How many "Apples" in your country?

At the peak of the US corporate earnings reporting season, Apple Inc. reported record revenue and profit for the 4th quarter of 2014 calendar year (or Q1 2015 fiscal year which began in the US in October 2014). Now the Apple Inc. has market capitalization of about 640 billion dollars, which is larger than the GDP of such countries as Sweden, Belgium, Finland, Norway, Venezuela, Algeria and many others (painted in shades of red on the map). US and China are as large as 27-28 AAPL's market caps. India is about 11 "Apples". Japan is 7.5 and the Germany is 5.7 only.

2014 fiscal year was finished with another all-time high in overall corporate profits, both in nominal terms and relative to GDP. Since the end of last recession, profits provide significant contribution to overall US GDP growth. But is this situation any sustainable and just how long it may last? Maybe present year will bring some answers.

Check the graphs below the page to see how US corporate profits evolved over time. You also can note that corporate profits declines for 2 or more quarters tend to precede recessions (see barchart at the bottom).

US unemployment & inflation rates

US unemployment (by all measures) are still higher than pre-recession levels and inflation are way lower, so is there any good reason for Fed to hike? Rather opposite: to postpone hikes to later date

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Greek elections & challenges

   According to the preliminary results, the left-radical party SYRIZA won the parliamentary elections in Greece. The voting results are very close to the forecast made on the basis of polls (see bar charts). SYRIZA won 10% more votes than in 2012, and will get 149 (vs 71 previously) seats in the new Parliament of Greece which does not provide it with the majority directly, but makes it easy to form the majority in the coalition.

   The main message of SYRIZA in the elections was a rejection of austerity measures imposed on Greece by European Union and the so-called "Troika". At the same time, the leader of SYRIZA Alexis Tsipras confirmed his commitment to this course immediately after the elections, but also stated the absence of intent to declare a default or to leave the Eurozone.

   Broad support of SYRIZA's political platform in Greek society is not surprising. It can be seen that so-called "policy of tightening belts" simply did not work (despite the improved current account), so why should it be continued, and why not to try something different? It should be also noted, that Alexis Tsipras paid attention to the most important current challenges (see the data from Fragile state Index on radar chart below) such as high level of unemployment and poverty, slow economic growth, low level of public trust in the government (due to the fact that the previous government was supported by EU-IMF austerity measures), external enforcements, tight credit conditions, weak banking system, relatively high tax level and weak overall business environment. For that matter, SYRIZA's political platform looks not only like populist one. In fact, it is highly sophisticated, well-designed and based on current economic situation.

Thoughts on ECB

  European austerity policy created environment in which low growth rates in most indebted countries coincides with deflation and relatively high borrowing costs. To break this vicious circle somehow what mr. Draghi as head of monetary authority can do? Stimulate economic growth with QE is only he can do, it seems. If QE will large enough it could lower borrowing costs even more and lead economies on the path of growth at last, creating some inflation at the same time... I am long EUR in medium term

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Billionaires & Paupers. Global inequality and the Forbes

According to data prepared by Oxfam International for Annual Meeting in Davos, in 2014th the wealth of 80 world's richest people exceeded total wealth of more than 3 500 000 000 (three and half billions) people belonging to bottom 50% population of the world by incomes. If growing inequality trend, which got a fresh start since 2009, continues, then top 1% of world population will be wealthier than bottom 99% by the end of next year.

For now, 80 richest billionaires have net worth of about 1.9 trillion dollars and the richest in 2014 according to Forbes was Bill Gates, with net worth of $76 billion. Next one is Carlos Slim from Mexico ($72 bln) and the third is Spanish businessman Amancio Ortega ($64 bln).

Manufacturing & inflation

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Inlation, Disinflation & Industrial Production

Disinflationary trend in developed economies, started about 2011, continues. As latest World Bank's Data shows, inflation in developed world in December was at lowest levels since 2008-2009 financial crisis and its clearly going to enter the deflation zone soon. But industrial production, in general, keeps growing, though at a slower pace. In some countries the picture is quite different. E. g., stagflation environment (industrial production contraction accompanied by high inflation rate) can be noticed in India, Indonesia, Brazil & Russia last months. Also, Japan somewhat stagflationary. Recent developments of situation in Ukraine looks like catastrophe (double-digits contraction in industrial production).

Productivity...

