Felix Salmon

Chart of the day: When emerging markets trade through the G7

Felix Salmon
May 16, 2011 21:04 UTC


Thanks to Mohamed El-Erian for pointing this out in his latest Secular Outlook: the market risk spread on advanced economies now exceeds that on emerging economies.

Here’s Pimco’s explanation for what we’re seeing in this chart:

The difference in spreads shows the 5 year Markit CDX.EM.15 index minus the 5 year Markit iTraxx SovX G7 Index Spread. A positive number implies that Emerging Markets sovereign spreads are greater than Advanced Economy sovereign spreads. A negative number implies that Emerging Markets sovereign spreads are less than Advanced Economy sovereign spreads and therefore, the market implied credit risk for EM is lower when the spread is negative.

This is a very big deal, because the names in the EM.15 index are not exactly paragons of creditworthiness. Here’s the list: it starts with Argentina and Venezuela, and goes on from there, including countries like Panama, Russia, and Ukraine.

Meanwhile, the SovX G7 list is short and powerful: Germany, France, Japan, Italy, UK, and USA.

There are probably technical reasons why a group of AAA-rated sovereigns is trading wide of a group of much less creditworthy emerging markets in the CDS market. But the big message here is clear: the world is being turned upside-down. And most investors have yet to even start adjusting to these new realities.

Update: Turns out that the chart wasn’t measuring the G7 spread after all, but rather the Western Europe spread, which includes all the PIIGS.


Maybe bond investors realize the U.S. is really a banana republic like all the other listed countries.

Posted by PhilPerspective | Report as abusive

Beer-drinking charts of the day

Felix Salmon
Apr 20, 2011 13:34 UTC

How do we know that the world is getting happier? It’s drinking more beer! Here’s the chart, from a new paper by Liesbeth Colen and Johan Swinnen:


What we’re seeing here is largely the China effect — and, more generally, a world where poor people, once they reach a certain minimum income, start hitting the hops.


By all indications, we’re still in the early days of this trend, whereby countries slowly converge in terms of per-capita beer consumption. For while China and Russia are soaring, the main beer-drinking nations of the world are all in decline:

In middle and low income countries which experience growth, such as China, Russia, Poland and India, beer consumption grows. In rich countries, however, further growth has led to a reduction in beer consumption per capita.

This is an economics paper, so of course there has to be some kind of regression analysis — in this case OLS, or ordinary least squares:

Our first important result is that we do indeed find an inverted-U shaped relation between income and per capita beer consumption in all pooled OLS and fixed effects specifications. From the pooled OLS regressions (Table 3), we find that countries with higher levels of income initially consume more beer. Yet, the second order coefficient on income is negative, indicating that from a certain income level onwards, higher incomes lead to lower per capita beer consumption. The first and second order effects for income are strongly significant and the coefficients are quite robust across the different specifications.

The fixed effects regression results confirm this (Table 4), so the non-linear relationship for income holds not only between countries, but also within individual countries over time. As a country becomes richer, beer consumption rises, but when incomes continue to grow, beer consumption starts to decline at some income level. We calculated the turning point, i.e. the point where beer consumption starts declining with growing incomes, to be approximately 22,000 U.S. dollars per capita.

I would imagine that this relationship could also be found within the U.S. — that states increase their beer consumption as they grow to an income of about $22,000 per capita, and thereafter see their beer consumption drop as their wine consumption increases.

I can also imagine that we’re going to see a China-driven surge in global wine consumption when the middle class population there starts earning that kind of money. In the first instance, most Chinese wine consumption will probably be domestic, but over the long term it’s surely inevitable that wine imports into China will stop being concentrated at the high end of the market and will start lubricating China’s middle classes on an everyday basis. But that’s probably not going to happen for a decade or two yet.

(Via Florida)


Get over yourself @BBERDUDE; firstly I am not a vegetarian (although I admit to eating very little to be more ethically responsible, save money and keep weight off) and had just read the information relayed to you as it was in the headlines. Sadly I could not find the same headlines but managed to get some data for you.

meat and food consumption
http://tywkiwdbi.blogspot.com/2011/03/am erican-meat-consumption.html


http://www.guardian.co.uk/environment/20 11/mar/10/world-food-prices-climbing

The more wealthy a nation becomes, the more meat consumption
http://nextbigfuture.com/2011/01/mckinse y-has-six-predictions-for-china.html

It takes up to 16 pounds of grain to produce just 1 pound of edible animal meat. According to the USDA and the United Nations, using an acre of land to raise cattle for slaughter yields 20 pounds of usable protein. That same acre would yield 356 pounds of protein if soybeans were grown instead.

http://www.berkeleycollege.edu/GreenPath  /Newsletter/July_09_2.htm

Food consumption charts
http://www.fao.org/DOCREP/005/AC911E/ac9 11e05.htm

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Charts of the day, payrolls accuracy edition

Felix Salmon
Apr 7, 2011 21:31 UTC

Many thanks to Steven Guichard and Zubin Jelveh, who picked up my gauntlet and ran the numbers on whether payrolls numbers released at the beginning of the month are any less accurate than payrolls numbers which come out a bit later.

