ir&m economic world cup 2014

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Risk management research

Economic World Cup 2014

Ineichen Research & Management(IR&M) is an independent researchfirm focusing on investment themesrelated to absolute returns and riskmanagement.

6 June 2014

Alexander Ineichen CFA, CAIA, FRM+41 41 511 [email protected]

Everything is practice.Pele
mailto:[email protected]:[email protected]://www.ineichen-rm.com/http://www.ineichen-rm.com/http://www.ineichen-rm.com/mailto:[email protected]


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Economic World Cup 2014 6 June 2014

Ineichen Research and Management Page 2

Economic World Cup 2 14ContentOn a personal note .............................................................................................. 3

Introduction ..................................................................................................... 3

Proximity matters ........................................................................................ 6

Socio-economic factors ................................................................................... 7

Celestial beta ............................................................................................... 7

Happiness factor ........................................................................................ 13

Welfare state bubble ................................................................................. 16

Economies and markets ................................................................................ 23

GDP in Apple terms .................................................................................... 23

World stock market at all-time high .......................................................... 28

So whos gonna win then?................................................................................. 38

Appendix ............................................................................................................ 39

MOM tutorial ............................................................................................. 39

Publications ....................................................................................................... 40

Getty


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On a personal note

The word "genius" isn't applicable

in football. A genius is a guy like

Norman Einstein.

Joe Theisman, sports analyst

Introduction

The World Cup, taking place this June/July, will be broadcast in over 200 countries

and is essentially an internal Europe-South America affair. 3.2 billion people

around the world watched the last World Cup final, nearly half the planets

population. I put together some light reading related to the tournament and its 32

contenders. This years host, Brazil, won five times. Italy won four times, followed

by Germany (3x), Argentina and Uruguay (2x), and France, England, and Spain

(1x). Brazil and Germany were both seven times in a final, Italy six times.Figure 1

shows the 32 participants.

Figure 1: World Cup 2014 Teams

Source: FIFA


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For some reason, this yearsevent is World ex Scandinavia. The mascot for the upcoming tournament is an armadillo named Fuleco. Brazil invested an estimated USD12bn into this years event. This compares to

over USD50bn for investments of Russias winter Olympics; Russia of course

being even lower than Brazil on Transparency Internationals Corruption Index.

Sweden, Hungary and Czechoslovakia (today Czech Republic and Slovakia)were the only finalists not to participate in this years event.

Germany holds the record in finishing in the top three: 1934, 1954, 1966,1970, 1974, 1982, 1986, 1990, 2002, 2006, 2010; followed by Brazil: 1938,

1950, 1958, 1962, 1970, 1978, 1994, 1998, 2002; and Italy: 1934, 1938,

1970, 1982, 1990, 1994, 2006.

Both Brazil and Germany share the record finishing in the top eight (16 timesout of 19 tournaments). (Germany (and Japan) werent allowed to participate

in 1950.)

Figure 2 shows World Cup titles by geography showing the dominance of South

America and Europe in this matter.

Figure 2: World Cup titles by geography

Source: Wikipedia

Germany and Italy only win when the tournament is in Europe; Argentina andUruguay only if its in the Americas. France and England only win as host.

Holland was in a final three times on three different continents. Team Ronaldo was never in a final. Its Brazil to win against Argentina 2:1 on 13thJuly then.Most odds makers currently have host Brazil to win the tournament, followed by

Argentina, Germany and Spain.Figure 3 shows one example, the lower the figure

in the table, the higher the markets probability of winning.
http://en.wikipedia.org/wiki/List_of_FIFA_World_Cup_finalshttp://en.wikipedia.org/wiki/List_of_FIFA_World_Cup_finalshttp://en.wikipedia.org/wiki/List_of_FIFA_World_Cup_finalshttp://en.wikipedia.org/wiki/List_of_FIFA_World_Cup_finals


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Figure 3: Odds (5 June 2014)

Source: Ladbrokes

Spains tournament-winning legends have aged; hence the low odds.However, Spain is the only European country to win the World Cup when the

finals werent in Europe.

The markets probability for Belgium to win is probably too high; whilepotentially too low for Portugal, Uruguay and Colombia when compared tocurrent rankings. (See current world rankings on page11.)

Rank Country Odds Rank Country Odds

1 Brazil 3/1 22 Ghana 200/1

2 Argentina 4/1 22 Greece 200/1

3 Germany 5/1 22 Nigeria 200/1

4 Spain 13/1 25 United States 250/1

5 Belgium 16/1 26 South Korea 500/1

6 Portugal 20/1 27 Cameroon 1000/1

7 France 25/1 28 Australia 1500/1

7 Italy 25/1 29 Algeria 2000/1

7 Netherlands 25/1 30 Iran 3000/1

10 Colombia 28/1 31 Costa Rica 4000/1

10 England 28/1 31 Honduras 4000/1

10 Uruguay 28/1

13 Chile 40/1

14 Russia 100/1

14 Switzerland 100/1

16 Bosnia 150/1

16 Croatia 150/116 Ecuador 150/1

16 Ivory Coast 150/1

16 Japan 150/1

16 Mexico 150/1


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Proximity matters

There were 19 World Cup finals since 1930. In six (32%), the host won. In further

three (16%), a team with the host as a neighbour won. This means proximity to

the event matters.

Table 1 shows previous winners, finals and location.

Table 1: List of finals matches, their venues and locations, the finalists and final scores

Source: Wikipedia

There were a total of 13 teams in the first World Cup in 1930. Besides thehost Uruguay, there were Argentina, Belgium, Brazil, Bolivia, Chile, France,

Mexico, Paraguay, Peru, Romania, the United States and Yugoslavia.

Colombia, currently ranked eighth in the world, is not on this list. If proximitymatters, Colombia is the team to watch. Colombia was originally chosen to

host the 1986 World Cup, but FIFA later awarded the tournament to Mexico

after the South American nation backed out.

Portugal is also not on this list. Argentina has proven that a team with oneexceptional player can win the tournament. If speaking the local language is a

factor, Portugal has an edge.

Below follows a comparison of some randomly chosen socio-economic variables ofthe 32 countries; either related to football, or not.
http://en.wikipedia.org/wiki/List_of_FIFA_World_Cup_finals#cite_note-BBC2006-48http://en.wikipedia.org/wiki/List_of_FIFA_World_Cup_finals#cite_note-BBC2006-48http://en.wikipedia.org/wiki/List_of_FIFA_World_Cup_finals#cite_note-BBC2006-48http://en.wikipedia.org/wiki/List_of_FIFA_World_Cup_finals#cite_note-BBC2006-48


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Socio-economic factors

Celestial beta

There will be a lot of praying going on during the World Cup. (There will be a lot

of swearing during the World Cup too.) The World Cup is an important event; its

only every four years. Assuming there is an interventionist deity, it is quite possiblethat he might take an interest, presumably depending somewhat on what else is

going on in the universe. (He was there in 1986, helping Team Maradona to score

against England.)

Which team has the strongest heavenly support? And how can we calculate this

celestial beta?

One way to estimate a celestial beta factoris by multiplying population with a

belief-factor, a measure for religiosity; a religiosity coefficient of sort. The team

with the greatest support is most likely a large population where divine

intervention is perceived as most reasonable. A large, religious population has ahigh celestial beta, so to speak.

Gallup measures irreligionwith a factor between 0 and 1, with a score of 1 being

a country where its citizens are most likely to answer no to the question Is

religion an important part of your daily life?We can use this as a proxy for

irreligiosity or the reciprocal value as a proxy for religiosity.Figure 4 shows

irreligion for the 32 contenders, starting with most irreligious.

Figure 4: Irreligion by country

Source: Gallup

England, home to Richard Dawkins, seems to be most sceptical towards theHand of God.

Irreligiosity is strongly correlated with GDP per capita. The correlationcoefficient of the 32 teams to IMFs 2013 GDP per capita is 0.78. This

Celestial betais a socio-econometric term and is defined aspopulation size times the religiositycoefficient divided by 36.2.

Incredulity is the foundation of all

knowledge.

William Robertson (17211793),

Scottish historian
http://en.wikipedia.org/wiki/Irreligion_by_countryhttp://en.wikipedia.org/wiki/Irreligion_by_countryhttp://en.wikipedia.org/wiki/Irreligion_by_countryhttp://en.wikipedia.org/wiki/Irreligion_by_country


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reasonably high correlation means that irreligiosity is correlated to many other

things that themselves are correlated to GDP per capita: education level,

freedom of speech, secularisation, women rights, industrialisation, etc.

Figure 5 shows the relationship between irreligiosity and GDP. In CFA parlance the

exhibit is called a football chart, whereby the size of the football represents a

variable. In this case the size of the ball refers to population size with the two axisrepresenting GDP per capita and irreligiosity. The rich and irreligious are in the

upper-right-hand corner.

Figure 5: GDP per capita vs irreligiosity

Source: IR&M, Gallup, IMF

The United States is arguably the outlier; rich andpious. Excluding the US, thecorrelation coefficient rises from 0.78 to 0.85. The United States and Russia are on opposite ends of the imaginary regression

line. This is consistent with thepopularityof their incumbent presidents being

at opposite ends too; one at an all-time low, the other close to an all-time

high.

To arrive at the celestial beta one takes the reciprocal value of the irreligiosity

factor (to get a proxy for religiosity, i.e., the likelihood of believing in divine

intervention for trivial terrestrial affairs) and multiplies this religiosity factor with

population size in hundreds of millions and then divide by 36.2 for the average

beta to equal 1.0.Figure 6 shows these betas in descending order.

