the economy - update

[Lordship 516]

jaywalker Wrote:

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> I am not at all sure why ?120bn or so (or even x5

> that) is of any interest in the current situation.

> We are rushing fast towards the cliff edge (oh

> dear, did May really say that?) and so borrowing

> an additional one tenth of our annual income to

> put the breaks on would seem to be quite a modest

> proposal (especially at negative real interest

> rates).

I would agree with you with the reservation that any borrowing must be utilized for productive capital projects & the current budget separated out from the capital budget. In the current state of the economy this would enable a better management process of the fiscal budget even in the long term. At the moment this does not happen and it is like co-mingling client funds and leads to confusion and much of the time disables discrete analysis.

[????]

Still waiting......

https://www.theguardian.com/business/2016/dec/05/uk-economy-service-sector-smashes-forecasts#comments

[rendelharris]

Still not activated Clause 50....

[numbers]

Losing your touch there quidsy.

[Rook]

Hi All

Loads going on (some of it good!)but heres an update on France which I think could present outcomes that will be pivotal to either the survival of the EU project or the herald a brave new dawn

Following Donald Trump?s surprise election, the market?s focus has def shifted back to Europe, given its crowded political agenda.

France finds itself in the spotlight based on the fact that both executive and legislative powers are up for grabs between mid-April and mid-June 2017, and that the political landscape is significantly fragmented with the more extreme parties attracting material levels of support.

Overlay on this the fact that France is the second-largest euro area economy, and jointly with Germany has significant decision-making power over the future of the euro area/Europe, and it is clear to see how material the outcome of the French elections will be to the wider political and economic outlook.

Although the election of Mr Fillon (status quo) as The Republicans? candidate for the first round of the Presidential election has significantly reduced uncertainty, the potential outcomes of the election nonetheless remain numerous given :

1) the socialist primary candidates are not yet fully known (Prime Minister Valls has resigned and declared his intention to run, after President Hollande announced he would not run);

2) significant divergences have emerged from within mainstream parties; and

3) similar to other European countries, there is a growing fragmentation/polarisation of the French political landscape, including strong support expressed for the parties at the extremes

Currently, all polls that have come out since the election of Mr Fillon however have predicted that he would qualify for the second round and win against Le Pen in the run off by a significant (c.35-40pp) margin .

In this instance, a referendum on EU/euro membership is unlikely to be called as long as a pro-European President and Government/Parliament are in place. Furthermore, it is worth highlighting that polls (eurobarometer) have consistently pointed toward a majority of the population being in favour of remaining in the EU/euro area, although according to the latest YouGov survey (29 November 2016) shows the margin has narrowed

So what is the risk?

Most recent polls show Marine Le Pen looks likely to reach the second round regardless of the different permutations of other candidates, and it cannot be ignored that she scored very strongly..so there is always a risk of a surprise vs the poll predictions (sound familiar?)!

Although it is yet to be fully specified in the 2017 election party manifesto, it is widely assumed that Front national (Marine Le Pen) is running on a platform that looks to remove France from both the European Union and the euro area. Her rival party Front de Gauche ( Jean-Luc M?lenchon), on the other hand, is closer to promoting an institutional change than an outright exit- although even that will fill the EU hierarchy with dread.

In this ?unlikely? scenario, however it means that Marine le Pen?s party would have to achieve an extremely strong result at the general elections (it currently holds two seats). A survey in June 2016 by the OpinionWay institute has found that the Front National could win up to 60 seats, which would fall well short of the required 120 seat threshold. There is a possible risk scenario however that Front National and Front De Gauche parties will then decide to form a coalition as they are not too dissimilar, at least as far as the economy is concerned.

This does mean that markets are cogniscant that the likelihood of a referendum ? via a popular initiative ? on an EU/euro membership has increased

The stances of M?lenchon or Le Pen could also pose risks to the future of Europe, in that France would diverge further from Germany both in terms of domestic policies (fiscal policy, role of the government, wage increases) and its agenda for Europe.