Here’s a chart from Steven, showing the average absolute change in payrolls numbers between the initial report and the final figure, according to the day of the month that the initial report was released.


And here’s a chart from Zubin, showing the same data in a slightly different form: in this case every revision is a dot. I’m not entirely sure what the outlier is on the right-hand side*, but the message of both charts is clear: there’s no indication at all that payrolls reports released later in the month are any more accurate than those released earlier in the month.


Steven also provided this intriguing graph, which shows that payroll data got significantly more accurate in the 80s and 90s, but seems to be getting less so since the crisis struck.


The average revision seems to be somewhere in the 50,000 range, which is consistent with the official error bars:

The confidence interval for the monthly change in total nonfarm employment from the establishment survey is on the order of plus or minus 100,000. Suppose the estimate of nonfarm employment increases by 50,000 from one month to the next. The 90-percent confidence interval on the monthly change would range from -50,000 to +150,000 (50,000 +/- 100,000). These figures do not mean that the sample results are off by these magnitudes, but rather that there is about a 90-percent chance that the “true” over-the-month change lies within this interval. Since this range includes values of less than zero, we could not say with confidence that nonfarm employment had, in fact, increased that month. If, however, the reported nonfarm employment rise was 250,000, then all of the values within the 90-percent confidence interval would be greater than zero. In this case, it is likely (at least a 90-percent chance) that nonfarm employment had, in fact, risen that month.

It’s important to remember here that there’s an enormous difference, as far as the markets are concerned, between a payrolls number of say 70,000 and a number of 170,000. But each one is within the confidence interval of the other. So the lesson, as I suspected, is that we should treat all payrolls reports with skepticism, but pay no attention to the day of the month they’re released.

*Update: In the comments, Zubin reveals that the outlier dates from December 1995, when the report was set to come out the 5th but was delayed because of a government shutdown. Anybody taking bets on when the payrolls report will be released next month?


Um, if you don’t understand the difference between a 70k number and a 170k number with the same confidence intervals, you really shouldn’t be pontificating about statistics. That just shows that you’re an idiot.

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Chart of the day: US financial profits

Felix Salmon
Mar 30, 2011 14:44 UTC

Kathleen Madigan had an important post on Friday, showing financial profits roaring back to more than 30% of all domestic US profits. As she says, “that’s an amazing share given that the sector accounts for less than 10% of the value added in the economy” — and makes it “hard for banks to cry poverty” when it comes to things like debit-card interchange legislation.

Madigan gave us the percentage chart, which shows the finance industry taking an even greater share of total corporate profits than it did during most of the boom year of 2006.


But I wondered: how much of this is a function of generally lower profitability overall — a question more of a low denominator than a high numerator? So I went along to the BEA website and put together this chart:


The blue line is total domestic profits. The green bars are the massive profits made by the Federal Reserve — an incredible $233 billion in 2010 alone. But as you can see, those Fed profits are dwarfed by the red bars, which are private-sector financial profits. Those dipped into negative territory just once, in the fourth quarter of 2008, and in the fourth quarter of 2010 reached an annualized $379 billion — bringing the total for the year to more than $1.3 trillion.

What this chart says to me is that nothing has changed, and nothing is going to change. Banks are still extracting enormous rents from the economy, and profits which should be flowing to productive industries are instead being captured by financial intermediaries. We’re back near boom-era levels of profitability now, and no one seems to worry that the flipside of higher returns is higher risk. Any dreams of seeing a smaller financial sector have now officially been dashed. And the big rebound in corporate profits since the crisis turns out to be largely a function of the one sector which we didn’t want to recover to its former size.

Update: Thanks to John Coogan for pointing out that the BEA already annualized the quarterly figures, as well as seasonally adjusting them. So I was wrong to add up all the quarterly figures for 2010 to get what I thought were annual figures. Sorry.


