Walking around Dublin these days, it appears that everyone is on the phone.
It is impossible to stand in a queue or in a public space and not be amazed by the amount of gadgetry and texting and chatting that is going on.
This communication business continues to grow in all sorts of unanticipated ways as more and more people all over the world get connected.
For example, did you know that every minute of every day, 35hours of content are uploaded to YouTube?
It is important for those of us who watch the economy to be aware of what is going on in mobile phone companies.
Reading the economic tea leaves is a crucial part of the economics profession, and most economists have a favourite set of figures.
Mine is mobile phone company results.
Details in a mobile phone company’s accounts tell us more about what is going on in an economy than other more commonly used leading indicators. Looking at the right figures to predict the next moves in the economy is crucial because after all what use are economists if they can’t tell you what is likely to happen in the future?
You’d be pretty dismissive of a doctor who couldn’t diagnose you in advance, but could tell you on your deathbed that you had a fatal disease.
Similarly, economists who can tell you what happened yesterday but can’t tell you what is likely to happen tomorrow are hardly worthy of the title ‘economist’.
What makes the difference between economists? It is not, as economists who didn’t foresee the bust might claim, between celebrity economists and others, but between economists with foresight and economists with hindsight.
As well as a bit of theory, a few rules of thumb, a bit of common sense and some experience, one of the crucial parts of an economist’s armoury is the choice of figures he or she looks at.
For me the mobile company accounts are for fairly obvious reasons important because what is going on today deep inside a phone company will only be picked up by official data a few quarters from now.
By the time that official figure is published, it will be too late to react.
A few weeks ago, Vodafone, the world’s biggest mobile phone company, published its results. (They can be seen on the company’s website.) If the phone company is doing well here now, we are likely to see a pick-up in the economy in the months ahead. If the phone company is doing well here, we are likely to be in a position to pay back some of the money we owe. In fact, maybe we could go so far as saying that if the phone company is doing well here, the IMF/EU deal will succeed.
Unfortunately, this is not the case. Vodafone’s operating profit in Ireland is down significantly because Vodafone has just massively increased its impairment losses in this country to €1 billion for this year alone.
This is a huge figure and it means that Vodafone is now degrading the value of its own business in Ireland so that it doesn’t get a nasty surprise in the quarters ahead.
From a European perspective, the Vodafone results also shed light on why Europe is in danger of splitting in two, between the debtor nations, which are faltering, and the creditor nations, which are doing fine. In fact, the Vodafone results mirror the bailouts and tell us what current EU policy will do to the performance of the periphery.
Here is a quote from the Vodafone results: ‘‘Impairment losses totalling €6,150millionwere recorded relating to our businesses in Spain (€2,950million), Italy (€1,050million), Ireland (€1,000 million),Greece (€800 million) and Portugal (€350million), primarily resulting from increased discount rates as a result of increases in government bond rates together with lower cashflows within business plans, reflecting weaker country level macroeconomic environments.
The impairment loss in the prior year was €2,100 million.”
What Vodafone is telling us is the polar opposite of what the European Central Bank (ECB) is telling us. The ECB is telling us that if the patient takes the medicine, it will recover.
What Vodafone is telling us is that as a result of the medicine, the patient is getting weaker and weaker. Look at the countries where Vodafone is tripling its impairment overall losses: Portugal, Ireland, Italy, Greece and Spain – the PIIGs – the very countries in difficulty.
Who do you believe about the likely next phase of the economic cycle, the ECB or Vodafone?
Now let’s take a closer look at the numbers. If we break down the absolute level of impairment by national population, we can get a sense of just how bad the collapse on domestic demand can be expected to be.
Here Ireland comes out very badly, much worse than Greece. Vodafone has taken a per head impairment in Greece equivalent to e0.71; in Italy the figure is e0.17, in Spain it is e0.64 and in Portugal it is e0.35. In Ireland, the level of impairment is an enormous €2.27 per head.
