The leased facility at ProLogis Park Ostrava is strategically located close to the Ostrava city center – a premier administrative and manufacturing hub in the country. The site provides immediate access to major centers of commerce in the region through a highway network and Ostrava International Airport.

Geis Logistics will utilize the facility as a central warehouse for its operations in the Czech Republic and Slovakia and as a gateway to other Eastern European markets. Besides its prime location, the facility would also provide access to a talented pool of workforce that in turn could increase the company’s efficiency.

ProLogis owns and manages interests in over 2,500 distribution facilities, service offices and properties spanning 475 million square feet of space (including properties under development). As of June 30, it had 200.5 million square feet of directly owned industrial assets, 81.5% of which was located in North America, 14.2% in Europe and 4.3% in Asia.

In the Czech Republic, the company’s portfolio includes six distribution parks totaling 6.5 million square feet. ProLogis is currently monetizing its land bank to capitalize on its construction expertise for grade A sustainable facilities that uniquely satisfy customer requirements and attracts new businesses despite a softening economy.

Right now, in the wake of MSCI’s reclassification of Israel as a developed market, I’m working on a rundown of the country classifications of four major index providers: MSCI, Dow Jones, FTSE and Standard & Poor’s.

The evolution of emerging markets (and sometimes devolution of developed markets—see Greece, which could lose developed-market status in the FTSE indexes) is just particularly fascinating to me. Take some of the frontier/emerging markets that the index providers cover at the very bottom rungs of the investability ladder: Latvia? Slovakia? Trinidad & Tobago? Mauritius?

Frankly, I’m dying to know what the investment stories are behind these tiny, tiny markets. And while I believe frontier markets (like, say, Vietnam) offer some awesome investment opportunities, is anyone really itching to sink some funds into an obscure eastern European country that probably has a smaller population than the number of visitors to my local mall on the day after Christmas?

I realize there are different rules and methodologies that each of the index providers use, but it all seems rather mysterious. For example, Dow Jones—which generally uses the International Monetary Fund’s designations—classifies Slovenia as a developed market, while MSCI has it labeled as a frontier market. That’s quite a disparity.

Lately, the majority of the focus has been on Israel and South Korea, though, and whether they will transition to developed-market status within the various classification systems. MSCI, of course, just promoted Israel to developed status last week, while keeping Korea in the emerging category. Given that the majority of internationally invested funds are benchmarked to MSCI indexes (at least in the U.S.), this issue has been followed fairly closely by investors. At the end of March, Israel was the ninth-largest country in the MSCI Emerging Markets Index, with a 4.0% weighting, and South Korea was the fourth-largest, with a 12.4% weighting.

Given the amount of money benchmarked to that index and the even greater amount benchmarked to the MSCI EAFE Index, which Israel now joins, that’s an awful lot of funds shifting around. South Korea is up for reconsideration in 2010 (as is Taiwan, another country straddling the emerging/developed divide).

But MSCI seems to be on the tail end of the trend: Dow Jones, S&P and FTSE all classify South Korea as a developed market, while only Dow Jones and FTSE put Israel into the developed bucket. S&P still has Israel as emerging. Of course, FTSE, S&P and Dow Jones have a lot fewer funds tracking or measured against their global indexes.

They can shift their country classifications with relative ease, as they deem appropriate, without a lot of reverberation. But if MSCI decides to promote a country to developed status, many, many billions of dollars are going to be moving around, with all sorts of economic consequences.

And not all of them will be positive: In Israel, there is concern that the country moving from relatively big-dog status in the emerging markets index to a minor position in the developed markets index will actually result in outflows from the local stock market.

(Read an article on the latest MSCI moves here. Also of interest might be a Bloomberg article on the subject here, and another article from an Israeli publication about a Deutsche Bank study on the potential negative impacts of the switch.)

Teva Pharmaceutical, Israel’s largest company, saw its price spike in June shortly before the official MSCI announcement, but there’s no telling what the longer-term effects will be. It will be interesting to see what happens with that, and even more interesting to compare the outcomes with what happens when South Korea—and its big stock, Samsung Electronics—is finally promoted to developed status.

Yeah, that was definitely the unrepentant nerd talking …

Source: FRED.

On the other hand, the levels for February and March were revised up from their earlier reported values, which is a positive development.

Source: ALFRED.

Those back revisions gave a boost the ADS Business Conditions Index. But I'm waiting for the backcast value of the index that is able to employ all 6 indicators (indicated by the leftmost vertical line in the second diagram below) to rise above -1% before interpreting this as an unambiguously favorable signal.

Aruoba-Diebold-Scotti Business Conditions Index.

Meanwhile, across the pond euro-zone GDP fell 2.5% during 2009:Q1. Unlike the American convention, which would quote such numbers at an annual rate, the European number represents the actual quarterly loss, or a -10% annual growth rate. That is a staggering rate of decline, though not as bad as the 3.8% drop within the quarter experienced by Germany or the 11.2% quarterly drop in both Slovakia and Latvia.

Finally, let me mention here that Marc Wildi and Michel Philipp of Zurich University are also getting into the business of real-time business cycle dating algorithms.

Technorati Tags: recession, macroeconomics, economics

This from Today’s Financial News:

If you thought lending in the home-mortgage lending industry was tight, you will be shocked by the woes in the auto-lending world. This subprime debacle is destroying one company after the other.

Just this morning, GMAC (NYSE:GJM) announced it has stopped issuing car loans in seven European countries. October 31 will be the last day for folks from Finland, Norway, Greece, the Czech Republic, Portugal, Spain, and Slovakia to get loans from General Motor’s (NYSE:GM)…

This from Today’s Financial News:

If you thought lending in the home-mortgage lending industry was tight, you will be shocked by the woes in the auto-lending world. This subprime debacle is destroying one company after the other.