LOL @ dWj… seriously? You’re either being sarcastic or you’re totally missing the point. The traders and their bosses *are* the financial industry that’s draining the economy. Traders do not add value, except to the pockets of the financial industry… maybe you don’t understand what adding value means..?

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Swedish inequality datapoint of the day

Felix Salmon
Mar 25, 2011 23:07 UTC

Thanks largely to the NYT, the wealth-inequality survey by Michael Norton and Dan Ariely is back in the news. You might remember it from back in September. Here’s how it was reported in HufPo:

The respondents were presented with unlabeled pie charts representing the wealth distributions of the U.S., where the richest 20 percent controlled about 84 percent of wealth, and Sweden, where the top 20 percent only controlled 36 percent of wealth. Without knowing which country they were picking, 92 percent of respondents said they’d rather live in a country with Sweden’s wealth distribution.

Similarly, Tim Noah, in Slate, said the survey showed respondents favoring “a wealth distribution resembling that in Sweden”. And Chrystia Freeland has the same idea: “Americans actually live in Russia, although they think they live in Sweden”, she writes.

The Norton and Ariely paper is easy to misread in this way. Americans Prefer Sweden is one heading; the text does little to dispel that idea.

As can be seen in Figure 1, the (unlabeled) United States distribution was far less desirable than both the (unlabeled) Sweden distribution and the equal distribution, with some 92% of Americans preferring the Sweden distribution to the United States. In addition, this overwhelming preference for the Sweden distribution over the United States distribution was robust across gender, preferred candidate in the 2004 election and income.

If you look at the referenced Figure 1, it labels three different charts as “Sweden (upper left), an equal distribution (upper right), and the United States (bottom)”. It also comes with a note:

Pie charts depict the percentage of wealth possessed by each quintile; for instance, in the United States, the top wealth quintile owns 84% of the total wealth, the second highest 11%, and so on.

The clear implication is that in Sweden, the top wealth quintile owns 36% of the total wealth, as demonstrated in the “Sweden” pie chart. But that’s not true. Go back to footnote 2 (yes, a footnote), and you find this:

We used Sweden’s income rather than wealth distribution because it provided a clearer contrast to the equal and United States wealth distributions; while more equal than the United States’ wealth distribution, Sweden’s wealth distribution is still extremely top heavy.

This is an important point, which nearly all the discussion of the paper has missed. Mark Gimein has put together the charts showing what the truth of the matter is. The first two charts are reality, while the third is the fictional “Sweden” of the Norton-Ariely paper:




The point here is that wealth inequality is ever and always enormous. The US and Sweden are very far apart, when it comes to inequality, but if you look at wealth inequality rather than income inequality — which is the subject of the Norton and Ariely paper — then countries tend to look more alike than different. A huge part of the population of just about every country is going to have zero wealth — if you live paycheck to paycheck, for instance, or if you’re young and haven’t been earning money for long, or if you just spend a lot. That doesn’t mean you’re poor.

In countries like Sweden, indeed, the social safety net is strong enough that you don’t need to build wealth in the same way you do if you’re Chinese, say. Wealth is a form of insurance, and when insurance is nationalized, you need less wealth. As a result, people can enjoy the fruits of their money, instead of saving it up for emergencies or for retirement — and only a small percentage of the population really spends a lot of effort in a successful attempt at accumulating more.

Indeed, Sweden and the US are even closer together, in terms of wealth inequality, than the charts above suggest: as Gimein notes, the Swedish data exclude money held offshore, the value of family owned firms, and the considerable wealth of super-rich Swedes like Ikea founder Ingvar Kamprad, who left the country to avoid taxes.

Ariely told Gimein that “we created a more equal society than the most equal society in the world,” while calling it “Sweden”. Which might be interesting as an academic exercise, but the message was lost on most of the people who read the paper, and who thought that there really was a society where the lowest quintile owns 11% of the wealth.

Wealth inequality is a problem — but it’s one of those things, like homeownership rates, where public policy only makes a very small difference to some very large numbers. Norton told Gimein that he and his colleagues are now exploring “whether educating Americans about the current level of wealth inequality (by showing them charts and pictures) might increase their support for policies that reduce this inequality.” Well, it might. But it’s important not to mislead people about what’s possible.


This is only the start of the problems with this survey. O blogged about it. http://lennartregebro.wordpress.com/2011  /04/15/does-americans-really-want-swede ns-wealth-distribution/

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Chart of the day, US taxes edition

Felix Salmon
Mar 16, 2011 00:39 UTC

Ask, and you’ll receive an explanation of what this chart means.


tax_burdenthinOne way to look at this chart is in horizontal slices. Right now, for instance, if you look along the bottom of the chart, you can see that the line is bluest at the right-hand end, and reddest in the middle-class zone up to roughly $100,000 a year in annual income. When the chart is blue, that means you’re paying less tax than people on your income level have done historically, and when it’s red that means you’re paying more.