1Capitalism, Socialism and Democracy (1975, p. 76, footnote 3)

It is [however] always important to

remember that the ability to see

things in their correct perspectivemay be, and often is, divorced from

the ability to reason correctly and

vice versa. That is why a man may

be a very good theorist and yet talk

absolute nonsense.

Joseph A. Schumpeter (1883

1950), Austrian economist1

Imagination is more important than

knowledge. Knowledge is limited.

Albert Einstein


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Figure 6: Celestial betas

0

1

23

4

5

6

UnitedStates

Brazil

Nigeria

Iran

Mexico

Russia

Italy

Colombia

Japan

Algeria

Germany

Argentina

SouthKorea

Ghana

Spain

IvoryCoast

Cameroon

France

UnitedKingdom

Ecuador

Chile

Greece

Australia

Honduras

Portugal

Netherlands

CostaRica

Belgium

Switzerland

Croatia

BosniaandHerzegovina

Uruguay

Source: IR&M, Gallup, IMF

The US, Brazil and Nigeria have the highest celestial betas as their populationsare 315, 194, and 167 million. Assuming there is a God and he really is into

football and pays attention to prayer, these three teams can expect the

highest supernatural support. Uruguay, Eastern European states and the two

chocolate producers will need to find a way to overcompensate for their low

betas.

The USs best finish at a World Cup was third in 1930.One could easily take this nonsense one step further by adjusting population size

by a factor that determines the keenness for the sport. There might be fewer

numinous requests from a large population that doesnt give a damn about

football, compared to a smaller, pious nation hooked on the sport. Brazil most

likely would have a higher beta than the US, as the sport is more popular in Brazil

when compared to the US. (I tried number of stadiums as a proxy for football-

keenness but found that the number of (football) stadiums in a country is mainly

a function of GDP and population size.)

One proxy for football-keenness could be beer drinking: The more beer isconsumed, the larger is the proportion of the population keen on football. After

all, hooligans are not really into Calvados and Vintage Port, are they? (The number

of tattoo parlours would be another proxy for football-keenness, but data was

difficult to come by.1The United States, for example, has 21,000 tattoo parlours,

with a new one opening every day. As Samoa is not participating in this years

event, the UK probably would lead the tattoos per capitastatistic, as one in five

adults is inked.)Figure 7 shows beer drinking in litres per capita for the year 2005,

heaviest beer drinkers first.

1One data point I came across in a 2012 survey is the following: 8% of those with a tattoo thought they were more

intelligent than those without one. However, only 2% of those without a tattoo thought that people with tattoos are more

intelligent. This is good news. It means that between 92% and 98% of the population is actually quite reasonable.

Nothing great was ever achieved

without enthusiasm.

Ralph Waldo Emerson (1803

1883), American writer and

transcendentalist

The mouth of a perfectly happyman is filled with beer.

Egyptian Proverb


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Figure 7: Beer drinking

South:Wealth Health Organisation

What European contenders lack in piety, they make up through beer drinking.The correlation coefficient to GDP per capita is 0.66.

The US and Brazil still do well even when adjusting the celestial beta for beerdrinking. Both are in the top half of the beer drinking chart.

Note that the US is not as soccer-ignorant as it used to be. Being a host of theWorld Cup in 1994 certainly helped. Soccer is the fourthmost popularteam sport

after American football, basketball, and baseball and is more popular today than

ice hockey. Nearly 60% of US Americans say they are looking forward to the 2014

World Cup, according to a Pew Research Centerpoll conducted in January. A fact

the reader might or might not know is that the US has the best womens soccer

team in the world.

Table 2 shows the top 62 teams, both men and women. The main difference

between men and women football is that players of the latter stand up

immediately after being fouled while the players of the former, more often than

not, dont.

1The NY Post, 28 February 2008

Some women choose to followmen, and some women choose to

follow their dreams. If youre

wondering which way to go,

remember that your career will

never wake up and tell you that it

doesnt love you anymore.

Lady Gaga1
http://en.wikipedia.org/wiki/List_of_countries_by_alcohol_consumptionhttp://en.wikipedia.org/wiki/List_of_countries_by_alcohol_consumptionhttp://en.wikipedia.org/wiki/List_of_countries_by_alcohol_consumptionhttp://en.wikipedia.org/wiki/Sports_in_the_United_Stateshttp://en.wikipedia.org/wiki/Sports_in_the_United_Stateshttp://en.wikipedia.org/wiki/Sports_in_the_United_Stateshttp://en.wikipedia.org/wiki/Sports_in_the_United_Stateshttp://en.wikipedia.org/wiki/List_of_countries_by_alcohol_consumption


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Table 2: FIFA/Coca-Cola World Ranking (5 June 2014)

Source: FIFA

Rank Team Points Rank Team Points

1 Spain 1485 1 USA 2197

2 Germany 1300 2 Germany 2173

3 Brazil 1242 3 Japan 2076

4 Portugal 1189 4 France 20515 Argentina 1175 5 Sweden 2016

6 Switzerland 1149 6 Brazil 2006

7 Uruguay 1147 7 Canada 1971

8 Colombia 1137 8 England 1956

9 Italy 1104 9 NorthKorea 1954

10 England 1090 10 Norway 1949

11 Belgium 1074 11 Australia 1945

12 Greece 1064 12 Italy 1880

13 USA 1035 13 Denmark 1877

14 Chile 1026 14 Netherlands 1852

15 Netherlands 981 15 Spain 1844

16 Ukraine 915 16 China 1843

17 France 913 16 Iceland 1843

18 Croatia 903 18 South Korea 1833

19 Russia 893 19 Scotland 1818

20 Mexico 882 20 New Zealand 1810

21 Bosnia 873 21 Russia 1806

22 Algeria 858 22 Switzerland 1796

23 Ivory Coast 809 23 Finland 1781

23 Denmark 809 24 Ukraine 1772

25 Slovenia 800 25 Mexico 1761

26 Ecuador 791 26 Belgium 1698

27 Scotland 786 27 Czech Republic 1690

28 Costa Rica 762 28 Vietnam 1664

29 Romania 761 29 Austria 1658

30 Serbia 745 30 Ireland 1649

31 Panama 743 30 Thailand 1649

32 Sweden 741 32 Colombia 1641

33 Honduras 731 33 Poland 164034 Czech Rebublic 724 34 Nigeria 1623

35 Turkey 722 35 Argentina 1620

36 Egypt 715 36 Romania 1613

37 Ghana 704 37 Wales 1597

38 Armenia 682 38 Hungary 1582

39 Cape Verde 674 39 Taiwan 1574

40 Venezuela 672 40 Costa Rica 1561

41 Wales 644 41 Chile 1559

42 Austria 643 42 Belarus 1558

43 Iran 641 43 Portugal 1549

44 Nigeria 640 44 Uzbekistan 1548

45 Peru 627 45 Myanmar 1544

46 Japan 626 46 Serbia 1537

47 Hungary 624 47 Slovakia 1521

48 Tunisia 612 48 Trinidad and Tobago 1509

49 Slovakia 591 49 Cameroon 1467

50 Paraguay 575 50 Ghana 1459

51 Montenegro 574 51 India 1431

52 Iceland 566 52 South Africa 1430

52 Guinea 566 53 Equatorial Guinea 1429

54 Sierra Leone 565 54 Jordan 1415

55 Norway 562 55 Iran 1412

56 Cameroon 558 56 Haiti 1397

57 Mali 547 57 Northern Ireland 1395

57 South Korea 547 58 Bulgaria 1393

59 Uzbekistan 539 58 Slovenia 1393

60 Burkina Faso 538 60 Isreal 1388

61 Finland 532 61 Albania 1372

62 Australia 526 62 Panama 1364

WomenMen
http://www.fifa.com/worldranking/rankingtable/index.htmlhttp://www.fifa.com/worldranking/rankingtable/index.htmlhttp://www.fifa.com/worldranking/rankingtable/index.htmlhttp://www.fifa.com/worldranking/rankingtable/index.htmlhttp://www.fifa.com/worldranking/rankingtable/index.html


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The ranking suggests Spain winning against Germany on 13 thJuly, i.e., a finalentirely without the hosts participation. This table is not consistent with the

markets odds as other factors play a role too.

The correlation coefficient of the 32 mens teams and the correspondingwomen teams is 0.25, i.e., not that high. Based on the average rank, Germany

leads Brazil, followed by the United States and Spain.

One of the greatest discrepancies between the two rankings is Japan, wherethe women team ranks 3rdand provided a thrilleresque 2011 World Cup Final

where they beat Team USA in a penalty shoot-out.

Portugal is a further discrepancy despite Cristiano Ronaldo dos Santos Aveirohaving two sisters. His second given name "Ronaldo" was chosen after then-

U.S. president Ronald Reagan, who was his father's favourite actor.

The womensTeam USA has been ranked first for six years. I do not know why US

women play so well. Most likely it has absolutely nothing to do with the number

of men in prison. However, it is women football and mens incarceration where

the United States really excels, i.e., ranks first handsomely and, it seems,

perpetually.Figure 8 shows the incarceration rate for the 32 (men) teams. The

incarceration rate measures number of prisoners per 100,000 population.

Figure 8: Incarceration rate

Source: ICPS (International Centre for Prison Studies)

USA wins; Russians appearing well behaved by comparison. The correlation coefficient of the incarceration rate with the irreligiosity factor

mentioned earlier is 0.02, with GDP per capita it is 0.15, and with population

size it is 0.61.

The news coming out of Nigeria is not necessarily consistent withFigure 8.