Just this morning, GMAC (NYSE:GJM) announced it has stopped issuing car loans in seven European countries. October 31 will be the last day for folks from Finland, Norway, Greece, the Czech Republic, Portugal, Spain, and Slovakia to get loans from General Motor’s (NYSE:GM)…

The first Burger King (NYSE:BKC) will open in Prague in the next few months. And it’s not only targeting the Czech Repbulic. It wants to become number one in European markets. To do that, it’s already got operations in Poland, Bulgaria and Hungary, and it planning joints in Slovakia and Slovenia.

But it’s got tough competition from McDonald’s (NYSE:MCD), who is top dog right now with 70 restaurants serving 53 million customers. It’s spent more than $172.2 million on restaurants in the Czech Republic.

When I was in Budapest, I grabbed a Whopper for a quick lunch before meeting my guide back at the hotel, Buro Panzio. It cost me 750 Forint,…

Rate setters seem to have decisively switched their focus from the current high levels of inflation to countering the koruna's 13-month rally on concern a high Koruna will continue to have a negative impact on exports, investments and employment. Central Bank Chief Zdenek Tuma warned last month that the koruna's recent advance could cause inflation to undershoot the central bank's 3 percent target next year, justifying the then hypothetical possibility of rate cuts. Since then, the koruna has lost 4.1 percent against the euro.



The central bank lowered its forecast for economic growth for this year to 4.1 percent from the previous 4.7 percent outlook. In 2009, economic growth the bank expect growth to decelerate further - to 3.6 percent - which compares with the 6.6 percent rate achieved in 2007. So the bank is worried that the economy is slowing excessively quickly.


In fact the Czech economy expanded at the slowest pace in more than three years in the first quarter as consumer spending weakened. Gross domestic product rose 5.3 percent, compared with a revised 6.3 percent in the previous quarter. The economy's rate of expansion slowed for a third consecutive quarter after peaking at a record 6.8 percent in Q2 2006.



If we look at the q-o-q chart we can see the slowdown even more closely. Basically the economy hit a quarterly 1.8% in Q1 2007, and since that time it has been slowing to Q1s 0.9% (or an annual rate of 3.6%). Clearly Q2 will be weaker and we could see q-o-q of 0.5%, which mean if the rate of de-celleration continued we might get negative growth in Q4. This would clearly be a soft landing, but it is preoccupying for an emerging economy nonetheless.



The inflation rate increased to 6.9 percent in July from June's 6.7 percent, surpassing the central bank's goal for the 10th consecutive month. The CR now has negative interest rates of some 3.4 percent. That is, monetary conditions in the CR are extremely accommodative.


And wages have been rising much more rapidly than prices in recent months, that is real wages have been rising.

Which is not really surprising, since the labour market has been steadily tightening as the number of unemployed has dropped steadily. Which makes the issue of why consumption has been falling back much more of a mystery. This situation is very different from what we are seeing at present in Bulgaria or Romania, or even Slovakia.



Now it is not hard given the sharp rise in the Koruna to understand why Czech exports slowed significantly on a year on year basis in June. They were up a touch on May, but down on April and February, and were only very slightly up y-o-y. Exports rose an annual 1.7 percent, to 215.8 billion koruna and imports totaled 201.9 billion koruna, a 1.1 percent decline in the year.



But why is consumer demand slowing at this point? This is much harder to understand, yet it is. Why are people not simply borrowing cheap money and building houses and buying cars? Seasonally adjusted retail sales, however, only grew at a very moderate rate in May (up by 0.6% month-on-month and by 2.5% year-on-year).



And the construction boom is long since over, with output actually contracting year on year in May. Indeed the last construction boom seems to have blown out in Q1 2007.



Now this is all frankly rather worrying, and it is doubly worrying for me, because I think I have seen this before in Portugal and in Hungary. The rising Koruna may well choke exports but there is no reason whatsoever why it should be choking domestic demand, indeed quite the contrary. So why is domestic demand so weak, that is the question?

If we look at a longer term chart for year on year household consumption growth, we will see that the last "long wave" of this peaked in Q1 2007. We can expect the performance in Q2 2008 to be even worse, and the question, the quite deep theoretical question really, is why this should be happening?



Now here's a rather similar chart for Hungary. As we can see, Hungary had it last local peak in Q1 2006.


And as we can see, Portugal's last big "wave" ended in Q1 1999. So my question is really, is it possible that the CR is now where Portugal was in Q1 1999 and where Hungary was in Q1 2006? My feeling is that it is possible, and indeed this is where we may well now be. The thing is we need to understand the theory which explains the dynamics behind all this much better. But if it isn't like this, then I don't understand why consumption is now simply fading out.




Basically one thing that these three countries have in common is declining population (or at least in the Portuguese case declining population at the time when consumption blew, as a result of prior EU freedom of movement related out-migration). Declining and ageing population. As we can see in the first chart, the population of the CR has declined in a variety of ways since the late 1980s. It has started to increase again since 2004, but it seems to me the consumption bust was already in the pipeline by that point. What is really, really surprising to me is just how sensitive the whole system is to what appear to be really quite small movements in population size.


Of course it isn't simply the size that matters, it is more the structure, and as we can see from the median age chart below the CR has been ageing quite rapidly for some time now, and will continue to age as we move forward. Having more children and accepting more immigrants (both of which are very advisable) are the only things which will slow all this down.




Of course you won't read about any of this in the economics text books (yet), but the picture is reasonably clear, and it is also perfectly compatible with life cycle savings and consumption model as presented by Franco Modigliani. You simply need to apply it to population rather than simply to individuals.