The current relationship is seen as strained and the last thing the EU needs is for the ?two pillars? of the Union to dislocate further from an agreed policy outlook. Even though currently markets do not expect French citizens (as per recent polls) to ultimately vote to withdraw from the EU or the EA, a strong showing by Le Pen or Melenchon would undoubtedly further increase disintegration risk of the EU project.

In summary, Polls say le Pen wont win and not by a significant margin, but if she does (outright or by coalition), then expect a term like Frexit (or something more creative) to enter mainstream discussions

[malumbu]

WTF is Patrick Collinson on about in Grauniad money saying all is OK

https://www.theguardian.com/money/2016/dec/17/investment-funds-bumper-returns-ftse-100-2017-predictions

No doubt he lives around here as all Guardian journos do so must post on the site

[????]

Er, I think he's just reporting on various funds performance this year which is actually a matter of fact rather than anything else - really not sure why you are getting your knickers in a twist on this particular article malumbu????

[malumbu]

Perhaps I being mean - it came across as "I voted out and in the subsequent mess there are winners as well as losers."

A contact I had worked in reinsurance and made a mint out of the 08 recession. I'd hate to benefit from the misfortune of others.

[????]

3rd quarter GDP (post referendum) upgraded to 0.6*

*"BUT WE'VE NOT LEFT YET"

[Lordship 516]

???? Wrote:

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> 3rd quarter GDP (post referendum) upgraded to

> 0.6*

>

> *"BUT WE'VE NOT LEFT YET"

Yup . however GDP is a grossly lagging indicator. First estimates of GDP can be misleading and they often miss radical changes in GDP. Initial estimates often involve a degree of guessing and so miss out real changes.

First month estimates for economic growth in Q2 2008 was 0.2%. Yet three years later, this positive growth was downgraded to -0.6% using actual data ? a serious downturn.

The first month estimate for Q3 2008 was -0.5%. But, three years later, this was revised to a much more serious -1.7%

....so lets see what the actual reality of GDP is for Q3 2016...... How about -0.5% to -0.7%..? [my number currently being used]

Look at the trend...not the actual number......the trend slopes are down for the foreseeable future & scary.

[Lordship 516]

Lordship 516 Wrote: July 19th 2016

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> Rook Wrote:

> --------------------------------------------------

> -----

> > Agreed ???

> >

> > Interestingly GBP got a jolt higher today [?:$1.33]as

> MPC

> > member Weale has just made some pretty positive

> > comments about future policy (or should I say

> far

> > less negative). This is in direct contradiction

> to

> > comments by MPC member Andy Haldane late last

> week

> > which pushed GBP lower and got very widely

> > reported on / jumped on

LORDSHIP WROTE:

> It's interesting that you pointed to the 'jolt'

> that the ? received yesterday - so what would you

> attribute today's drop of 1.3% to ?

>

> Also, what do you think about the prospects of the

> ? devaluing to sub $1.25 & when ?

23 December 2016 ----- ?:$1.229; Euro:$1.045 - My clients have been happy to follow my advice

My projection was for ?:$1.20 to $1.22; Euro:$1.05 to $1.07;

Seems the odd projections can be useful sometimes

PROJECTION FOR 2017

Q1 ?:$1.18; Euro:$1.02.

Q2 ?:$1.15; Euro:$1.00

Q4 ?:$1.10; Euro:$0.98

[jaywalker]

This is a very savvy post, Lordship. I think about a mean estimate. Fat tails on the distribution suggest to me 0.90 for pound/euro Q3 (Dornbusch overshooting hypothesis). For cable, much more difficult because Trump himself an outlier.

[Lordship 516]

jaywalker Wrote:

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> This is a very savvy post, Lordship. I think

> about a mean estimate. Fat tails on the

> distribution suggest to me 0.90 for pound/euro Q3

> (Dornbusch overshooting hypothesis). For cable,

> much more difficult because Trump himself an

> outlier.