1The Sun, 4 October 2012

The United States has 5% of the

worlds population, 25% of its

incarcerated people, and almost

50% of the worlds lawyers.

Conrad Black1
http://en.wikipedia.org/wiki/List_of_countries_by_incarceration_ratehttp://en.wikipedia.org/wiki/List_of_countries_by_incarceration_ratehttp://en.wikipedia.org/wiki/List_of_countries_by_incarceration_ratehttp://en.wikipedia.org/wiki/List_of_countries_by_incarceration_rate


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Below we assess happiness in the broadest of terms. The assumption is that

happiness helps playing better football; which makes no sense whatsoever but

must suffice as an intro to the next section.

So who will be running around on grass, chasing in leather prisoned air, with an

enduring smile on their face?

Happiness factor

Measuring happiness is not that easy, unfortunately. First attempts inhappiness

research,to the best of my knowledge, were to define what makes people

unhappy, rather than trying to measure happiness directly. Early measurements for

unhappiness were for example suicides and depressions, which were arguably

good proxies for unhappiness andwere measurable.

The research abandoned crude quantitative measures for economic prowess early

on and moved to include more fancy measures and methodologies for acquiring

data. Today the discipline is part of the esotericend of economics; but isa part ofeconomics nevertheless.

Figure 9 shows the Misery Index for the 32 countries compared to the world

average of 9.6%. The Misery Index is calculated by simply summing up the

unemployment rate and the inflation rate; the lower the index, the less miserable

the population. As the reader can tell immediately, this is an outdated economic

measure. It stems from a time when inflation was a negative.

Figure 9: Misery Index (May 2014)

Source: IR&M, Bloomberg, World Bank, Heritage Foundation, CIA World Factbook, Wikipedia

The Swiss, well known for their perpetual high spirits, sense of humour andjoie de vivre, lead this ranking, i.e., are the least miserable. The probability of

Switzerlandessentially a Tennis nationwinning is about as high as Russias

chances. (SeeFigure 3 on page5.) It did beat Spain in the 2010 World Cup

though. Never underestimate mercenaries.

It is pretty hard to tell what does

bring happiness; poverty and

wealth have both failed.

Kin Hubbard (18681930),

American humourist
http://en.wikipedia.org/wiki/Happiness_economicshttp://en.wikipedia.org/wiki/Happiness_economicshttp://en.wikipedia.org/wiki/Happiness_economicshttp://en.wikipedia.org/wiki/Happiness_economicshttp://en.wikipedia.org/wiki/Happiness_economicshttp://en.wikipedia.org/wiki/Happiness_economics


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With world inflation at many central bankers dream-rate of 2.0% and worldunemployment at 7.6% for a Misery Index of 9.6%, a total of only ten

countries are less miserable than the whole world on average.

The correlation coefficient with GDP per capita is -0.59.With the Misery Index being outdated, lets look at prosperity as a gauge forhappiness. Here prosperity is not defined as purely economic but includes softer

factors such as health, safety, freedom, etc.

Table 3 shows the 2013 Legatum Prosperity Index. The table was sorted by the

first column, the overall ranking.

Table 3: The 2013 Legatum Prosperity Index

Source: IR&M, Legatum

* Entrepreneurship and opportunity

Switzerland, the Singapore of Europe, ranks best from the 32 countries.(Norway, an oil nation rather than a football nation, ranks first on the full list

of 142 countries.) Note that the first and the last in this list are equal to the

first and last in the graph showing the Misery Index.

The funny thing is the following. The overall ranking inTable 3 has acorrelation coefficient with GDP per capita of -0.89 that is highly statistically

significant. That is, the higher the GDP per capita, the lower is the ranking,

i.e., the higher is overall well-being. The funny bit is that researchers have

invested decades into figuring out a better, more sophisticated measure for

happiness, well-being, and prosperity, while GDP per capita as a measureit

seemswas sufficient all along. (As a comparison: the correlation between

GDP per capita and the 32 country phone dialing codes is -0.46 and

Overall

Ranking

Change

since 2009

Economy Entrepr. &

Opportunity*

Governance Education Health Safety &

Security

Personal

Freedom

Social

Capital

Switzerland 2 6 2 4 1 27 3 11 15 8

Australia 7 -2 10 1 1 7 2 17 1 6 3 4

Netherlands 9 2 20 8 10 12 7 17 14 5

United States 11 -1 24 13 11 5 2 31 16 9

Germany 14 2 9 18 17 15 4 21 12 15

United Kingdom 16 -3 28 9 9 30 19 22 13 12

Belgium 17 -2 25 24 16 16 10 20 18 21

France 20 -2 22 21 19 19 8 30 21 42

Japan 21 -2 5 25 21 21 6 25 48 23

Spain 23 -3 44 29 26 8 24 27 23 27

South Korea 26 3 19 20 31 7 21 18 64 66

Portugal 27 -2 63 31 37 33 29 19 20 43

Uruguay 30 2 42 53 29 51 40 28 10 52

Costa Rica 31 -1 40 44 32 53 48 46 11 44

Italy 32 -6 52 39 40 36 22 39 38 29

Chile 35 0 30 38 24 59 49 37 27 67

Argentina 45 -1 58 57 92 47 42 52 32 57

Brazil 46 -1 32 49 59 77 62 82 26 69

Croatia 53 -14 79 51 51 52 36 38 93 116

Greece 54 -18 80 48 52 34 23 43 134 107

Mexico 59 -10 27 73 66 82 52 104 81 76

Russia 61 1 50 47 115 26 44 98 114 62

Colombia 67 -3 47 63 60 80 80 130 51 53

Ecuador 74 3 54 78 101 69 82 105 45 115

Honduras 96 -17 90 99 107 93 77 79 89 103Bosnia and Herzegovina 97 n.a. 117 91 113 78 61 61 127 104

Algeria 99 -8 61 95 103 74 71 108 132 96

Ghana 100 -11 123 101 62 109 100 67 79 112

Iran 101 -8 91 93 120 57 67 123 126 120

Cameroon 115 -16 87 116 128 112 124 103 92 111

Nigeria 123 -20 112 113 129 126 121 135 103 63

Ivory Coast 131 n.a. 81 127 135 138 133 131 37 136

I know a man who gave upsmoking, drinking, sex, and rich

food. He was healthy right up to the

time he killed himself.

Johnny Carson (19252005),

American TV host

An intellectual is a man who says a

simple thing in a difficult way; an

artist is a man who says a difficult

thing in a simple way.

Charles Bukowski (19201994),

German-born American poet
http://media.prosperity.com/2013/pdf/publications/PI2013Brochure_WEB.pdfhttp://media.prosperity.com/2013/pdf/publications/PI2013Brochure_WEB.pdfhttp://media.prosperity.com/2013/pdf/publications/PI2013Brochure_WEB.pdfhttp://media.prosperity.com/2013/pdf/publications/PI2013Brochure_WEB.pdf


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statistically significant; which just goes to show how seriously one needs to

take analysts who base their reasoning on statistics alone.)1

Extreme inequality is also considered an unhappy-maker. After all, extreme

inequality within a society has resulted in revolutions and civil wars; arguably the

most violent forms of upheaval. We therefore can use theGini coefficientas a

proxy for tensions within a society, implicitly assuming a causal relationship ofsocieties with more equal income distribution being happier. The Gini coefficient is

a number between 0 and 1, where 0 corresponds with perfect equality (where

everyone has the same income) and 1 corresponds with perfect inequality (where

one person has all the incomeand everyone else has zero income.)Figure 10

shows estimates for the Gini coefficient for the 32 countries compared to the

world average.

Figure 10: Gini coefficient (latest available)

Source: CIA World Factbook

Germany and Belgium not only lead the beer statistics, they have the mostjust income distribution too.This means the more equal the dough is

shared, the more beer is downed. (The correlation coefficient between Gini

coefficient and beer per capita is only -0.39 though.)

Latin America occupies the right hand side of this chart, i.e., income is in thehands of the few.

The correlation between the Gini coefficients shown here and GDP per capitais -0.55 with the US being the outlier, i.e., high income but unequally

distributed.

1Correlating GDP per capita with phone dialing codes is o f course nonsense. However, the industrialised world got

switched up earlier and thereby got lower country codes that were easier to handle by the switch board operator. Hence

the negative and significant correlation, i.e., industrialised economies being richer andhaving lower dialing codes. I should

have taken the number of a countys endangered fish instead of dialing codes to make my point.

2Address delivered before the American Academy of Political and Social Science, Philadelphia, March 30, 1945.

The inequality of income and

fortunes is essential in capitalism.

Ludwig von Mises2
http://www.investopedia.com/terms/g/gini-index.asphttp://www.investopedia.com/terms/g/gini-index.asphttp://www.investopedia.com/terms/g/gini-index.asphttp://www.investopedia.com/terms/g/gini-index.asp


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Welfare state bubble

Some countries have a debt problem. The safest way to have a debt problem is by

living beyond your means. The most efficient way to live beyond your means is by

spending someone elses money. Future generations who cannot vote come in

quite handy in this regard.Figure 11 shows how its done.

Figure 11: What went wrong in the West

Source: Protg Partners 4Q 2009 quarterly letter

Once one shows graphically what went wrong in the

West it becomes clear that what the Keynesians did was

actually quite different from what Keynes meant. According

to one estimate the present value of the USs liabilities

including unfunded welfare promises is north of USD50trillion, i.e., more than 500 McDonalds Corporations.

According to another estimate, apparently, more than 50%

of the US population is netreceiver of transfer payments. In

Germany more than three quarters of the population

benefit from a transfer payment in one form or another.

