Churivian Distribution

Искандер Луцко

Good afternoon. Outside Russia politics was quite diverse last week. In Egypt, the first phase of elections took place — for the residents of large cities: they preferred Islamists giving them 65% of the vote — in the next stages there even more serious fellahin will vote, so the lead of the Saleifites (modern name for Wahhabits) will only grow; the winners are already speaking of returning the Sharia law in its entirety — including stoning and amputation of limbs — the trend, yeah? Such is the experience of democratic Islamism — but there is also the liberal humanism: the US Congress passed the National Defense Bill, permitting to keep Americans suspected of terrorism in prison for an indefinite period without trial — they can also be deprived of sleep and be «waterboarded», other methods knocking out the evidence are also permitted; they will have no lawyers, no right against self-incrimination — the President should veto this, but the enthusiasm of the parliamentary «patriots» is very strong, so they may even override Obama’s veto.


Illustration: Artem Popov

Demand for printing press

Monetary markets. Reserve Bank of Australia lowered the rate by 0.25% down to 4.25%, citing the threat posed by the debt crisis in Europe and the slowdown in the Chinese economy — further easing is not excluded. Central banks of New Zealand, Canada and Britain left the parameters of monetary policy in place — and the Bank of England introduced new instrument of providing liquidity to the banks suffering from the money-drought. The ECB cut rates by 0.25% down to 1.00% — as expected: however, the fact that the decision was not unanimous distressed the markets. They rebelled even more when the central bank head Draghi denied his commitment to the widest possible buy up of government bonds at the press conference — we’re not going to monetize the eurozone countries’ debt for it is contrary to the eurozone agreement, he said; moreover, the ECB is unlikely to help with the credit plans conducted by the IMF — also for legal reasons. Still, Draghi has promised to expand non-standard measures of liquidity support — including the funds placement auctions among banks: the term has been extended to 3 years, the volume is unlimited, and the first auction is to be held on December, 21. Finally, the ECB will soften the collateral requirements for the banks wishing to take a loan — in short, Draghi made ​​it clear that there will be plenty of liquidity, and everything else does not interest him very much.

There was a rumour that the G20 would open credit line in the IMF — but both the group and the fund have denied these reports. Merkel and Sarkozy came up with another plan — nothing new there, except for the «stability mechanism» is proposed to be initiated ahead of schedule, while the states’ budget policy is to be checked by the euro-court, to which no one agrees; the Germans failed all other ideas at the EU summit to take up on this. S&P has ran out of patience — it has placed 17 eurozone countries on the downgrade list: indicators of Austria, Belgium, Finland, Germany, Netherlands and Luxembourg may be cut by 1 point, while others (including France and Italy) — by 2; the same fate faces the EU as a whole and the Stabilization Fund: further the revised were the banks ratings, including Deutsche Bank, Commerzbank, Societe Generale, BNP, Rabobank and Unicredit. Governments of Italy and Greece have adopted new austerity plans — the unions will respond with the strike; the OECD acknowledged Greece «fundamentally incapable» of reform (surprise!); yields of 2-year Athenian bonds reached 140% per annum — as in Russia in September 1998. The Spanish Cabinet thinks to create a «bad bank» where all the bad loans of banks will go, and which the state will buy at a discount — according to Morgan Stanley, the latter can reach 58%, so that €176 billion of problem mortgages will cost the government €74 billion.

Currency markets. Leading rates were in narrow ranges — disappointment about Draghi’s speech has slightly undermined the position of euro and strengthened the dollar; but in general, nothing interesting happened. The rouble weakened both because of the general wave of pessimism and in the aftermath of Duma elections — but even here nothing is particularly dramatic yet. And an article in the Wall Street Journal is even comical — they say that if the eurozone will fall apart national central banks will have to print a lot of local currency notes: but a considerable part of the euro cash is provided by a British factory, so the Bank of England is concerned — if the factory will be shafted with orders from the continent, could it paralyze the printing process for the pounds in Britain? Yeah, printing presses are heavily loaded nowadays — so high that their powers are not enough for the needs of the central banks themselves!

Stock markets also took the pause: major indexes jerked up and down on current news; Shanghai Stock Exchange showed a new low since the spring of 2009; the Russian market fell too — in the wake of protests over Duma elections. Everything else was dull — which is quite logical: after wild flights of the previous two weeks one must take a break — well, here it happened.