Running scenarios on that at the moment, trying to establish suitable criteria to hedge against tail risk.

Trump as a outlier is not such a huge problem as his policies have been trialed before under Reagan, they won't be so different this time around - there are boundaries of reality & opposing influences that will reduce the Trump effect. The Reagan period had an advantage insofar as the administration had the leading advantage - this time around there will be many significant influences that will seek to mitigate the Trump effects. There will be a 'reality' check in Q3 [which is why I don't have numbers for that period] as it becomes more clear what Trump's policies are in reality & what he is likely to be able to deliver - this will clear from Q4/17 or Q1/18. Taking jobs back to the USA will be a longish campaign as a factory takes about 2 years to tool up - this effect will first have to get industry on board & then go through a delicate process of maintaining existing supply whilst gearing up so it won't make much impact until about 3 to 4 years, if any. Spending on national infrastructure such as he is boasting about is a little more difficult than building one of his speculative Trump Towers. For the UK internally there will be erratic periods that cannot be quantified - 1]after the Supreme Court decision - not a great impact, as it will only signal undefined possibilities 2] after Brexit is notified formally - this will have a greater impact and will usher in a prolonged period of uncertainty that will last for a yet to be determined period of years.

The ? falling is not a bad thing - the UK needs to attract investment from a wider group of investors & needs to make itself attractive to investors. The current account deficit & the budget deficit need funding & therefore need to offer better returns that other destinations for funds.

A cheaper currency is preferable to a deep seated recession or a sharp financial squeeze on consumers & business.

Once there is cogent definition on the future relationship with the EU then the UK can begin to move ahead & forge their relationships worldwide & develop the new UK economy - this is likely to take more time than May & co are hoping.

We will likely go into the next election without everything being settled and a lot of political squabbling not only between the parties but also within the parties, particularly the Conservatives. An early election might suit May a lot better than a full term but I doubt the opposition will facilitate that.

[jaywalker]

Yes, your point that "there are boundaries of reality & opposing influences that will reduce the Trump effect" must be the expected outcome. However, there are some factors that increase the variance: Trump's addiction to social media, direct popular appeal, and, more significantly for me, his personality - a kind of polar opposite to the very lovable Reagan (not my taste but nonetheless). For some reason I keep thinking of Seneca's murder by officers of state sent by Nero: the kind of thing you order when your fantasies cannot be realised and you realise your grip on power is unravelling. Reagan was a fundamentally decent if na?ve man...

Fat tails: # it might be that the Supreme Court just allows brexit on May's timetable. But there is also a possibility that they will - in practical terms - block it entirely. # Russia. # French elections (these still look deeply troubling) # pensions crisis (really this is a crisis!) # stagflation. And of course unknown unknowns.

[rendelharris]

On a very nitpicking point, Seneca in fact killed himself on the orders of Nero's emissaries - but the Nero/Trump parallel is most apt.

[jaywalker]

yes it was quite a test of his philosophy: I seem to remember he tried several methods before succumbing - still murder though, just allowed to choose his own self-directed method of dispatch.

[jaywalker]

of course probably not legally murder: the soldiers were the drones of their day representing absolute rule.

[Lordship 516]

Using Dornbusch in the current circumstances is limiting as it cannot compute uncertainties - the tools for dealing with uncertainty didn't exist in his time. I am building some Agent Based Models [ABMs]for various scenarios & hopefully will develop enough models to progress towards integrated Multi Agent Systems [MAS] that will enable dynamic modelling in the current environment. Data & defining parameters from H1 will help refine these models for practical use and inform and make parallel DSGE models more usable & relevant.

The big elephant in the room especially for the UK is stagflation but many of my colleagues don't wish to consider this too loudly - however, all the markers are present & it will take a lot to prevent it happening. I feel another interest rate drop will happen in the New Year. There isn't much left in the armoury & bluff & bluster just won't cut it.