The trend is clearly towards getting worse. It actually

resembles a Ponzi or a pyramid scheme; which is illegal in

most jurisdictions.

There is nothing wrong with a welfare state; it is the welfare state bubblethat is of

concern. The welfare state idea is a good one. It lifted large parts of variouspopulations out of poverty. A developed society should clearly care about

minimising suffering. However, the idea was taken too fare. At times it feels like

socialism in a new wrapper; the third way being a marketing gimmick akin the

new economy a couple of years ago. The practical relevance is that it is

becoming apparent that the financing of this welfare state bubble is not working

very well and authorities who have had their backs at the wall in the past did some

reallyhow shall I put thiscapital-unfriendlythings.

1Germany reformed its social model. Europe can, too, Josef Joffe, Bloomberg News, 17 April 2012

Money

Time

Save

Borrow

Borrowing

Business Cycle

What Keynes Meant

Money

Time

Borrow

Borrowing

Business Cycle Borrow

Borrow

What Keynesians Did

A budget tells us what we can't

afford, but it doesn't keep us from

buying it.

William Feather (18891981),

American author

We will have to cut benefits. We

shall promote individualresponsibility. And our guiding

principle will be that we can only

redistribute what we have earned.

Gerhard Schrder, to the

Bundestag, 14 March 20031


17/41



Figure 12 shows an estimate for private and government debt. The chart might

serve as a proxy as to who has been living beyond their means and thereby has

been ripping off their future generations the most. And unfunded liabilities arent

even in the data.

Figure 12: Private and government debt in % of GDP

Source: IR&M, Heritage Foundation, World Bank

From a risk management point of view it is the total size of the bar thatmatters: If the citizens are overleveraged and fail, banks, they themselves

leveraged to the hilt and provider of the leverage, fail too. And they are too

big to fail, the implicit governmental guarantee turning into an explicit one six

years ago. Lets just hope that property prices in some of the European

countries on the left hand side of the chart continue to go up forever. (The

funny bit is that many authorities perceive hedge fundsas dangerous. Hedge

funds are leveraged around 2.5:1 with, more often than not, short positions

offsetting the risk of some of the long positions. Homeowners are leveraged

around 6:1 or 7:1, e.g., a $1m house with $150k equity, and have no

positions offsetting some of the risk. From a socio-economic perspective, one

really needs to hope that the tide never goes out.)

The sad bit is the following: the correlation coefficient with the median age is0.73. This means: the higher the debt load, the fewer young people are

around to pay for it.

Figure 13 shows median age.

1Berkshire Hathaway, 2001 letter to shareholders, 28 February 2002

What have future generations ever

done for us?

Groucho Marx (1890 - 1977),

American comedian

After all, you only find out who is

swimming naked when the tide

goes out.

Warren Buffett1


18/41



Figure 13: Median age

Source: CIA World Factbook

Median age is most strongly correlated with Legatums education rankingfromTable 3 on page14.The correlation coefficient is -0.86 which means the

better the education (low ranking); the higher is the median age; or the other

way around. Given that the median age is strongly correlated with a countrys

fertility rate, its possible that Aldous Huxley was on to something.

So with all this debt that might or might not be paid back or that might or might

not be inflated away, who has the best welfare?

Figure 14 shows thesocial welfare function. The social welfare function, proposed

by Amartya Sen in 1973, is a measure of a society's overall welfare calculated as

the product of GDP per capita and the difference between 1 and the society's Gini

coefficient. This means a rich nation where income is fairlydistributed scores

best on this measure.

1Well, he didnt actually use the word reproduction, but never mind.

2The Economist, 7 September 2013

An intellectual is a person who has

discovered something more

interesting than reproduction.1

Aldous Huxley (1894 - 1963),

English writer

Life in the system is hardly gold-

plated, but it is comfortable

enough.

Melissa Devilma, welfare recipient

on incentive not to seek work or

education2


19/41



Figure 14: Social welfare function*

Source: IR&M, IMF, CIA World Factbook

* Social welfare function = GDP per capita * (1Gini coefficient)

The host Brazil does quite poorly when GDP per capita is adjusted for incomeinequality as it has the fourth highest Gini coefficient from the 32-country

sample. The low social welfare function is probably the reason why riots

erupted with respect to the silliness of building expensive infrastructure where

parts of the population are not well fared. FIFA take note.

The correlation coefficient between the social welfare index inFigure 14(excluding World and Ivory Coast) and theSocial Progress Index Report 2014

from Social Progress Imperativeis 0.98. Sometimes simple measures are

enough.

Heres a thought: Net migration is always from right to left in the chartabove.Africans are risking their lives to get to anywhere else. Russians want to go

elsewhere, London for example. Spaniards are migrating to Germany.

Mexicans are migrating to the US. Educated Greek and Italians (with

marketable skills) are leaving for London. Rich French dislocate to Belgium or

Switzerland or South Kensington (which is not on the list but would be to the

left of France if it were). German entrepreneurs set up shop in Switzerlandbecause red tape is less onerous and government a bit less intrusive there.

Only the Swiss have nowhere to go. This is why the idea from some politicians

in Sardinia to join Switzerland is such a good idea. Then the Swiss at least

wouldnt be landlocked anymore.Figure 15 is from IR&Ms flash update from

1 April 2014.

Financial Times 3 June 2014

In a war everybody always knows

all about Switzerland, in peace

times it is just Switzerland but in

war time it is the only country that

everybody has confidence in,everybody.

Gertrude Stein (1874 - 1946),

American writer
http://www.socialprogressimperative.org/system/resources/W1siZiIsIjIwMTQvMDUvMjYvMTYvMzQvNTQvNzk5L1NvY2lhbF9Qcm9ncmVzc19JbmRleF8yMDE0X1JlcG9ydF9lXy5wZGYiXV0/Social%20Progress%20Index%202014%20Report%20e%20.pdfhttp://www.socialprogressimperative.org/system/resources/W1siZiIsIjIwMTQvMDUvMjYvMTYvMzQvNTQvNzk5L1NvY2lhbF9Qcm9ncmVzc19JbmRleF8yMDE0X1JlcG9ydF9lXy5wZGYiXV0/Social%20Progress%20Index%202014%20Report%20e%20.pdfhttp://www.socialprogressimperative.org/system/resources/W1siZiIsIjIwMTQvMDUvMjYvMTYvMzQvNTQvNzk5L1NvY2lhbF9Qcm9ncmVzc19JbmRleF8yMDE0X1JlcG9ydF9lXy5wZGYiXV0/Social%20Progress%20Index%202014%20Report%20e%20.pdfhttp://www.socialprogressimperative.org/system/resources/W1siZiIsIjIwMTQvMDUvMjYvMTYvMzQvNTQvNzk5L1NvY2lhbF9Qcm9ncmVzc19JbmRleF8yMDE0X1JlcG9ydF9lXy5wZGYiXV0/Social%20Progress%20Index%202014%20Report%20e%20.pdf


20/41



Figure 15: Sardinia to join Switzerland

Source: IR&M risk management research flash update 1 April 2014

Socio-economically Italy is broken. It is not only the Sardinians that want out;

North Italians want out too. They have enough of the corruption, waste,

bureaucracy and cronyism which in Italy means the North supporting the South,

somewhat akin the Europe as a whole. TheLega Nordhas been trying to create a

sovereign state for some time. They call it Padania. They even have a prosed flag

for Padania: the Sun of the Alps, depicted in the side text on the right. The obvious

association with Bob Marleys smoking preferences was probably unintentional.

Currently, the Legas effort to stir it up is jamming though; Romeafter havingshot the sheriff only just quite recentlywill not permit an exodus. This will keep

the Lega Nord waiting in vain.

Figure 16 shows the Corruption Perceptions Index (CPI) for 2013 and 2006 from

Transparency International, the main source on this kind of information that I

occasionally cross-reference with similar information from the Heritage

Foundation. Sample size is the 154 countries where there is information for both

years. The chart shows the ranking with the lowest ranking being least corrupt.
http://en.wikipedia.org/wiki/Lega_Nordhttp://en.wikipedia.org/wiki/Lega_Nordhttp://en.wikipedia.org/wiki/Lega_Nordhttp://en.wikipedia.org/wiki/Lega_Nord


21/41



Figure 16: Corruption Perceptions Index (2013 and 2006)

Source: IR&M, Transparency International

Greece, formerly categorised as developed market by MSCI, ranks worstamong European states.

Italy, formerly less corrupt than Ghana, Croatia and Costa Rica, is now morecorrupt than Ghana, Croatia and Costa Rica. This makes you wonder why the

2018 World Cup is in Russia and not in Italy. But then Russia beats Italy in

corruption by a long shot.

Switzerland is the least corrupt from this sample. However, it is not the leastcorrupt from the whole sample; Denmark and New Zealand are. Whether this

is because the FIFA is domiciled inZurichand not in Copenhagen or

Wellington, I dont know. (Corruption in relation to FIFA is like corruption

related to the Vatican: There are those who know; and those who dont want

to know.)

The correlation between 2013 corruption and beer drinking is -0.57, i.e., theleast corrupt drink the most beer, sort of. The correlation between 2013

corruption and the incarceration rate is, when rounded only to one decimal,

0.0.

Now this makes perfect sense. After all, corruption is a cultural thing; entirely

unrelated to crime. The Greek for instance, according to one line of argument, are

a victim of their own history. After 200-300 years of Ottoman rule, cheating and

bribingas goes this line of reasoninghave become the most successful survival

technique; potentially the onlysurvival technique.