This is three and a half times worse than even Greece.
I doubt Vodafone has ever raised the level of impairment this high in any country and it is a measure of how it regards the level of activity in Ireland and the resulting collapse in the value of its business here.
Companies like Vodafone don’t see things getting better; they see things getting worse and a country where impairments are rising is not the type of country that can service mounting debts.
The reason why Vodafone is important is because it is at the heart of the economy. Using the mobile phone and the communicating in general is what people do every day, all the time.
The trends spotted by Vodafone now will manifest themselves in published figures for domestic demand early next year.
Significantly, this describes the GNP element of the economy, the one that matters, not the GDP measure of the economy – the one that distorts to deceive.
While GDP grew in the first quarter of this year, GNP fell at the fastest rate ever recorded.
The Vodafone snapshot paints a picture of the world as it is, not as officialdom would like it to be.
As a result of current policy, this economy will get weaker and weaker as the banks cease to be banks and become nothing more than glorified safety deposit boxes for the ECB.
The more we save, the more this money gets stuck in the dysfunctional banks and the less activity there is to generate taxes.
Like the Greeks, we will miss our bailout targets and as the day when the IMF leaves gets closer, the sense of panic will increase, causing capital flight and further asset prices falls.
The Vodafone figures, as well as everything we can see on our TV screens, show that Europe is now split into two camps.
This is hardly the enhanced European solidarity which the ECB was set up to ensure in the first place.
David McWilliams has set up an economic consultancy offering independent advice. www.economicsclinic.ie
Weird Scenes Inside the Gold Mine.
Fascinating stuff David
As I keep saying it’s time to lower the lifeboats. I guess that in a year AIB will be gone and capital will leave the country. There is no stopping this thing and you more or less said so yourself in your last article
Time for people to become detached from money and material possessions. Resistance is futile
I thought multinational companies adjusted their internal booked costs so that their profits and losses registered in countries where they gained the greatest tax benefit. I guess that is more difficult to do with telecom companies.
We would be looneys to change the corporate tax rate. Maybe we should still let the banks go even now. Guarantee deposits of course and set up new banks. No debts on the balance sheets of the new banks and we start again. Too bad if the ECB disagrees, we just say ‘that’s capitalism’ and move on.
Its clear many people who are pinned to their collar will cut back on usage of things like mobile phones in order to keep paying the mortgage/rent/college fees. The mortgage is sacrosanct, it is rated higher than food and heating and everything else and must be paid at all costs to save on public humiliation of being evicted and moving back in with Mammy and Daddy. I wouldn’t be surprised if all those mobile phone users in the queue were having imaginary conversations, you know, you have to be seen as someone with many friends and all the time with… Read more »
AIB will offer 2,000 staff ,7 weeks pay for each of service, as a redundancy package.It will cost € 250 millions.Madness.