Looked at this way, you can see that taxes were generally very low up until about 1930, and they were generally pretty high in the 1940s and 1950s. And then something interesting happens around 1970: different parts of the population start being taxed in very different ways. So people earning roughly $10,000 to $50,000 a year had historically very low tax rates between about 1970 and 1980, while people earning more than $1 million a year (in 2011 dollars) have been doing very well for themselves since about 1990.

Another way to look at the chart is to look at vertical slices of it. For instance, the slice for people earning $1 million per year, in 2011 dollars, is on the left. In this case, the very rich had it best during the Gilded Age of the 1920s, and were taxed most heavily in the 1940s and 1950s. During the 1980s they were taxed at a historically-normal level, and today they’re undertaxed by historical standards.

But the main takeaway from the chart, at least for me, is that taxes in general have been declining for a long time now, especially on the rich. Which is one big reason why the fiscal situation looks unsustainable: we’re just not raising enough money in taxes to be able to pay for the amount we spend each year. With entitlements on both the retirement and healthcare side of things certain to rise inexorably for the foreseeable future, the chart is going to have to get redder from here on in. It’s not a question of whether, it’s just a question of when.


If you want to generate a chart or graphic which illistrates that the lower and middle classes get the short end of the tax stick you need to use “historically relitive” rather than absolute numbers, nonlinear axis scales and the like.

The federal income tax burden has fallen BELOW ZERO for several MILLION filers. Including some filers that earn up to $40,000.

I am a strong vocal supporter of the EITC because it promotes socially desirable behavior like work rather than non-work.

While it is true that todays tax code treats the wealthy better than at any time since the 1920′s it is also true that the tax code treats the working poor better today then at any time in U.S. history.

Social security taxes are also negitive. Workers on average collect slightly more in benifits then they paid into the system.

Medicare taxation is negitive in the extreem… current retirees are collectively receiving many dollars of healthcare benifit for each dollar they paid in during their working lives.

Social Security can easialy be saved in its current form with relitively small ajustments.

The scope of services covered by medicare will be cut by at least 50%. Yet that won’t be anywhere near as bad as it sounds. Most countries spend less and get better results than we do in the U.S.

Best hopes for an tax system that continues to strongly reward work and one that rewards savings and investment even more strongly than the current system.

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Chart of the day, US earnings edition

Felix Salmon
Mar 4, 2011 21:33 UTC

The jobs report this morning showed average hourly earnings increasing by 1 cent to $22.87 over the past month; that brings weekly earnings up to $782.15, on average, up 2.3% on last year. That’s a modest improvement, but an improvement all the same.

But Michael Greenstone and Adam Looney decided to take a step back, and look at median earnings across the population overall, rather than just in the working population. The resulting picture, especially for men, is pretty gruesome:


They write:

This analysis suggests that earnings have not stagnated but have declined sharply. The median wage of the American male has declined by almost $13,000 after accounting for inflation in the four decades since 1969. This is a reduction of 28 percent!

There’s a lot going on here, but a large part of it is that between 1970 and today, the share of men without any earnings at all increased from 6 percent to 18 percent. Many of those men are in prison, but a lot more are simply discouraged.

The blue line in this chart can be read as showing the competitiveness of working-class Americans in an increasingly globalized economy. It’s in secular decline, it’s not coming back, and it has been exacerbated greatly by the loss of 12 million jobs over the course of the Great Recession. Those jobs aren’t coming back, either. The US is going to have to create millions of new jobs going forwards. But it’s also going to have to look after the growing ranks of the unemployed — those who are looking for work, to be sure, and also the growing ranks of those who don’t even bother any more.


including hidden and underemployment the US has a 20% unemployment rate – what can turtlephungi do?

the problem is globalization was used to re-distribute wealth upwards, concentrating it in the financial services sector at the expense of the middle class and long term economic growth. Both sides of the Atlantic are now on the economic periphery, governed by predatory elites who would rather squeeze wealth out of the middle class than do something useful.