Corruption has become part of the Greek socio-economic DNA. This goes to show

what repression does. (Hence the title Repressionomics of IR&MsJanuary 2013

report.)

Corruption and bureaucracy is also in Italys DNA. The concept of bureaucracy has

been present in Italy since Roman times, when various organisational bodies were

1Durant, Will (1965) The Story of Civilization, Volume 9, The Age of Voltaire.

It is said that power corrupts, but

actually it's more true that power

attracts the corruptible. The sane

are usually attracted by other things

than power.

David Brin (1950 - ), American

scientist and author

If the corruption of the people in

power is never more manifest than

in the ages of the greatest luxury, it

is because in those ages the riches

of a nation are collected into the

smallest number of hands.

Claude Adrien Helvtius (1715

1771), French philosopher1
https://www.google.ch/maps/place/FIFA+headquarters/@47.3816222,8.5749969,17z/data=!3m1!4b1!4m2!3m1!1s0x479aa0c18166e45d:0x9b35f19a87a7dd52https://www.google.ch/maps/place/FIFA+headquarters/@47.3816222,8.5749969,17z/data=!3m1!4b1!4m2!3m1!1s0x479aa0c18166e45d:0x9b35f19a87a7dd52https://www.google.ch/maps/place/FIFA+headquarters/@47.3816222,8.5749969,17z/data=!3m1!4b1!4m2!3m1!1s0x479aa0c18166e45d:0x9b35f19a87a7dd52https://www.google.ch/maps/place/FIFA+headquarters/@47.3816222,8.5749969,17z/data=!3m1!4b1!4m2!3m1!1s0x479aa0c18166e45d:0x9b35f19a87a7dd52


22/41



in charge of it, but not always acted fairly. Later on in history, bureaucracy grew

closer to the principles of law and equal individual rights. However, because of

some unexpected negative side effects in the organisation of public offices, the

term burocraziahas ended up designating the inefficiency of the public system,

characterized by corruption and bad handling of documents. Such negative

connotations, always associated with a lack of efficiency, are sadly well rooted into

Italian administration.1

Figure 17 relates corruption with investment freedom for the 32 countries and the

world as a whole. I use investment freedom as a crude proxy for the repression

of a society; the smaller the freedom, the stronger the (current or future)

repression. When glancing at the investment freedom from Heritage Foundation it

seems it doesnt yet take into account the Cyprus incident from March 2013 which

too me was a confirmation as to how close repression, expropriation and tyranny

really are. But the data is the data. It suffices for now.

Figure 17: Corruption vs repression

Source: IR&M, Transparency International, Heritage Foundation

The correlation coefficient of the data in the chart is, for what, as always, itsworth, -0.81 and statistically significant beyond doubt. Corruption comes

when freedom goes. Or the other way around.

Let me close this socio-economic section on a jolly note from Russian-born

American novelist and philosopher Ayn Rand, inAtlas Shrugged:

Money is the barometer of a societys virtue. When you see that trading is

done, not by consent, but by compulsionwhen you see that in order to

produce, you need to obtain permission from men who produce nothing

when you see that money is flowing to those who deal, not in goods, but in

favorswhen you see that men get richer by graft and by pull than by work,

and your laws dont protect you against them, but protect them against you

when you see corruption being rewarded and honesty becoming a self-

sacrificeyou may know that your society is doomed.

1Lifeinitaly.com

2Handelsblatt, 13 March 2013

Italy is de facto already out of the

euro. The country is on its knees...

The northern European countries

are only holding onto us until their

banks have recouped their

investments in Italian sovereign

bonds. Then theyll drop us like a

hot potato.

Beppe Grillo, Italian comedian

turned politician2

You can avoid reality, but you

cannot avoid the consequences ofavoiding reality.

Ayn Rand (1905 - 1982)


23/41



Economies and markets

GDP in Apple terms

The market capitalisation of Apple was $540 billion at the end of May 2014.

Figure 18 shows GDP in Apple Inc. terms, i.e., annual GDP in USDbn divided by

$540bn. (A bar size of 1.0 means GDP for the whole country is equal to Applesmarket capitalisation.)

Figure 18: GDP in Apple Inc. terms

Source: IR&M, Bloomberg

The graph speaks for itself. (Analytically one obviously needs to be careful when

comparing variables from the income statement with balance sheet items. Not in

this report though.)

One economic aspect is demographics. Economists understand economic growth

essentially as a function of two things: population size and productivity, i.e.,

economic growth is a function of the two. For many centuries, or actually,

millennia, these two variables were more or less constant. There was no

improvement of GDP or any other measure of well-being. Things economic

stayed the same with the volatility coming from wars and famines, mainly. Over

the past two hundred years both variables have been growing constantly in many

economic areas. This means our economic output is many times that of our

forebears 300, 400, or 500 years ago. And now one, or, in some cases, even two

of these central variables are in decline. This means GDP is in decline in real terms.

It could well be that in 1000 years from now, the whole industrialisation and the

exponential growth in wealth and population will be viewed as a brief intermezzo

1The Story of Civilization Our Oriental Heritage, Will and Ariel Durant, 1935.

Life is hard. After all it kills you.

Katharine Hepburn

Civilization is an interlude between

ice ages.

Will Durant (1885 -1981), American

historian1


24/41



in human history. (Exponential growth involving living tissue normally doesnt end

well. Ask an Eastern Islander or an Australian rabbit.)

Figure 19 shows demographics in a nutshell; the birth-death ratio, i.e., number of

births per 1000 population per year divided by deaths per 1000 population. The

graph was sorted in ascending order, i.e., the reproduction fatiguecountries first.

(A negative number means there are more deaths than births.) On average, thereare around 19.7 births per 1000 world population per year and 7.9 deaths for a

ratio of 1.5. (Births/deaths -1.)

Figure 19: Births vs. deaths (2014 estimates)

Source: IR&M, CIA World Factbook

The ratio in Germany is -0.254, i.e., only 8.42 births vs. 11.29 deaths. Holdingthis rate constant, Germanys current 81.9 million population would be down

to one million around the year 3545; ceteris paribus of course. Put differently,

at this rate it would take Germany roughly 240 years to half itspopulation to

41 million.

The ratio in France is nearly the opposite, i.e., demographics are quite healthywhen compared to Germany, or Japan for that matter. The ratio is +0.379,

i.e., 12.49 births to 9.06 deaths. This ratio would allow the population togrow from its current 65.3 million to 114.2 million over 240 years, almost

guaranteeing house prices in South Kensington to continue to soar. France

would, ceteris paribus, have a population of 87 million by the year 2100,

which would compare to Germanys 64 million.

Table 4 below shows both cyclical as well as structural economic variables. Green

stands for good and red for pretty bad. The last column is a ranking. The

ranking is an average of 13 rankings of variable that were ticked. The fertility rate,

a more common metric for demographics than the birth-death ratio, is also

1"War Shrines," Soliloquies in England, 1922.

2Sowell, Thomas (1993) Is Reality Optional? And other Essays, Stanford: Hoover Institution Press, p. 41.

There is no cure for birth and

death, save to enjoy the interval.

George Santayana (1863 - 1952),

Spanish-American philosopher1

Western civilization has survived

the invasions of Genghis Khan from

the East, the Ottoman Empire from

the South, and two world wars

originated from within. But whether

it will survive its own intellectuals is

much more doubtful.

Thomas Sowell, American

economist2


25/41



shown. A fertility ratio of around 2.1 (kids per women) is required to hold (home-

grown) population constant.

Note that the table includes things like property rights, government expenditure,

corruption, etc. The reason is that volatility of equity or bond indices, or (tapered)

yield levels are incomplete gauges for risk. The practical relevance of including

freedom variables is that the investor might not get his money back ifsomething goes wrong. We all know that, quite often when circumstances

change, most investors want out at roughly the same time. A regulation-hungry,

bureaucracy-worshiping regime is more likely to halt the exit of funds when the

day for selling finally comes. Cyprus in spring 2013 was potentially an amuse-

bouche rather than an appetizer; an early taste of what centrally planning, Borg-

like etatists are capable of, when their back hairs start feeling the proverbial wall.

Table 4: Economic world cup (as of 5 June 2014)

Source: IR&M, Bloomberg (BB), Heritage Foundation (HF), Central Intelligence Agency's World Factbook (CIA), World Bank (WB), Transparency International (TI), KPMG (KP),World Economic Forum (WEF). Notes: BoP: Balance of payments, External debt: total public and private debt owed to non-residents repayable in internationally accepted

currencies, goods, or services, CPI: Consumer Price Inflation and Corruption Perceptions Index.

Another table where the Swiss lead. If only we could play football too. Spain, Croatia, Italy and Greece are the only four countries that have no green

fields inTable 4.Honduras, Cameroon, Argentina, Bosnia etc., they all have

something going for them.

The US has the highest corporate tax rate, higher then France and Belgium. Itis quite reasonable to assume that the corporate cash that cannot go home

1HedgeFund Intelligence, Autumn 2013

Country

GDP,

$tr

(BB)

GDP,

real,

yoy

(BB/WB)

Unempl,

%

(BB)

Inflation

(CPI),

%

(BB)

Misery

Index,

%

(IR&M)

Fertility

rate,

kids/w

(CIA)

Rate

nominal,

%

(BB)

Rate

real,

%

(IR&M)

BoP,

% GDP

(WB)

Budget,

% GDP

(BB)

Debt,

public,

% GDP

(HF)

Debt,

external,

% GDP

(CIA)

Property

rights,

(HF)

Corrupt.