Man how my ancestors would spin in their graves if they knew where the FF’ers would eventually bring us? Zombie banks a Zombie economy and all presided over by a Zombie government! Mind you they probably are spinning in their graves even as we speak because, you’ve guessed it, they also may have become Zombies. And I suppose I’m no different myself as I’m destined to join the economically un-dead along with my debt slave citizens? This is all a dream isn’t it? Or some B movie? Yeah its a crazy movie where near the end the hero gets to… Read more »
One must be very careful before reading too much into a single companies perspective on risk. Vodafone may well me experiencing changing consumer trends, new competition from new technologies (skype etc) and perhaps we had over spent (as a race) on telecommunications because we like to talk more then our European neighbours. It is dangerous to take too much inference from one single source, even more so publicise it as some sort of given. Does o2 bear this out, does Microsoft, Dell and other large globally positioned organisations. Maybe then you will have a trend that is worth noting. You… Read more »
David, Your decimal places are in the wrong places – I think – your maths certainly don’t add up. Quote from you article above “Here Ireland comes out very badly, much worse than Greece. Vodafone has taken a per head impairment in Greece equivalent to e0.71; in Italy the figure is e0.17, in Spain it is e0.64 and in Portugal it is e0.35. In Ireland, the level of impairment is an enormous €2.27 per head.” Should that not be €71 per person x population of Greece 11.2 million = 800 million euros ( impairment figure ) for Greece or so….and… Read more »
David, I think your points are valid with respect to the wider economy and how Vodafone’s figures may be representative. However, you need to clarify what you mean by “impairment” as it may not be valid to use “impairment cost per subscriber”. There is a boom going on in the mobile industry right now that is not reflected in Vodafone’s stats. There is a flow of customers leaving the more expensive operators in search of more value with other operators. The bigger operators have to try to stem that tide with better offers, leaving lower margins as seen in Average… Read more »
10 Questions for Dr. Andy Storey, June 21st, 2011 My comments to readers are in [ brackets ] The independent audit will support people in Ireland to form an opinion on where the responsibilities lie with regard to the Irish debt crisis,” said Andy Storey, Chairman of AFRI and politics lecturer in UCD. “It will provide valuable lessons that will guide debt justice campaigning in the future and be shared with civil societies of indebted countries around the world. Thanks a lot for you time Andy! Besides your role as the chairperson of AFRI, a group that promotes debate on… Read more »
http://www.debtireland.org/about/
http://www.unctad.org/en/docs/osgdp20074_en.pdf
There was dismissive talk about the ‘celebrity’ economists from the start, as far as I can tell, but it seemed to become louder in recent months, possibly because some now see that their earlier positions have grown untenable? Speaking as an extremist burn the bondholder hothead I find myself wondering if the economic ‘community’ has achieved anything except to waste valuable time. Although it now seems clear to all what is going on (although interpreations might vary about the motives of the players) there still isn’t any public acknowledgement of the situation and no honest debate about the best way… Read more »
The mobile phone data is an interesting indicator. The interest rate on government debt and unemployment are also important indicators and both at historic highs. The Irish people seem content to carry on regardless with the no-brainer of gifting money to failed banks, all realestae owners (through NAMA) bondholders and CDS sellers despite these indicators. We’ve gone so far at this stage we may as well just exaggerate the submission to embarrass our abusers. Why don’t we publicly offer to give the whole country and all its savings to a few wealthy Irish real estate owners, the ECB, IMF, and… Read more »
I think the difference in economists is mostly how and by whom they are employed. The economists who were the cheerleaders of the destruction of the global economy were employed by companies making gigantic profits from the process; and they were reaping huge personal bonuses to play along. Thinking and talking rationally would have cost them their comfortable jobs. What was wanted was rationalisation — not reason. It was the same for the various market regulators; the word from on-high was clearly ‘look the other way or look for another job’. It’s the same with the hard sciences too. Most… Read more »
Perhaps the Catholic Church could regain some ground in the EU peripherals by having the Pope come out strongly in favor of debt forgiveness for the odious debts imposed on the peripheral countries. “Forgive us our debts as we forgive those … etc.”
Of course a big factor in the Irish statistics is whether or not the independent deputy for Kerry South is included in the Vodafone figures. According to recent reports there do be a lot of phone calls made in his favour :) I would have expected that mobile phone talk time would be the last thing that would have been impacted by a crisis in this country. It has got to the stage that if you go to a large gathering (concert, sports event, or even just the beach on a summers day along the East coast) that you are… Read more »
Give it a few months, and this is the type of nuanced language that you will hear here. http://www.marketwatch.com/story/greek-privatization-plan-not-a-fire-sale-official-2011-06-28 We know that it is easier get a buyer for the ESB or Bord Gais, than to get a buyer for RTE, CIE or FAS. And then we have Bertosconi in the background as part of an operation that are interested in Coillte…. The most intelligent thing to do with Coillte would be to sell small parcels of it to people on a drip drip basis. Basically, Irish people will be able to invest their own money in owning Coillte. Perfect… Read more »
[…] see full article at source here : http://www.davidmcwilliams.ie/2011/06/28/ecb-is-merely-phoning-it-in […]
David, I’m a big fan of yours however you can be prone to exaggeration at times. Taking one companies results & not really explaining the results or asking someone else to confirm your interpretaion of the results is a little crazy, and frankly dangerous. The old adage of ‘you dont know, what you dont know’ springs to mind. The second thing that is starting to irk me a little having recently started to read more of your stuff, is that you are great at throwing mud – but we need solutions right about now. It’s great to look back and… Read more »
Greece arguably has a lot of fat to cut out from a larger black economy and its dysfunctional fakelaki public service, though they are doomed to default.