Source: SmartTrade

Commodity markets. Oil and some industrial metals (especially aluminium and copper) sat down on a fresh wave of pessimism regarding the eurozone; natural gas showed a new low in the USA, going back to the levels of early 2002 — and adjusted for inflation, even to record lows of 1998. Cereals, pulses, forage, vegetable oil, milk and cotton were traded very sluggishly; beef and fruits slipped slightly from the recent peaks; cocoa continued to fall in price — but overall nothing really outstanding occurred in the commodity exchanges.



Hello to Arms!

Asia and Oceania. HSBC index of business activity in services sector of China fell to a 3-moths minimum in November — but orders rose to a six-month peak; industrial production slows down ever more active (+12.4% y/y in November versus +13.2% in October), as well as capital investments — but the retail does not even think to slow down; inflation has fallen sharply — consumer prices rose by 4.2% y/y (minimum for 14 months), while producer prices only added 2.7% (lowest value in 2 years), untying the central bank’s hands for monetary easing. Japanese GDP was revised slightly downwards and the annual dynamics hence remained in the negative territory — investment fell sharply; orders in engineering sank unexpectedly strongly for the second consecutive month (-6.9% in October after −8.2% in September); current account surplus is 2.7 times lower than a year ago — and the trade balance seems to be thoroughly stuck in the deficit area (exports are 7.2% lower than in the previous year); index of economic observers shrank a little in November. Australian GDP rose in the third quarter by 1.0% against the second quarter — but activity in the manufacturing industry at the same time fell by 1.4%; in November, activity in the services sector went further into the zone of recession, and in the construction — remained in the area of depression; inflationary pressure gradually decreases; employment fell unexpectedly in November (while full employment had fallen), and unemployment rose. Of course, the crisis signals are visible outside the leading countries of the region too: in Thailand, the mood of households has worsened; in Malaysia and Turkey industrial production slows down — while inflation grows in Turkey; in November, consumer prices were 9.5% higher than a year ago, producer prices — 13.7% higher.

Europe. Belgium’s GDP was dropped to −0.1% q/q; eurozone GDP showed the earlier 0.2% — that have been made ​​by net exports, while private consumption has not even recouped the fall of the previous quarter. But Iceland’s GDP jumped by 4.7% — how useful it is to sack away international bankers! NIESR estimated UK GDP at +0.3% in September-November; Bank of France predicts stagnation in the economy by the end of this quarter — acknowledging deterioration of business confidence and falling capacity utilization. Industrial output is bad everywhere except for Germany — although here the growth of October has not recouped the fall in September (+0.8% after −2.8%); France has remained at the level of previous month, when she fell by 2.1%; Italy slipped down by 0.9% m/m and Britain — by 0.7%, and in both countries the annual dynamics is confidently in the red; the same applies to Spain. In Germany industrial orders have surged (+5.2% after −4.6% a month earlier) — but as a whole in September and October they had fallen by 2.7% against July-August; the 3-month average also went negative — and if external demand will shrink (it is now +8.3% m/m) the things will get even worse. Construction sector of Britain have lost almost 5% in September-October — and it is in the red versus the previous year. The final assessment of business activity in the eurozone services sector was worse than the preliminary one — to blame Spain who had fallen out of recession into depression; according to Sentix, investor confidence in the eurozone fell even more than previously.

EEFreview showed a collapse of orders in the manufacturing industry of Britain — and in general, the real economy is suffering across the continent: in the Czech Republic industry slows down and construction falls, which is why unemployment is rising and GDP is falling; Norway's output in October is 1.8% down m/m (in September there was −0.1%) — and only in Hungary industry more or less stable, again speaking on the benefits of forbading international bankers. French trade deficit fell slightly in October against September — and yet was worse than expected: in general the circulation stagnates; deficit shrank sharply in Britain which makes sense after a record high in September; German surplus declined significantly due to relatively weak exports. Deflation returned to Switzerland: consumer prices fell in November by 0.2% m/m and 0.5% y/y — and counting by the eurozone’s methodology, by 0.4% and 0.8% respectively. Real estate cheapens again in Britain — but in general the market stands still. The same can be said about the labour market in France and Switzerland — but there are already signs of worsening employment situation. In the eurozone retail sales rose in October by 0.4%, failing to recoup the September’s fall of 0.6% — annual dynamics remained in negative territory, and if inflation would be calculated correctly the picture is much worse. Sales at the British stores also fell in November — in general, demand remains weak everywhere in Europe.

