Rate Expectations

In the Book Great Expectations by Charles Dickens we saw Pip help out an escaped convict, one who had done some wrong, the convict later becomes an anonymous benefactor of Pip’s helping him lead the life of a gentleman and Pip becomes totally removed from the old life of poverty he lead, only to one day find out who his invisible helper was, it shakes him to the core.

There is something in this story that hit me today hearing about the Fed rate cut to a base of 1% and current public sentiment towards the market. The market is like the convict who had done something wrong in the past and who later is the benefactor. It is easy to look at the mistakes made by the finance industry, and alarmingly easy to funnel all wrongs towards it, …

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The value of ideas

When you hear about ‘ideas’ sometimes it’s as simple as minor inspiration, other times it is a total awakening the way Sir Isaac Newton had when an apple fell on his head. That ‘idea’ lead to the the basis of understanding gravity.

The idea of E=mc2 was merely an idea, Einstein had that one, the work it took Oppenhiemer to turn it into a nuclear bomb might have equalled many lifetimes of toil in the effort but without the idea they would have spent much longer running around in circles, or worse still not running at all.

While one could argue that ‘ideas’ of themselves are useless without work and follow through, but lets look for a proof by contradiction. Can you have a result without an idea? No.

Would we have nuclear bombs without the idea set forward by Einstien? No.

An idea is like a seed, if you plant many seeds …

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The stage is set for Euribor Trackers now that ECB ones are gone.

The market recently witnessed the death knell of the last tracker available, it was Leeds Building Societies high margin ECB + 2.2% offering. Previous to this we heard announcements from Bank of Scotland, AIB, BOI, ICS, Haven, Ulsterbank, First Active, IIB, PermanentTSB and every other lender that trackers were being withdrawn.

So now we have moved from a market where trackers were a key point of competition and value to one where they don’t even exist. This has had a key effect of removing transparency from rates, for instance, how is a Variable Rate determined? The future landscape of mortgages is likely to be some mish-mash of “fixed-variable-another fixed-fixed again-back to variable” it will be a non-transparent massacre of rates where the concept of ‘customer inertia’ will become only stronger.

If people find themselves in a market where they don’t understand long term value then there can be no responsible long term value decisions made. To put that in perspective: If you are getting a …

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Everything old is new again, buying on layaway

I remember getting a new coat when I was about eleven, we went to a shop in Swords village, next to a place that was called ‘Savages’ (in fact I think the clothes shop was owned by them too) and I tried on a coat and my mother paid part of the money for it on ‘layaway‘ and then we went back the following fortnight and paid for the rest and picked it up, in the mean time they made an adjustment to it too.

Will we see a return to some of the ideas from the past as the credit market contracts? Perhaps we will, layaway does have several advantages for both sides of the transaction.

Seller side advantage: The seller sells a product and gets cashflow into their business, if the buyer pulls out later there is normally a charge and the item can be re-sold. So if the person doesn’t go ahead then the …

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Where property prices are going vs where they are

There are strong signals we will be getting a rate cut and historically that means that property prices will go up in response to a monetarist move. However, in Ireland this will not cause short term stabilization due to over supply. Today we will look at some of the ECB likelihoods as well as the response that property may have as the rates change.

Historically the boom in property in Ireland only truly gathered pace when rates were artificially low, that happened when the base rate was dropped to 2% for almost three years between 2003 until late 2005. The supply of money increases when you lower rates and the corresponding effect is that asset prices will rise as a result of it, however, there are other times when monetary policy acts as a life-ring more than as a rocket pack and that is the expected result of the Read More

Currency markets Q4 of 2008

In the last few weeks we have seen some of the most volatile currency markets in history. Iceland (Króna) as a nation basically went bankrupt, there are serious currency risks in Hungary (the Forint), the Ukraine (the Hryvnia) and several other countries.

The downside is that this may be the prelude to a currency crisis not unlike that which we saw in Asia in the late 90’s. The move has been playing out in the markets at a time when most of us are concentrating on the Credit Crunch/Liquidity Crisis. The dollar was as low as $1.60 to the Euro and $2.10 to Sterling, then it snapped back to $1.25 and $1.60 respectively.

The Australian and Kiwi Dollars both got hammered, Iceland was next in line then the South African Rand and Polish Zloty took a beating. The South Korean Won and then the Hungarian Forint suffered, the Czech Republic Koruna is facing issues and the Mexican Peso is …

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An argument for and against property tax in Ireland

Today’s article will be unpopular with almost everybody, myself included, however, it is not intended to scare or cause frustration, merely it is intended to give a rational answer to an ongoing problem that we have had in Ireland. The problem is that of fair and sensible taxation on property and how to go about it, at the moment property tax is a front-loaded scheme referred to as ‘stamp duty’ and the system for charging is as follows.

1. First time buyers pay no tax irrespective of what they buy as long as it is for their primary residence. 2. Second time buyers pay stamp duty (property tax) if they buy an existing property, however, if they buy a ‘newly built’ property then they are exempt. 3. Investors pay stamp duty (property tax) on all property transactions. 4. Commercial buyers pay stamp duty (property tax) on everything costing …

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The Phoenix of Securitization: Irish Banks test the market

In the last week there have been two largely un-noticed events, namely the fact that two Irish banks have put a securitization offering on the market.

What is securitization? By definition it is the aggregation of similar instruments into a negotiable security. If you didn’t get that I’ll put it in plain-speak. You can take any object that provides a degree of income and put them all in a big box, you then sell the box as an actual financial investment. How does that work with Irish banks? A bank will take a bundle of loans (generally of a certain class – loans with similar loan amounts, loan to values, term of loan etc.) and put them all into this box and when they sell the box that is described as a ‘securitization‘.

The benefit for the buyer is that there is a structured income stream from the box of loans, even if a …

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DON'T GIVE UP YOUR TRACKER MORTGAGE!

The news has has several stories recently about banks contacting clients and asking them if they would like to come off their tracker mortgage and instead go on a fixed rate or even a variable rate. The assertion is that if you have a fixed rate during a downturn that you are ‘protected’ from changes in the ECB rate changes.

That is true, but you are also protecting yourself from upside advantage. In a nutshell, during a downturn there are some monetarist moves that Central Banks will make, such as dropping rates to increase the movement of money in an economy, if you are on a fixed rate you don’t get the rate reduction and the outlook for at least the near future is that rates are going to come down. On those grounds alone you would have to question the rationale of a …

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DON’T GIVE UP YOUR TRACKER MORTGAGE!

The news has has several stories recently about banks contacting clients and asking them if they would like to come off their tracker mortgage and instead go on a fixed rate or even a variable rate. The assertion is that if you have a fixed rate during a downturn that you are ‘protected’ from changes in the ECB rate changes.

That is true, but you are also protecting yourself from upside advantage. In a nutshell, during a downturn there are some monetarist moves that Central Banks will make, such as dropping rates to increase the movement of money in an economy, if you are on a fixed rate you don’t get the rate reduction and the outlook for at least the near future is that rates are going to come down. On those grounds alone you would have to question the rationale of a …

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