Our fat has gone with little to give.
Vodafone results tell it all, good call on those, business is hanging on by its finger nails in Ireland.
We’re crash landing as we speak, Titanic times ahead!
Well it shows ET couldnt phone home from Ireland to where ever in the universe as the mobile providers may not be in existence in the irish market may be extreame but uk and other non eu banks have cut dramically their exposure to euro zone countires as fear of contagion.I think what is shown on the media in all forms is the slow break up of the euro currency in its present form.Greek default you may see the Uk making plans to force the EU to allow an option for Ireland to leave the euro as it may bring… Read more »
David,
Article of course presupposes the ECB wants the economy to bounce back into gear and get going again.
But it does not.
The ECB, otherwise know in reality as the Bundesbank is only interested in running a Euro pOnzi scam. And prepared to do whatever is necessary to keep it going.
Do you ever get the feeling of being divided against yourself, as in Stephen Leacock’s story? – When I go into a bank I get rattled. The clerks rattle me; the wickets rattle me; the sight of the money rattles me; everything rattles me. The moment I cross the threshold of a bank and attempt to transact business there, I become an irresponsible idiot. I knew this beforehand, but my salary had been raised to fifty dollars a month and I felt that the bank was the only place for it. So I shambled in and looked timidly round at… Read more »
Interesting analysis of the Euro by the German Economist Stefan Homburg. He also has a very interesting analysis of the “short-sell” game going on in the bond market for the PIGS state bonds.
Basically, they drive the bonds down, then they buy the bonds, and then the EU bails them out, and drives up the price of bonds – and makes the high yields safe.
http://globaleconomicanalysis.blogspot.com/2011/06/leading-german-economist-buys-greek.html
Ireland’s Dear Friend Obama uses trade agreements to boost corporate control, kill manufacturing jobs and impose bank deregulation. Deregulation as worked wonders for the US economy, has it not? Or perhaps Obama wants to cause a bubble and crash in other countries to restore US dominance? Or did he just buy up a load of Irish Fairy Dust and wants to spread its happy effects (at least for the rich) throughout the world?
http://www.salon.com/news/david_sirota/2011/06/28/free_trade_corporations/index.html
Irish people do not march because people have always needed a banner to rally under. The Greek trade unions are rallying the people over there. Ours have being discredited as being part of Bertie’s social partnership cock up. So to follow Dr Story’s advice and take to the streets we need someone respected and well known to unfurl a banner. I for one will do somethng I have never done and march.
Ireland’s future? The inefficient, slipshod privatization of public service in Indiana, USA sends a chilling message about the future as pushed by zealous conservatives.
http://www.latimes.com/news/nationworld/nation/la-na-indiana-privatize-20110624,0,2906699,print.story
Where are they?
Where is the legal profession in Europe? Why is there not a single case brought forwards to:
http://curia.europa.eu/jcms/jcms/j_6/
the European Court of Justice against J.C.Trichet?
it might just happen one of these days.
