commodities trade.

26/7/19: Stop Equating Low Unemployment Rate to High Employment Rate

There is always a lot of excitement around the unemployment stats these days. Why, with near-historical lows, and the talk about ‘full employment’, there is much to be celebrated and traded on in the non-farm payrolls stats and Labor Department press releases. But the problem with all the hoopla around these numbers is that it too often mixes together things that should not be mixed together. Like, say, mangos and frogs, or apples and moths.

Take a look at the following data:

Yes, unemployment is low. Civilian unemployment rate is currently at seasonally-adjusted 3.7% (June 2019), and Unemployment rate for: 20 years and over, at 3.3%, seasonally adjusted. On 3mo average basis, last time we have seen comparable levels of Civilian unemployment was in 1969, and 20+ Unemployment rate was in 2000. Kinda cool, but also revealing: historical lows in unemployment require  Civilian unemployment metric to confirm. Which means that factoring in Government employment, things are bit less impressive today. But let us not split hairs.

Here is the problem, however: record lows in unemployment are not the same as record levels in employment. Low unemployment, in fact, does not mean high employment.

To see this, look at the solid red line, plotting Employment rate for 20 years and older population. The measure currently sits at 71.2 percent and the last three months average is at 71.1 percent.  Neither is historically impressive. In fact, both are below all months (ex-recessions) for 1990-2008. Actually, not shown in the graph, you would have to go back to 1987 to see the same levels of employment rate as today. Oops…

But why is unemployment being low does not equate to employment being high? Well, because of a range of factors, the dominant one being labor force participation. It turns out (as the chart above also shows), we are near historical (for the modern economy’s period) lows in terms of people willing to work or search for jobs. Or put differently, we are at historical highs in terms of people being disillusioned with the prospect of searching for a job. Darn! The ‘best unemployment stats, ever’ and the worst ‘willingness to look for a job, ever’.

U.S. Labor Force Participation rate is at 62.9 percent (62.8 percent for the last three months average). And it has been steadily falling from the peak in 1Q 2000 (at 67.3 percent).

When we estimate the relationship between the Employment rate and the two potential factors: the Unemployment rate and the Participation rate, historically (since 1970s) and within the modern economy period (since 1990) as well as in more current times (since 2000), and since the end of the Great Recession (since 2010) several things stand out:

  1. Unemployment rate is weakly negatively correlated with Employment rate, or put differently, decreases in unemployment rate are associated with small increases in employment; across all periods;
  2. Labor force participation rate is strongly positively correlated with Employment rate. In other words, small increases in labor force participation rate are associated with larger increases in employment; across all periods;
  3. Labor force participation rate, in magnitude of its effect on Employment rate, is roughly 14-15 times larger, than the effect of Unemployment rate on Employment rate; across all periods; and
  4. The relatively more important impact of Labor force participation rate on Employment, compared to the impact of Unemployment rate on Employment has actually increased (albeit not statistically significantly) in the last 9 years.

These points combined mean that one should really start paying more attention to actual jobs additions and employment rate, as well as participation rate, than to the unemployment rate; and this suggestion is more salient for today’s economy than it ever was in any other period on record.

But above all, please, stop arguing that low unemployment rate means high employment. Bats are not cactuses, mangos are not moths and CNN & Fox kommentariate are not really analysts.

22/7/19: What Import Price Indices Do Not Say About Trump’s Trade War

A few days ago, I saw on Twitter some economics commentators, not quite analysts, presenting the following ‘evidence’ that Trump tariffs are being paid for by China: the U.S Import Price index has declined in recent months, to below 100. In the view of some commentators, this signifies the fact that the U.S. is now paying less for imports from the ret of the world because Chinese producers are taking a hit on tariffs imposed onto their goods by the Trump Administration and do not pass through these tariffs onto the U.S. consumers.

The argument is a total hogwash. For a number of reasons.

Firstly, as the U.S. Bureau of Labor Statistics notes (see, import price indices do not incorporate tariffs and duties charged at the border. They actually explicitly exclude these. The indices do not include any taxes, by design.

The indices are quality-balanced, so they are rebalanced to reflect relative quality of goods and commodities supplied. If the U.S. importer gets a better quality (new model, improved model etc) of a good from the exporting country for the same price as the older model, this registers as a decrease in the import price index.

Worse, as BLS notes: “Import/Export Price Indexes cannot be used to measure differences in price levels among different products and services or among different localities of origin. A higher index number for locality A (or product X) does not necessarily mean that prices are higher than for locality B (or product Y) with a lower index number. It only means that prices have risen faster for locality A (or product X) since the reference period.”

Note the words: “reference period”. Which leads to yet another major problem with the argument that BLS index shows that ‘China is absorbing tariffs costs’ from the Trump Trade War: it is based on a spot (one point) observation. So let’s take a look at the time series. Remember, Trump Trade War started at the very end of 1Q 2018 (March 2018). So here are ‘reference period’ consistent comparatives for import price indices for a range of regions and countries:

What the chart above tells us is that over the period of the trade war so far, U.S. imports price index indicates some deflation of imports costs, somewhere in the region of 1.13 percentage points. But over the same period of time, China index experienced a decline of 1.36 percentage points. If China is ‘paying for U.S. tariffs’, the U.S. is paying more than China does, which is of course, entirely possible, but immaterial to the data at hand.