(CPI),

(TI)

Corp.

tax

rate,

(KP)

Govt.

expend.,

(HF)

Business

freedom,

(HF)

Global

competit.

Index

(WEF)

Rank

(IR&M)

Columns used for ranking:

Switzerland 0.63 2.0 3.2 0.0 3.2 1.5 0.0 0.0 8.5 0.6 49 248 90 85 18 34 75 1 1

Chile 0.27 4.1 6.5 4.3 10.8 1.8 4.0 -0.3 -3.5 0.5 11 38 90 71 20 23 69 34 2

South Korea 1.13 3.9 3.9 1.5 5.4 1.3 2.5 1.0 3.8 -0.4 34 39 70 55 24 30 93 25 3

Germany 3.43 2.3 5.9 1.3 7.2 1.4 0.3 -1.1 7.0 0.0 82 167 90 78 30 45 90 4 3

Netherlands 0.77 -0.5 8.7 1.2 9.9 1.8 2.8 1.6 9.4 -3.6 72 345 90 83 25 50 90 8 5

United Kingdom 2.48 3.1 6.8 1.8 8.6 1.9 0.5 -1.3 -3.7 -5.8 90 408 90 76 21 48 92 10 6

Colombia 0.37 4.9 10.6 2.7 13.3 2.1 3.8 1.0 -3.3 2.8 33 23 50 36 25 29 85 69 7

United States 16.24 2.0 5.9 2.0 7.9 2.0 0.3 -1.8 -2.7 -2.9 107 103 80 73 40 42 89 5 8

Algeria 0.21 3.3 9.7 0.7 10.3 2.8 4.0 3.3 6.0 -0.3 10 2 30 36 19 40 66 100 8

Mexico 1.18 1.8 4.9 3.5 8.4 2.3 3.5 0.0 -1.2 -2.8 44 30 50 34 30 27 77 55 10

Belgium 0.48 1.2 8.5 0.4 8.9 1.7 3.1 2.8 -2.0 -2.6 100 295 80 75 34 53 90 17 11

Australia 1.53 3.5 5.8 2.9 8.7 1.8 2.5 -0.4 -3.7 -1.4 93 226 77 67 30 50 83 23 12

Russia 2.01 0.9 5.3 7.3 12.6 1.6 8.3 1.0 3.6 2.7 11 31 25 28 20 36 70 64 13

Ecuador 0.08 5.1 5.6 3.2 8.8 2.3 3.9 0.7 -0.2 0.1 19 24 20 35 22 44 53 71 13

Japan 5.96 3.0 3.8 1.6 5.4 1.4 0.1 -1.5 1.0 -6.7 238 51 80 74 36 42 80 9 15

Costa Rica 0.05 5.1 8.3 3.7 11.9 1.9 3.1 -0.6 -5.3 -4.1 35 27 50 53 30 18 65 54 16Uruguay 0.05 4.6 6.3 9.2 15.5 1.8 9.3 0.1 -5.3 -2.1 54 23 70 73 25 33 75 85 17

France 2.61 0.8 9.8 0.7 10.5 2.1 2.9 2.2 -2.2 -4.3 90 198 80 71 33 56 80 23 18

Portugal 0.21 1.2 15.1 -0.1 15.0 1.5 3.6 3.7 -2.1 -4.9 123 259 70 62 23 49 85 51 19

Ghana 0.04 7.9 11.0 14.7 25.7 4.1 12.3 -2.5 -11.7 -3.9 57 28 50 46 25 24 63 114 19

Brazil 2.25 1.9 4.9 6.3 11.2 1.8 11.0 4.7 -2.4 3.1 68 19 50 42 25 39 54 56 21

Nigeria 0.26 6.7 23.9 7.9 31.8 5.3 9.4 1.5 7.8 -1.4 18 4 30 25 30 29 48 120 22

Ivory Coast 0.02 9.5 40.0 1.3 41.3 3.6 3.5 2.2 0.0 -3.1 49 19 30 27 25 26 55 126 23

Iran 0.55 -1.9 12.5 17.4 29.9 1.9 14.8 -2.6 0.0 0.5 11 2 10 25 25 22 62 82 24

Spain 1.32 0.5 25.4 0.4 25.8 1.5 3.0 2.6 -1.1 -7.1 84 173 70 59 30 45 77 35 25

Honduras 0.02 3.9 4.4 6.0 10.4 2.9 7.0 1.0 -8.6 -3.2 35 26 30 26 30 26 55 111 26

Croatia 0.06 -0.4 21.1 -0.5 20.6 1.5 0.6 1.1 -0.3 -3.4 56 108 40 48 20 42 61 75 26

Cameroon 0.03 4.6 30.0 2.9 32.9 4.8 2.8 -0.2 -3.8 0.1 15 13 30 25 35 22 45 115 28

Italy 2.01 -0.5 12.7 0.6 13.3 1.4 1.7 1.1 -0.4 -3.0 127 122 50 43 31 50 76 49 29Argentina 0.48 1.4 7.1 20.8 27.9 2.3 14.8 -6.0 0.0 -0.5 45 28 15 34 35 41 54 104 30

Bosnia and Herzegovina 0.02 -0.7 28.0 3.1 31.1 1.3 2.9 -0.2 -9.3 -1.6 44 52 20 42 10 49 56 87 31

Greece 0.25 -5.5 26.5 -1.3 25.2 1.4 4.8 6.1 -2.5 -12.7 159 234 40 40 26 52 76 91 32

One of the things that concerns me

in the context of the Eurozone is

expropriation. Cyprus was a bail-in,

with depositors savings taken awayto make up for the shortfall and it

was done at the direction of

government. This now seems to be

the new template.

Sir Michael Hintze, Founder of CQS1


26/41



will be misallocated as a result; in addition to angering the host population of

the targeted misallocations.

The Misery Index has the highest correlation with the final ranking, i.e., thelast column. The correlation coefficient was 0.73. This means simple and

battle-tested metrics are still usable for a crude and quick approximation of

the economic status quo.

The second highest correlation with the final ranking had property rightsand WEFs Global Competition Index. The correlation coefficient was 0.65

(-0.65 in the case of property rights). This too makes sense. If youre an

uncompetitive kleptocrat and you rip off everyone, you probably wont be

doing great. (Well, the kleptocrat himself will actually be doing great; its just

that everyone else wont.)

Table 5 shows country risk for the 32 combatants. The country risk is an average

of sovereign risk, currency risk, and banking sector risk by the Economist

Intelligence Unit (EIU).

Table 5: Country risk

Source: IR&M, Bloomberg, Economist Intelligence Unit

Notes: Change in stock indices is in USD; change in 10-year government bond yields is in basis points. Big Macs are measured in USD and the percentage price change is

shown.

As of Q1 2009, the country risk of the UK was higher than that of Greece.Things dochange over time.

Uruguays stock market has not recovered from 2008, neither in USD nor inany other terms. Worst of all, Big Macs have risen by 54%.

Argentinas stock market has done well; at least the part that has not beennationalised.

Last YTD EUI CR Stocks 10Y, bp Big Mac, %

26 27 26 26 26 27 25 23 23 23 25 26 27 25 24 22 21 20 19 18 18 17 United States 114 39 29

17 17 20 20 17 18 19 19 19 17 18 21 21 22 21 22 19 19 19 19 19 19 Switzerland 85 -138 12

25 26 26 26 26 25 25 21 22 21 21 24 25 25 25 26 26 27 27 26 26 25 Germany 99 -161

29 29 31 31 31 32 31 30 31 31 31 30 29 29 30 31 33 31 31 29 26 26 Japan 47 -59 13

23 23 24 24 26 27 27 26 24 23 24 26 26 28 29 30 29 29 29 27 26 26 Netherlands 59 -194

28 30 31 31 30 30 31 29 28 28 29 30 31 31 31 30 33 31 29 28 27 27 France 36 -169

34 32 32 32 32 29 27 26 25 23 23 25 28 28 27 27 26 28 28 28 28 28 Chile 97 18

36 36 36 36 37 38 37 35 35 35 34 34 37 36 36 37 37 37 37 36 28 28 United Kingdom 81 -54 1

30 33 35 35 32 29 30 27 27 28 29 33 33 33 33 34 35 34 35 35 34 34 Belgium 60 -191

44 42 42 38 38 37 37 33 33 34 35 35 36 37 37 37 35 35 35 34 34 34 South Korea 128 -87 11

39 38 36 36 38 41 40 37 35 36 35 35 35 36 36 36 34 35 35 36 36 35 Australia 102 -31 33

38 38 40 36 37 36 36 34 36 34 34 37 37 38 38 36 37 38 37 37 37 37 Mexico 101 -215 -1247 47 44 42 43 43 42 40 41 40 40 38 37 37 37 36 38 37 39 39 38 38 Colombia 113 12

44 45 41 41 43 43 41 39 39 39 38 38 39 39 39 40 38 37 41 39 39 39 Brazil 46 11

34 35 36 36 34 35 35 34 35 35 35 38 40 40 40 40 41 43 43 42 40 40 Italy 7 -144

49 48 47 45 45 45 44 43 44 43 43 43 40 43 43 41 42 42 43 43 43 41 Russia 96 3

29 34 35 35 38 36 34 33 36 36 39 39 38 42 42 43 43 43 43 43 41 41 Spain 13 -99

51 49 45 43 42 42 42 42 40 40 40 42 41 42 41 40 40 41 41 42 41 41 Uruguay -68 54

34 34 36 36 38 35 40 42 43 45 46 50 50 49 47 47 47 48 47 46 42 42 Portugal 8 -43

54 50 49 48 48 47 44 41 44 43 44 45 46 46 45 44 44 43 43 43 44 44 Costa Rica 8 31