Excellent analysis by those LA Times staffers. “John Donahue, who studies public sector reform at Harvard University’s Kennedy School of Government, said even the appearance of too-cozy contracting ties can taint a well-intentioned privatization effort. “Contractual hygiene is pretty important,” said Donahue, formerly an assistant secretary of Labor in the Clinton administration. “People tend to be paranoid about conflicts of interest, and for good reason.” There is a move towards privatisation of healthcare in Ireland with all the dangers implicit in the article. If initial privatisation costs can be tendered below cost, they can easily be made to escalate or… Read more »
I have always enjoy the comments here but I am getting tired of commentators bashing capitalism without offering an alterantive system. I just find it lazy. This year I decided to educate myself about economics “23 Things They Don’t Tell You About Capitalism” “86 Biggest Lies On Wall Street” “Capitalism: A Graphic Guide” “Stunted Lives, Stagnant Economies” “Thailand: Bust and Boom” I have yet to read (anywhere) a genuine viable alternative economic system to capitalism. The alternatives that I have familiarised with have an equal measure of pros and cons. I am coming to the conclusion that capitalism is the… Read more »
Live streaming from Syntagma Square, Athens
http://politicotv.ie/index.php?option=com_content&view=article&id=98&Itemid=65
Open Challenge to our regular commentators.
“Capitalism Vs A Better Alternative Economic System – Historical or Theoretical.”
Would the regular commentators put forward their individual proposal in the next blog under the above heading?
This should make for interesting and informative reading. I for one would be particularly interested in hearing my favourite commentators and would love to read their informed viewpoints that are not singularly focussed on this present crisis.
Would the regular commentators contribute?
The Greek Deal.
Austerity. (More taxes to stiffle activity, and feed the undeclared economy).
Privatization. (Great deal for the insiders – foreigners will only invest if they have Ahern figures to smooth everything over in the internal cliques).
Brussels controlling the state budgetting process.
Greek bonds are secured for the holders for an interim period.
Anarchy.
The market can increase confidence.
Reduced questioning over what is really happening in the Spanish economy with 21% unemployment, but no housing related bad debt.
G.Sucks not made liable for anything.
Welcome to the EU. George Orwell warned of this.
Fellows, it takes me at least ten attempts to log in here now to actually get logged in…odd indeed. David is there something a miss with your authentication server? Greece will default that’s for sure so why are the IMF and ECB so keen on them to take a second bailout? I see it as pillage before the rape. These bankers are criminals!!!! Let’s not beat around the bush just because they wear fancy suits and try and bambuzal us with high brow BS….economics is simple don’t be fooled. As Max Keiser says capital punishment for crimes against capital. Take… Read more »
Huge credit to Mr Mc Williams for using Mobile Operators commercial info to depict the strength of the economy. Mobile spend per person is a direct correlation of economic wealth and GDP Per Capita. Although there are some errors with this post. The value of an operator is defined by EBITDA (Earnings Before Interest Tax Depreciation and Amortization) multiplied by the going rate of the market at the time (example times 7, or times 8). The key point here is that if Vodafone are experiencing a 10% decrease in EBITDA and they forecast that this will continue into the future… Read more »
I think that you need to consider the ARPU per country not just the absolute level of impairment by national population. Look at the impairment as a % or the ARPU and things will change a little.
Ever since Lendahand and BIFFO guaranteed the banks back in September 2008 this country has been simply ‘going down the tubes’. The banks should have been left ‘go to the wall’ and new banks set up, but that didn’t happen!!! The wrong people have been running this country since the foundation of the state. Anyone with a grain of common sense would have been able to run this country properly if they were given a chance, but they haven’t been allowed to run the country the way that it should have been from the very beginning because of the ‘vested… Read more »
This is not, in fact, supported by the disclosures in Vodafone plc’s annual accounts. The reason for the increased impairment charge was , as you alluded to in your piece, an increase in the discount rate applied to the expected cashflow for the Irish CGU. Under vodafone’s accounting policy (and in compliance with IFRS), the discount rate chosen for each of its regions is the yield on 10yr bonds for that country. You state that Vodafone has downgraded its growth forecasts for Ireland booked a higher impairment charge on its Irish operations as a result. However, at least on my… Read more »