America. New problems are slowly become apparent in America. US industrial orders are falling for 2 months in a row: in September they lost 0.1% and in another 0.4% in October; annual growth is 10.8% — but if you take into account real inflation and population growth, the total annual gain has completely nulled — so manufacturing sector is stagnating at the crisis bottom. Services sector is also slowly losing optimism — November ISM index decreased, although remained in the zone of expansion; but the employment component has already collapsed into the area of recession. US trade deficit hasn’t virtually changed in October (both exports and imports are down); Canadian balance went into negative in the same month. Building permits jumped in October in Canada by 11.9% — but already in November the number of developments collapsed by 12.8% m/m; at that prices are slowly rising — at a time when they continue to fall in the United States. US consumer credit swelled to a peak since October 2009 — but the economists fear that this kind of compensating the lack of income is fraught with sad consequences. Weekly number of recipients of unemployment benefits has fallen sharply only because the Ministry of Labour made ​​a mess with adjustment coefficients for the seasonal factor around the Thanksgiving Day — it does so regularly.


Source: U.S. Census Bureau, the independent evaluation

Confidence of US households from the University of Michigan has grown slightly; but according to Bloomberg consumer sentiment has again slowly deteriorated — particularly affected is the evaluation of consumer climate. And it is understandable — after the «Black Friday» burst the sales fell again: according to the survey of ICSC-Goldman Sachs and Redbook Retail Average, by 2.3-2.6% after rising by 1.7-2.2% in the Thanksgiving Day week. By the way, this burst was very peculiar — most powerful growth was recorded in weapon sales, which rose by as much as 32% y/y to nearly 130 thousand barrels bought at «Black Friday» alone: experts are puzzled not knowing whether they should cry or laugh about it — when the public is fighting for discounted towels it is understandable, but if it starts to frantically buy up discounted guns — one should think hard! Of the other news we note the end of former Illinois Governor Rod Blagojevich’s trial: among other things, he was found guilty in the fact that after Obama's presidential victory (former senator from the same state) Blagojevich was in fact selling Obama’s place in the Senate, promising prospective candidates to support them with his administrative resource — as a result the corrupted politician was sentenced to 14 years in prison; we wonder whether we’ll see someday comparable sentences for Russian high official?..

Russia. Duma elections took place. According to the Central Election Committee, United Russia got 49.3%, Communist Party — 19.2%, Fair Russia — 13.2%, and the Liberal Democratic Party — 11.7%, while no one else scored even 5%. In geographical terms everything is usual: United Russia is supported by the republics of Northern Caucasus (99.5% in Chechnya), as well as Kalmykia, Tuva, Mordovia, Tatarstan and Bashkortostan tightly controlled by the ruling clans — without these subjects the ruling party would have received 44.2%. Southern regions and those regions and areas where resource corporations play large role (such as the Yamal-Nenets Autonomous District) generally favoured United Russia; in the rest of the country, the bosses’s aren’t so favoured — symptomatic are 32-33% in St. Petersburg and the region, as well as in the Moscow region; against this background, 46.5% in Moscow is phantasmagorical and were only possib;e due to mass falsifications (taking ballot in and out of the boxes, carousels, faking of final protocols etc.). Scientific cities booed United Russia altogether — which is funny in light of Putin’s confidence in the votes of «thinking people». If nothing changes, the ruling party would get 238 out of 450 seats in the Duma, barely retaining the majority in the house — instead of 315 seats 4 years ago (when the party got 64.3% of the vote). Elections to regional parliaments are even worse: apart from already mentioned Ingushetia, Mordovia, and the Astrakhan region (where the scandal erupted because of especially frank manipulations), everywhere the ruling party got fewer votes than the cumulative opposition — that's it.

There were many violations; sometimes regional election committees just went crazy — the sum of votes for all parties has regularly exceeded 100% (in the Rostov region it was even close to 150%). In the aftermath of elections the disgruntled went out to protest — the real feature of the moment is that there are unusually many of them: several thousands angry Muscovites expressed their public protest for the first time since the 1990s’ — frightened authorities have even brought troops into the capital; protests were reported in St. Petersburg and in the regions. In response Nashy hastily gathered 13-15 years old adolescents and students for a rally, while the bosses’ slaves staged a powerful spam attack on opposition and independent Internet resources — including popular blogs and social networks (Facebook, Odnoklassniki etc.). The Chelyabinsk Tractor Factory suddenly announced Sunday a working day; Barnaul ice-swimmers voted in their swimming shorts, election observer in Saratov brought 27 cats to the station stirring a mess in the committee’s work — the list could be continued. Of course, the week could not pass without creative work of the main entertainer Churov (head of the CEC): he arranged for a polling station in a mobile circus in Tula, and also promised to eat the specially made Tula- gingerbread ballot box. The number of violations is so vast that ignoring them is hardly possible — and the Internet has made ​​a hefty contribution to the fact that the news about them became widely available. At the same time, foreign guardians of democracy are not asleep: Fox News channel tried to show Greek riots as those in Moscow. Plague take on both their houses — and we’ll do some statistics.