... is the difference between developed & developing economies

Retail gasoline prices by country

World oil prices continue to fall, and the price of gasoline too, but gasoline prices are differs across countries by a huge amounts. Some countries subsidize gasoline, others, on opposite, have significant tax burden. Most expensive gasoline (in nominal USD terms) is in the Italy, Netherlands, Norway and Hong Kong - about 1.86 USD per liter as of 12 Jan 2015. And the cheapest one is in the Venezuela, whose citizens drive their cars almost for free (only 2 cents per liter). But what is "expensive" and "cheap"? Incomes of people by country differs too. And if to bring gasoline prices to a common denominator taking income levels into account, the picture changes. Thus, in United States monthly GDP per capita equals about 7120 liters of gasoline and in Iran, for example, where nominal USD price is "cheap" (0.26$/l.) for 1 monthly GDP per capita you could buy 4.4 times less gasoline - only 1621 liter. Europe citizens, on average, can buy about 2-3 times less gasoline for their incomes than residents of US. And the poorest (in terms of gasoline purchasing power) - some African countries (their citizens gasoline purchasing power more than 300 times less than US, as shown on the map and ranking gadget).

Employment & Unemployment

With an unemployment rate of 5,6%, according to BLS estimates from the latest payroll report, the economic situation in the US perfectly match the targets of the US Federal Reserve System on unemployment (near 6%) and an inflation rate (about 2%). It is interesting that some other countries (China, for example), fits into that criteria well enough too (look at the first bubble chart). It has to be said that unemployment rate of 6% does not mean that only 6% of the adult population do not work. In fact, speaking about US, more than 40% of adults is not employed (look at that employment to population ratio indicator from the World Bank data, showing overall burden on earners). And the "unemployment rate" shows only the fraction of the actually not employed who want to work and are looking for a job (according to International Labour Organization "unemployed person" definition). The number seems large, but compare it to one of the Greece, Spain or Italy, where the majority of working age population earns nothing. No wonder to see the debt of those countries skyrocketed.

Compare the countries and see the historical trend in unemployment rate and employment population ratio on the graph below the page.

Debt saga continues. Eurozone government debt levels forecast

Since the new year Lithuania adopted Euro currency and became a full member of the European Monetary Union. And one of the few EMU countries that fully meet the Maastricht criteria in terms of debt level and budget deficit (national public debt not exceeding 60% of GDP and national budget deficit at or below 3% of GDP. See the history of these indicators among EMU countries on the animated bubble chart). Paradoxically, since the beginning of European debt crisis, indebtness of most countries has increased. Only Germany was able to reduce its level of debt since 2010.

Whether the last efforts of ECB and European political authorities will be enough to resolve this situation in the future? Look at the IMF projections to 2019

The year of commodities fallen

Last year not only prices of oil have fallen, but also for other commodities. For example, iron ore & rubber prices decreased more than 30%, Coal, Soybeans, Rapeseed & Palm oil about 20-25%. Common reasons that explain the fall of commodity prices include the rise of the USD (due to rising interest rate expectations), the economic slowdown in China, cost cuts induced by a fall in fuel price. But some foods, like beef, chicken meat and coffee showed significant uptrend. Also, some grain prices were rising, especially by the end of the year. Apparently, commodity markets are influenced by their own factors (such as harvest, shipping and warehousing situation, local export bans or changes in taxation etc.) and not only macroeconomic ones.

Explore the last and historical trends in various world commodity prices with Knoema viz gadgets and newly updated World Bank Commodity Price Dataset.

Sovereign default probabilities

Last year was challenging for petro-states. Due to the drop in oil prices is not only devalued their currencies, but their bonds fell and probabilities of default risen. Most notable trend was rise in default probability of Russia, that has less government debt, but been under pressure of sanctions has limited access to world financial markets. Its default probability (as implied by market prices and spreads of credit default swaps) has tripled from the year ago (check the chart by selecting the country from the ranking list on the left).

Notes: presented data are annual probabilities of sovereign defaults derived from Credit Default Swaps (CDS) spreads by Deutsche Bank Reserach team for various recovery rate assumptions. For most countries data as for 29 Dec 14 - 2 January 15 presented on barchart and the map. For a few countries data is some outdated, latest available number are introduced (check corresponding dataset and the graph). Assumptions about recovery rate (percentage of notional value repaid in event of default) highly affect implied default probabilities (the higher the assumption about the recovery rate, the higher the implicit default probability) and therefore they must be taken into account. The data provided for common assumtions of 40%, 25% and 60% recovery rates, for another assumptions see the corresponding dataset. For more information on underlying computation of default rates from CDS spreads see DB technical note

World markets and currencies performance, 2014

    2014 was a challenging year for world markets and for world currencies too. Almost every currency in the world was devalued (more or less) compared to US dollar. Russian ruble (-42%) and Ukraine hryvnia (-47.5%) became "champions" (due to political conflict between those states). UK Pound Sterling and Pakistani Rupee were the strongest. Among the developed markets US was the best (+12.8% price return year-to-date). European markets were, mainly, disappointing (in USD terms, at least). In the emerging world Bangladesh, Egypt, Indonesia, Philippines, Kenya, India, Argentina and some other markets showed exciting 2-digits growth. The worst was, again, Russia (45% loss but in USD terms only).