Worse, if declining import price indices are an indicator of a country ‘paying for tariffs’, well, Canada seems to be paying for most of the Trump Trade War globally, while Japan is paying a little-tiny-bit. Tremendous! Art of the Deal! And all the rest applies.

Of course, what the declines in the vast majority of import price indices suggests is the opposite of the ‘China is paying for the U.S. tariffs’ story. Instead, they tell us about the inherent weakening in the global demand, the deflationary pressures in key commodities markets (yes, oil, but also soy beans, etc), the deflationary pressures from new technologies and, finally, the changes in currencies valuations.

No, folks, there are no winners in the trade wars, but there are smaller losers and bigger losers. When you impose tariffs on final and intermediate goods, consumers and producers loose. When you impose trade restrictions on imports of basic commodities, without altering global markets supply and demand, you are simply substituting suppliers (see  The latter change might involve some costs, but these costs are much lower than restricting trade in higher value added goods.

17/9/19: Flight from Fundamentals is Flight from Quality: Corporate Risk

Great chart via @jessefelder highlighting the extent to which the bond markets are getting seriously divorced from the normal ‘fundamentals’ of corporate finance:

Corporate debt has expanded at roughly x2 the rate of growth of corporate earnings since the start of this decade. And corporate bond yields are persistently heading South (see: and investment for growth is falling (see: Which continues to put more and more pressure on corporate valuations. As a friend recently remarked, at 2% interest rates, the game will be over. It might be over at 2% or 3% or 1.5%… take your number pick with a pinch of sarcasm… but one thing is certain, earnings no longer sustain markets valuations, real corporate investment no longer sustains financialized investment models, and economy no longer sustain real, broadly-based growth. Something must give.

16/7/19: Monetary Policy Paradigm: To Cut or To Cut, and Not to Not Cut

QE is back… almost. After a decade plus of failing to deliver on its core objectives, and having primed the massive bubble in risky assets, while pumping sky high wealth inequality through massive monetary transfers to the established Wall Street elites… all while denying that we are in an ongoing secular stagnation. So, courtesy of the unpredictable, erratic and highly uneven economic parameters performance of the last 12 months, we now have this:
Because, for all the obvious reasons, doing more of the same and expecting a different result is the wisdom of the policymaking in the 21st century.

16/7/19: Corporate Yields are Heading South in the Euro Land

Some of the euro area’s junk-rated corporate debt is now trading at negative yields, and over 15% of near-junk debt is also charging the lenders to provide cash to financially weaker companies:

Source: WSJ

While the overall stock of negative yielding debt (sovereign and corporate) is now nearing $13.5 trillion worldwide:

Source: Bloomberg

All in 51 percent of all European Government bonds are trading at negative yields, and just over 30 percent of all investment grade corporate bond issued in Euro.

The percentage of negative yielding debt amongst junk-rated corporates is small. Bank of America ML estimated that the percentage of BB-rated European corporate bonds with negative yield rose from 0.225% at the end of May to 1.5% at the end of June. Back then, 14 companies had junk-rated bonds rated BB or lower with negative yields, with total market value of $3 billion.

The chart below plots corporate junk-rated bond yields index for the euro issuers:

Meanwhile, Greek Government bonds auction this week went into a massive demand overdrive. Greece sold more than EUR13 billion worth of 7-year bonds, almost EUR11 billion more than it planned originally, at the yields of 1.9 percent, or 2.4 percentage points above the Eurozone benchmark average. The spread to Eurozone benchmark has now fallen from 3.73 percent in March sale. In fact, U.S. 7 year bonds are selling at a yield of 1.97 percent, implying lower yields for Greek debt than the U.S. debt.

Here is the chart plotting Euro area sovereign yield curves for AAA-rated and for all bonds:

The yields on AAA-rated debt are negative out to 13 years maturity, and for all bonds to 8 years maturity. 

13/7/19: Great Recession in Europe and the U.S. Great Depression

In a one-chart summary, why Euro has been a painfully failing experiment in monetary policy:

The above chart shows the comparative in real GDP levels between the Great Depression in the U.S. (1929-1936) and the Great Recession in Greece (starting from 2008 with data through 2018, and then using IMF estimate for 2019 published in April 2019 WEO, and IMF WEO forecasts from 2020 through 2024, data from 2025 on is taken at a linear trend using 2024 growth forecast). In simple terms, the U.S. real GDP reached its pre-Great Depression levels in the 7th year following the onset of the crisis, although some estimates put this to year 10, depending on the base used.  Greek Great Recession is now in year 11, and counting. By the end of 2019, the IMF estimates that the Greek economy will be 22.1 percent below the 2007 levels, and by 2024 (the furthest IMF forecast we have), it is expected to be 16.2 percent below the 2007 levels.

While one can make the point on Greece’s ‘unique status’ as an economy that should never have been in the Euro in the first place, three arguments stand out against this point:

  1.  Greece is a member of the Eurozone, and if this membership was attained over all rational arguments against it, this very fact shows that the Euro is a poorly structured monetary arrangement; 
  2. As a member of the Eurozone, Greece should have been provided with monetary and fiscal tools for addressing the massive crisis the country experienced. Per chart above, it clearly was not accorded such: and
  3. Greece is hardly the only economy in this situation. Italy is patently in the same boat, and as shown in the chart below, nine out of the EA19 states have experienced longer duration of recovery from the Great Recession than the U.S. from the Great Depression.