On the graph of any party’s votes against turnout there should be a horizontal line, but in fact there is an inclining one for United Russia and declining for other parties; this is possible if the voters are prevented to vote for EdRo by the authorities — which is not slightly possible, so it remains to lament the administrative resource and riggings. Distribution densities of turnout and vote for EdRo on all stations must have a Gaussian shape — in fact there is a «Churovian distribution» with an abnormally large share of high turnout stations and mega-percent for the ruling party: the conclusion is similar — stuffing the ballot box with votes for EdRo and taking out others’ votes. Authorities reacted with silly banalities like «Russia could not be understood by mind» — but the opponents are not always correct too. The «heavy tail» in distribution of votes for EdRo (created by placing fraud ballots) is not always eliminated correctly: «normalization» of a distorted curve is a difficult job (for example, the peak is to be «moved» up) — this often results in understated or overstated scale of frauds. The weight of the turnout distribution tail is partly due to the abundance of small polling stations (from hospitals to reindeer herders) with high turnout — this is a minor factor, but still. On the «vote-turnout» graph there are three visible clusters: the «norm» (turnout less then 59%), where the percentage of votes for the parties is stable; «violations» (turnout is 59-78%), where the results were rigged and administrative resource used (share of EdRo is increased, while the percentage of opposition dropped); and «lawlessness» (turnout above 79%), where a clear nonsense has been drawn. So to separate the lambs from the goats is possible: our estimations of fair elections (without frauds) give United Russia 41-42% of the vote and 51-52% for the opposition parties that have passed 7% threshold; on clean elections (that is without administrative resource) — 37-38% and 54-55% respectively.


Source: CEC

In any case the «message» of society is obvious — and the authorities are not so deaf that it was not heard: the question is what conclusions will be made. One can in fact, reasoning that «South, ethnic minorities and resource regions vote for us», focus on them — and let the other unconscious cattle suck its paw. Alas, already in the medium-term such policy is fraught with losses: the south live decently because of the climate, which to some extent compensate the authorities failure in setting up the infrastructure; abundance of Asian hordes in metropolitan areas have already heated up the situation there; welfare of resource monopolies is based on a favourable external environment — but that is changeable too. Another way is to solve the pressing problems of society; but the current system of power is not suitable for this — when, instead of a vertical vector there is a «feudal ladder» where each stage has people with separate feeding grounds, the power can solve only the problem of eliminating threats to itself; and all has gone so far now that the system can only be broken, but not reformed — and breaking it is dangerous. The president chose the first way — he called Churov a «magician», got offended by the protest vote, and wants to sack the governors whose regions showed low percentage for EdRo: but that is him — other leaders are not so primitive in their reactions. Prime Minister has already stepped away from United Russia — saying that he «has never been directly connected» with her; and created his presidential election headquarters on the base of Popular Front with the people other than those ruling EdRo. But so far all Putin did not solve a single problem, except the threats to his own power — and his tactics «I sailed the submarines, drove the airplanes, threw people on the mat and didn’t think about the job» has clearly fed up the people: so it is now time to come up with something new in real politics — let us see.


Illustration: Artem Popov

But enough of politics — let’s pay tribute to the economy. In November, consumer price index gained 0.4% against October and 6.8% against November 2010; utilities rose by 0.3% and 12.7% respectively — but since the increases in tariffs were deferred until July 1, 2012, until this day the figures here will be rather pleasant; however, after the presidential elections the authorities will recoup all in full. The ratio of bank reserves to deposits has reached a record low at November, 1. The Bank of Russia appears to have finally woken up and realising the lack of liquidity in the banking system — and on December 1, the annual growth of monetary has base amounted to 7.5%, maximum since the first half of spring this year. Capital outflow from Russia continues — making the authorities to revise the annual forecast for the second time in a couple of months: Ministry of Finance now expects outflow of $85 billion instead of the central bank’s latest estimate of $70 billion and its previous forecast of $35 billion — because of the unrests after elections the outflow could be even stronger. Troubles began to affect the real sector — as we predicted, after the end on old cars disposal scheme (alongside with the near end of the concessional lending plan), the car industry starts feeling bad: and although the sector in general saw 26% increase in November compared to last year, the sales of AvtoVAZ fell by 17% — the company did not expect such a powerful collapse and was quite lost. So the next few months promise to be hot not only in politics.


Source: Bank of Russia

Have a nice week!

Искандер Луцко
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