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Stock-listings chart of the day, global edition

Felix Salmon
Feb 25, 2011 17:13 UTC

My colleague Peter Rudegeair asked me a good question last week: even if the number of stocks listed in the US is falling dramatically, what’s happening in the rest of the world? He even helped answer the question, finding data from the World Federation of Exchanges. Which I then played around with a bit in Excel to generate this:


The US is clearly the outlier here: everywhere else in the world is still seeing the number of listings rise. (And now maybe it’s a bit more obvious why Deutsche Börse is buying the NYSE, rather than the other way around.) At the end of 2009, there were more companies listed in the Americas outside the US than there were inside the US.

US listings now account for only about 10% of all listed companies globally — that’s significantly less than America’s share of global GDP, which is closer to 20%. Even as the US is moving from public to private, or at the very least from many public companies to fewer public companies, the rest of the world is still moving fast in the opposite direction.

Looking at this chart, it seems to me that anybody with the bulk of their equity holdings in US companies is clearly missing out on something important. Yes, US companies are active globally, and those US listings do include a smattering of foreign companies, in the form of ADRs. But it’s a big world out there, and if you’re looking for an everything bagel, it’s going to be hard to find it if you confine your search to US counters.


Who confines their search to “U.S. counters”? Conventional wisdom has long been to have a sizable fraction of one’s portfolio in international markets.

I find this impossible to parse without a presentation of how much business “U.S. based companies” conduct overseas. I think this is larger than Mr. Salmon implies.

Mr. Salmon seems to be concluding that consumers in the U.S. are actually buying products increasingly from non-publicly traded companies. I look around and at least anecdotally, am not convinced. By far it would seem that U.S. consumers buy foods, building supplies, gasoline, many computer parts, cars, banking services and more from publicly traded companies.

I get a bad feeling that this article, like so many financial articles online, is here to sell advertising via seizing, using numerology techniques, on a seemingly stunning statistic that, while interesting, portends far less profundity than the author suggests.

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Bankruptcy charts of the day

Felix Salmon
Feb 15, 2011 23:10 UTC

This chart comes from the official news release on US bankruptcy filings in 2010:


There’s no financial crisis, in this chart, and no sign of any let-up in the rate of increase of bankruptcies. That’s consistent with what the news release says:

Bankruptcy filings in the federal courts rose 8 percent in calendar year 2010, according to data released today by the Administrative Office of the U.S. Courts. Total filings remain at a five-year high.

But look a bit more closely and you see something very odd. Check out the x-axis: there’s a column every three months from December 2006 through December 2009. And then there’s a sudden jump to December 2010: three bars have been left out.

What’s more, the chart starts immediately after the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 took effect. The act caused a huge spike in bankruptcy filings before the Act went into law, and therefore an artificial drop afterwards — as a result, we have no indication of what’s remotely normal when it comes to these figures.

So let’s have a look at the same chart, presented a bit more honestly:

What we have here is the rate of filings not only slowing down but even falling a little in the final period, from 1.595 million filings to 1.593 million. And clearly we seem to be topping out — there’s much less of a sense, here, that there’s no end in sight to the growth in bankruptcy filings.

On top of that, there’s a lot of smoothing going on here due to the use of overlapping 12-month periods. If you look at the raw quarterly data, you get something more like this:

Here, bankruptcy filings peaked at 422,000 in the second quarter of 2010, and have subsequently fallen by more than 12% to 370,000 in the final quarter. Far from rising, as the official chart suggests, the actual number of bankruptcy filings in the fourth quarter of 2010 was lower than it was in the fourth quarter of 2009.

What’s more, in both of my charts it’s clear that the number of filings is more or less “back to normal” after the artificial interruption of BAPCPA. The act was meant to decrease the rate of filings; it doesn’t seem to have worked very well in that regard, although admittedly we’re still painfully emerging from a particularly nasty recession. But in any case adding the historical data does make the official chart much less scary.

None of this is remotely obvious from the press release, which unhelpfully provides the underlying data in an eight-column grid with the numbers running from left to right and bottom to top. If I didn’t know any better, I would say that someone at the press office was trying to make the bankruptcy situation look worse than it actually is. But I have to say I have no idea why they’d do that.

Update: Apologies, my charts somehow disappeared from this post when it was first posted. They should be there now!

Update 2: A quick show of hands, if anybody’s still reading this. My charts here are clever embedded things where you can mouse over the columns and see the actual figures. On the other hand, they don’t seem to show up in RSS feeds. So, should I continue with smart interactive charts, or should I go back to dumb pictures? Any opinions?


Bankruptcy is a very scary thing to do but it is better to start a clean slate if you financial crisis is to bad, at least creditors will stop calling and it will give you a chance to start over.

Financial Independence | http://www.ineedmoneyathome.com

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