43 43 44 45 46 46 45 48 48 47 45 46 47 44 45 48 48 47 46 48 47 47 Algeria

50 54 52 50 49 49 49 50 49 49 50 51 52 52 51 52 51 50 49 50 49 49 Croatia -8

67 66 62 62 62 58 57 60 68 63 60 59 57 57 53 52 52 50 50 50 53 53 Ivory Coast

52 54 53 52 50 51 53 54 52 52 53 52 53 51 52 53 54 53 54 51 54 54 Cameroon

71 73 71 62 63 62 61 61 65 63 65 65 64 64 62 63 62 62 58 58 55 55 Ecuador 20

60 60 60 58 55 52 50 50 49 48 49 52 52 52 55 56 55 53 53 52 55 55 Ghana

34 33 31 31 39 46 46 47 46 50 52 53 64 67 66 66 63 64 60 59 56 56 Greece -35 107

57 56 61 58 57 56 55 57 58 57 53 53 54 54 53 53 52 52 52 53 53 57 Nigeria 35

59 59 60 60 58 60 59 58 60 60 60 62 62 61 63 62 60 61 61 62 61 61 Bosnia and Herzegovina59 61 70 65 65 64 62 59 58 59 58 58 57 58 59 59 59 59 61 62 62 62 Honduras

58 60 59 59 59 57 58 57 55 56 57 60 63 62 62 64 62 65 66 67 67 67 Argentina 203 -17

60 61 61 60 60 58 57 60 61 62 64 67 72 72 69 71 73 73 72 71 70 70 Iran

Q1 2009 - Q1 2014

EUI Country Risk Change since December 2008


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World stock market at all-time high

Some stock markets are at their all-time high.Figure 20 shows stock market

performance for the 27 World Cup contenders that have a stock market and data

is available via Bloomberg. The light bars measure the distance from its all-time

high in USD, i.e., 0 means that the index was at an all-time high when this chart

was done. The filled bars measure year-to-date stock index performance in USD,

i.e., the USD return from January to 29 May 2014.

Figure 20: Stock markets distance from all-time high and YTD performance (29 May 2014)

Source: IR&M, Bloomberg

Everything based in USD.

The MSCI World is at an all-time high while most markets arent. Argentina, the US and Germany were at an all-time high at the end of May. Uruguay was 82% below its all-time high. If the index starts compounding at,

say, 5% per year, the losses will be recovered somewhere around the year

2049. In nominal USD terms that is.

Large losses obviously kill the rate at which capital compounds. The discipline that

aims to prevent or avoid large losses is called risk management. (Luck also works

pretty well but isnt very reliable; thus not being very helpful to the observant

practitioner.)

One way to assess risk is via price momentum. One of the advantages of price

momentum is its simplicity. Once one defines the parameters, a market has

positive momentum or it hasnt. This means for the investor he should be e ither

involved or he shouldnt. (Or he should be long or short. Or he should be long

those markets with positive momentum and short those markets with negative

momentum, thus balancing market risk on a portfolio level, etc.)

Figure 21 is just one example.

As far as I am concerned, the stock

market doesnt exist. It is only there

as a reference to see if anybody is

offering to do anything foolish.

Warren Buffet

Relying on luck is about as

intelligent as a bearded Austrian

wearing Victorias Secretis

attractive.

When sophistication loses content

then the only way of keeping in

touch with reality is to be crude and

superficial.

Paul Karl Feyerabend (1924 -

1994), Austrian-born philosopher of

science


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Figure 21: Using price momentum to assess market risk

Source: IR&M risk management update 16 May 2014

IR&M has been producing a momentum monitor as a tool to help investors lose

money. This sounds like a typo, but isnt. All investors lose money every now and

then. However, successful investors lose less than unsuccessful investors. One of

the tricks is: when you fall in a hole, stop digging.

The momentum monitor was designed to help investors with risk management,

asset allocation, and position sizing. Tail events do not always happen out of the

blue. They often occur when momentum is negative. Negative momentum makes

hedging more important and suggests position sizing should be more conservative.Furthermore, momentum helps avoiding continuous, negative compounding of

capital by cutting losses short.

The momentum monitor seeks to improve the investors investment decisions;

making the investment decision process more robust. Seeking applicable wisdom is

the goal of the whole research. Data and information is cheap and knowledge is

something one can look up. Connecting the dots to understand what is going on

1This means, according to Zweigs theory, that if interest rates were going down, stocks would go up, and vice versa. He

also claimed the way to make money was to be risk-averse, rather than taking chances on the upside. He said he was a

big poker player while at Wharton, but had stopped playing when he became a money manager because he hated losing,

even at cards. One of his major pieces of advice was never to hold stocks, even of the best companies, in a bear market,

since even they could disappoint.

A fool with a tool is still a fool.

Saying

Dont fight the Fed.

Martin E. Zweig (1942-2013),

American investor1


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andideallyapplying some wisdom that has stood the test of time is the aim of

this effort.

Applied wisdom does not change from week to week. As a matter of fact, one

could argue that wisdom is something that always applies. For example, Martin

Zweigs Dont fight the Fed is probably always true. However, we are currently

in a regime where it is most applicable. For the past couple of years it was centralbanks intervention that was the most important thing, with economic factors

being somewhat delegated to the proverbial back burner.

Figure 22 shows a momentum summary page from IR&Ms momentum monitor

for the 27 countries with an equity market. The numbers count the number of

weeks since long-term momentum changed positive (green) or negative (red). A

tutorial can be found in the Appendix of this report or onwww.ineichen-rm.com.

Figure 22: IR&M long-term momentum monitor

Source: IR&M, Bloomberg.

Notes: Long-term momentum is based on simply weighted average over 10 and 40 weeks. Chg.: Highlights change from Friday to Friday. FX momentum of USD is based on

trade-weighted index, FX momentum in EmMa is based on JPM Emerging Markets Currency Index. * = performance since trend reversal: Equities: USD price returns in %;

bonds: yield change in basis points; CDS: change in basis points; FX: currency change versus USD. ** Eurozone member.

Tutorial: This table shows long-term momentum for equities, 10-year government bond yields, 5-year credit default swaps (CDS), and currencies. The four geographic sections

were sorted by equity performance, best first. Colour-coding for yields and CDS is from the perspective of the bond investor, i.e., falling = positive. Developed markets arehighlighted in grey in the names column.* = change since signal. Further information in the Appendix.

The World ex Russia has become a less risky place. Everyone seems to bewaiting until the music stops but the central planners just keep buying.

Parts of Latin America turned positive quite recently.The idea of paying attention to momentum also works for the economy as a

whole, rather than just securities or indices thereof.Figure 23 shows one example;

an economic momentum model for the United States in this case.

IR&M long-term momentum

Week: 19 20 21 22 Chg. * 19 20 21 22 Chg. * 19 20 21 22 Chg. * 19 20 21 22 Chg. *Regions

Eurozone 88 89 90 91 36 -11 -12 -13 -14 -26 -93 -94 -95 -96 -175 42 43 44 45 2 EUR

World 91 92 93 94 33

Emerging Markets 2 3 4 5 4 -1 -2 -3 -4 -23 -55 -56 -57 -58 -7

Americas

Argentina 74 75 76 77 75 -34 -35 -36 -37 -631 -290 -291 -292 -293 -59 ARS

Costa Rica 94 95 96 97 57 31 32 33 34 10 CRCUnited States 120 121 122 123 46 -8 -9 -10 -11 -9 -10 -11 -12 -9 -34 -35 -36 -37 0 DXY

Ecuador 39 40 41 42 9 -34 -35 -36 -37 0 DXY

Chile 2 3 4 5 3 -22 -23 -24 -25 -11 -50 -51 -52 -53 -9 CLP

Colombia 1 2 3 4 1 -4 -5 -6 -7 -14 -15 -16 -17 -36 -59 -60 1 2 0 COP

Mexico -10 -11 -12 1 0 -1 -2 -3 -4 -13 -25 -26 -27 -28 -27 -44 1 2 3 0 MXN

Brazil -19 -20 1 2 -1 59 60 61 62 214 -7 -8 -9 -10 -23 3 4 5 6 0 BRL

Uruguay -6 -7 -8 -9 -8 47 48 49 50 10 UYU

Europe

Germany** 93 94 95 96 59 -11 -12 -13 -14 -26 -92 -93 -94 -95 -43 42 43 44 45 2 EUR

Switzerland 95 96 97 98 52 -8 -9 -10 -11 -29 35 36 37 38 4 CHF

Belgium** 93 94 95 96 51 -17 -18 -19 -20 -46 -114 -115 -116 -117 -193 42 43 44 45 3 EUR

France** 91 92 93 94 43 -9 -10 -11 -12 -36 -94 -95 -96 -97 -120 42 43 44 45 3 EUR

Netherlands** 92 93 94 95 35 -13 -14 -15 -16 -27 -37 -38 -39 -40 -21 42 43 44 45 3 EUR

Spain** 37 38 39 40 34 -81 -82 -83 -84 -274 -85 -86 -87 -88 -307 42 43 44 45 2 EUR

Italy** 37 38 39 40 34 -28 -29 -30 -31 -113 -37 -38 -39 -40 -129 42 43 44 45 2 EURUnited Kingdom 91 92 93 94 25 -5 -6 -7 -8 -5 -39 -40 -41 -42 -14 34 35 36 37 5 GBP

Portugal** 33 34 35 36 20 -25 -26 -27 -28 -234 -25 -26 -27 -28 -173 42 43 44 45 2 EUR

Greece** 32 33 34 35 15 -107 -108 -109 -110 -1428 42 43 44 45 2 EUR

Russia -8 -9 -10 -11 15 45 46 47 48 87 12 13 14 15 9 -54 -55 -56 -57 -11 RUB

Croatia -45 -46 -47 -48 -2 -9 -10 -11 -12 -60 -10 -11 -12 -13 -49 46 47 48 49 3 HRK

Bosnia and Herzegovina -10 -11 -12 -13 -3 -42 -43 -44 -45 -2 BAM

Rest of World

Ghana 107 108 109 110 33 60 61 62 63 59 GHS

Australia 89 90 91 92 15 -3 -4 -5 -6 -29 -19 -20 -21 -22 -2 3 4 5 6 0 AUD

Nigeria -11 -12 -13 -14 8 13 14 15 16 0 NGN

South Korea -11 -12 -13 -14 5 -7 -8 -9 -10 -17 -24 -25 -26 -27 -2 33 34 35 36 5 KRW

Japan -6 -7 -8 -9 -1 -31 -32 -33 -34 -8 -39 -40 -41 -42 -24 -76 -77 -78 -79 -19 JPY

Equities Govt bond yields, 10-year CDS, 5-year FX vs USD

There are old climbers and bold

climbers, but there are no old bold

climbers.