Seneca committed suicide on Nero's order because he was involved in a plot to murder Nero & a possible sub-plot to install himself as Emperor. He also loaned forty million sesterces to the British. The recall of the loans prompted the British to revolt - what might today's British citizens revolt against?

[rendelharris]

Lordship 516 Wrote:

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> Seneca committed suicide on Nero's order because

> he was involved in a plot to murder Nero & a

> possible sub-plot to install himself as Emperor.

Allegedly - it's been way too many years since my Ancient History A level but I seem to remember many historians cast doubt on his involvement in the plot. However, he deserved his fate anyway as a stinking hypocrite who preached Stoicism but grew fat on being a tutor, confidant of and apologist for some of the most wicked men and women in all recorded history. Those who fawn on Trump might do well to take him as a cautionary example!

[jaywalker]

hmm,

I think i'd have preferred Seneca to Nero as my Emperor, at least on the basis of his public pronouncements (writings) (I accept the bar is not very high) and he was of course (disgracefully) willing to fawn to Nero in terms of speech-writing etc (one does wonder who the speech-writers are for some of our current masters). He may or may not have been involved in a plot (the book I read recently suggested he was desperately trying to retire given what Nero had become but Nero thought him safer inside his circle): but it is understandable if he was.

As for computing uncertainties, I'm not sure you can. But my technical knowledge in this area has a datestamp of c 1983 (Buiter). After that I turned to other things. I guess I would worry about the economist's notion of contingency: what we understand of the past shifts in ways I suspect AI cannot accommodate. But that is a deep question for sure.

[jaywalker]

also, I do think we should judge people on their utopian imagination not on their (constrained-to-be-a-child-of-their-time) acts

[rendelharris]

jaywalker Wrote:

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> I think i'd have preferred Seneca to Nero as my

> Emperor

Well yes, but Incitatus would have made a better emperor than Nero!

[jaywalker]

Seneca had some fundamental insights: Loco non tui si non ubi es.

[jaywalker]

I don't think that is a tautology. Perhaps the first glimmer that sense is generated (and blinds) in the location of its action (not in some other realm of ideas). Rome versus Athens for sure.

[Lordship 516]

Jaywalker wrote:

>As for computing uncertainties, I'm not sure you can. But my technical knowledge in this area has a datestamp of c 1983 >(Buiter). After that I turned to other things. I guess I would worry about the economist's notion of contingency: what >we understand of the past shifts in ways I suspect AI cannot accommodate. But that is a deep question for sure.

Historical data is always imperfect, but it is the only measure without bias that we have to measure risk and make hypotheses about the future. The difficulty is deciding on what the band(s) of the past do we use in our work. We also have to go outside the historic boundaries in considering risk. We have to consider questions about the implications of using particular data all the time & avoid the temptation to input arbitrary criteria into our models - ignore popular commentary & political noise. During uncertain times only the past can keep us close to reality. It is how we use the historical data that will guide us to a better understanding of the present & future. In modelling, the past can usually only tell us what NOT to do - other than that the past is useless. We have to find our own way out for the future.

Computing or modelling uncertainties is not done to forecast the actual future economy - it merely serves as a tool whereby decision makers can evaluate the effects of different factors & the resultant analysis can never be regarded as an absolute. To do so would be foolish - we do several [hundreds] iterations & many are self excluding. The remaining iterations are used selectively to assist in eliminating possibilities & refining contingencies rather than defining absolutes or even near absolutes. These models have to be constantly updated [months, years, boring but the end results are satisfying] & in doing so become nearer to reality over a specific time sequence - if you like, they are funneling the results into a narrower band of deviations towards a more 'normal' distribution, reducing the 'fat tails' to 'skinny tails' over the sequence [a bit simplistic but essentially correct]. Then & only then can a determination be made. Too many people, including many economists, have the idea that modelling can reflect/forecast the real economy - it cannot - when used dynamically rather than absolutely they assist rather than determine decision making. Only in Harry Potter do you get magic wands but clown politicians can ruin an economy at the wave of their gob.