Mountaineering risk managementwisdom
http://www.ineichen-rm.com/index.php?option=com_content&view=article&id=73&Itemid=65http://www.ineichen-rm.com/index.php?option=com_content&view=article&id=73&Itemid=65http://www.ineichen-rm.com/index.php?option=com_content&view=article&id=73&Itemid=65http://www.ineichen-rm.com/index.php?option=com_content&view=article&id=73&Itemid=65


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Figure 23: Economic momentum

Source: IR&M risk management update 4 June 2014

The best way to think about economic momentum is with a sailing analogy incombination with Minskys instability idea. Every sailor knows that a storm

requires a different trim than calmer weather. The red line in the chart is

designed to indicate whether the economic environment is calm or a storm is

brewing. The key is not to predict the next storm but to respond when

circumstances start changing. Rough weather at sea doesnt change from one

minute to the next. The same is true for a change of the economic winds;

normally. There is time to trim the sails. In finance this means being moreconservative or hedged when things start to change for the worse, i.e., the red

line in the chart starts to fall. The storms zenith or magnitude and potential

damage cannot be predicted. However, changing circumstances can be

measured and assessed. The practical relevance to Minskys instability

hypothesis is that, both at sea and in economics, the current calm is nothing

else than the build-up of the next storm.

Man cannot change the direction

of the wind....he can only adjust his

sails.

Sailing wisdom


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One negative aspect of momentum is that one nearly never buys at theultimate low or sells at the high. Trying to predict these turning points is

another game entirely. An example: There is no shortage on forecasts on

China; some good, some bad. Paying attention to economic (and stock price)

momentum is much more objective, simple, transparent and clear. Economic

momentum in China, according to IR&Ms China model, turned negative early

2013 when the Shanghai Composite was around 4000. In June 2014 the

economic momentum in China was still negative without interruption and the

stock index at 2000. While forecasting is highly entertaining, there is no need.

There will be a time to readjust ones Chinese sails, clearly; but there is no

need trying to catch the proverbial falling knife. (That said, judging by a chart

of the Shanghai Composite, someone with very deep, actually authoritatively

big pockets seems to be buying at 2000, thereby providing some support.)

Momentum is also applicable to aggregate bottom-up variables as for example

corporate earnings.Figure 24 shows momentum of 12-months forward consensus

earnings.

Figure 24: Earnings momentum


When earnings estimates are shown in percentiles, as in the graph above,earnings estimates are at a multi-year high for both the MSCI World as well as

Im not a market timer. I never

bought at the lows or sold at the

highs, but I was always in the game

for the middle 60 per cent.

J.P. Morgan (18371913),

American banker


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the S&P 500. This is perfectly consistent with these two indices being at their

all-time highs at the time of writing, i.e., early June 2014.

With many equity markets at an all-time high, investors obviously wonder where

next. I have no clue, as has nobody else. As Robert N. Veres put it:

Personally, I think everybody who predicts the future with a straight faceshould be required (by federal law) to change out of the business suit,

wrap him/herself in a gypsy shawl, wear one of those pointed wizard's

hats with a picture of a crescent moon on it, and make conjuring sounds

over a crystal ball. That way, everybody would know exactly what's going

on and how much credibility to give the answer.1

One way of avoiding forecasting isnowcasting.Focussing on facts rather than

opinionson nowcasting rather than forecastingmakes the investment decision

making process more robust. A tick-the-box approach is a form of nowcasting. A

box is either ticked or it isnt. Its that simple.

Figure 25 shows a tick-the-box approach to the US stock market. The current

situation in the last column is compared to the previous two peaks, i.e., March

2000 and October 2007. The number of green ticks implies that nearly all seems

well and sound at the moment. Ones conviction should be inversely related to the

number of non-ticks, i.e.; the fewer explosives, the higher the conviction in the

bull market continuing.

1"The Vision Thing," Investment Advisor, June 1997.

2Berkshire Hathaway Annual Meeting, 3 May 2008.

There's no chance that the iPhone

is going to get any significant

market share. No chance. It's a $500

subsidized item.Steve Ballmer, April 2007

We dont like things you have to

carry out to 3 decimal places. If

someone weighed somewhere

between 300-350 pounds, I wouldnt

need precisionI would know theywere fat.

Warren Buffett2
http://en.wikipedia.org/wiki/Nowcasting_(economics)http://en.wikipedia.org/wiki/Nowcasting_(economics)http://en.wikipedia.org/wiki/Nowcasting_(economics)http://en.wikipedia.org/wiki/Nowcasting_(economics)


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Figure 25: Tick-the-box approach to US stock market (June 2014)

Source: IR&M

At the moment, all seems well. One really needs to look hard to find somenon-ticks.

The risk of ticking boxes is that one is ticking to wrong boxes; thus any derivedconviction being an illusion.

Another simple way to assess toppishness is valuation. The funny thing here is that

there is no agreement as to whichvaluation is best. Equity markets are expensive

on some yard sticks and fairly priced on others.Figure 26 shows the MSCI World

with P/E bands.

March

2000

October

2007

June

2014

Price momentum

Long-term momentum S&P 500 positive

Long-term momentum Financials positive M M 5Y annual S&P 500 TR Index return < 25% M

Stock market related factors

Trailing P/E ratio < 20x M

EPS estimates rising M

Price-to-book value < 3x M

NYSE margin debt/GDP < 2.5% M M

Macro

ISM PMI > 50

Jobless claims < 350k and falling

Monetary policy

Fed easing M

Yield curve positively sloped M

Risk

High yield spreads < 450bps M

High yield spreads < 450bps and not rising M M M

TED spread < 50bps M

St. Louis Fed's Financial Stress Index < 0 M M

VIX < 20% M

Farrah Fawcett still alive M

Eternal world peace M M M


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Figure 26: MSCI World with P/E bands and valuation matrix


Based on an conventional valuation approach, as shown above, the marketdoes indeed look a bit toppish. However, it can remain toppish for a rather

long time; hence the idea of paying attention to momentum.

Scenario analysis is another way to assess risk and enlighten us as to where we

stand. At one, simplistic level, the stock market is a function of earnings, a

discount factor and the risk premium the market thinks is most appropriate. In

Figure 27 I juggle a bit with these variables.


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Figure 27: Scenario analysis


If the market one day wakes up and decides that governments are actually notthat trustworthy given all the lying, cheating, cronyism, money printing, gaffs,

etc. and start regarding equities not more risky than long-term government

bonds, then the equity risk premium will go to zero. At the current Treasury

yield of 2.58% this means that the earnings yield of the S&P 500 Index is the

same, i.e., 2.58% (for the equity risk premium to be zero). If analysts got their

earnings predictions correct and earnings per index do indeed rise by 14%

from $108.8 to $124.1, then the index should rise by around 150%.

One can easily turn this example around and argue, for the equity riskpremium to go to zero, yields rise to the earnings yield, i.e., 5.66% in this

case. This is of course bad for bonds. What stays unchanged is that equities

are cheap relativeto bonds; given the assumptions.

Which of the many scenarios will eventually play out will only be determinable

with the benefit of hindsight. At the moment the sea in financial markets is calm,

1Hayek, F.A. (1976) Choice in Currency: A Way to Stop Inflation, London: The Institute of Economic Affairs. Hayek

argued that the only true way to fight inflation was to keep government honest, and the only way to keep government

honest was to take away governments legal privilege to issue money exclusively. Hayeks proposal was simple: repeal

legal tender laws and let the people use whatever sort of money they want.

With the exception only of the 200-

year period of the gold standard

(1714 to 1914 in Britain), practically

all governments of history have

used their exclusive power to issue

money in order to defraud and

plunder the people.

F.A. Hayek (18991992),Austrian economist1


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i.e., a good time to focus on the football world cup rather than the economic

world cup.Figure 28 shows a selection of risk measures.

Figure 28: Selection of risk measures


Many of the shown risk measures are at or very close to a multi-year low; aproxy for a calm sea or investor complacency.


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So whos gonna winthen?

Table 7 shows an average ranking of the eight most relevant input variables using

sophisticated econometrical and statistical methodologies, and the most state-of-

the-art technology available in finance, i.e.,

ir&m economic world cup 2014

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