‘Fix or forever hold your tongue!’, A floor on Rates (with a rise likely!)

Rates likely to rise as per AIB’s statement, and PTsbs actions, what we are trying to tell everybody, in clear English is this: ‘If you don’t have a price guarantee on your mortgage via a tracker or fixed rate agreement then you will be paying greater margin over ECB in the near future than you are now’. If you don’t act upon that information then it is your own decision but you can’t say you weren’t forewarned.

Forewarning doesn’t stop disaster, the historical evidence on that is overwhelming, in particular in the military arena, today however, we will look at some of the potential changes we might see in the market.

Floor Rate: This would be a variable agreement whereby the rate will never dip below a certain level. For instance, a bank might say that in a low rate environment it will (in the future) never allow its variable rate to drop below 4%, …

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Toxic traders, capitalising on volumes

Joe Saluzzi of Themis Trading (I mistakenly read the link initially as ‘the mistrading’!) have recently published a paper which accuses traders of intentionally trading huge volumes where they buy and sell for the same price and in the process make a half a cent per share. The volume of trading is fictitious ‘high frequency traders’, what they do is buy and sell and collect liquidity rebates from the exchange (note: 50 milliseconds is a huge amount of time) in this game. Do it 8 billion times and it really starts to add up.

This is just depressing, actual investors don’t get to join in because the firms engaged in this are doing it within the actual exchanges using the fastest computer technology available. They also have an unfair advantage in how they trade because they use rules intended to match buyers and sellers to their advantage, they find hidden liquidity and in essence remove it from the market as profit.

The most powerful deterrent would be to make a rule …

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Retire young! Retire poor….

The age of retirement is going to rise, within the next five years it has to. There are several reasons, the most immediate being that the state doesn’t have the money to fund retirement at present, other factors are that people are living longer and the combined increase in health care costs to the elderly with the weight of funding pensions means one or the other has to give in eventually.

In October of 2005 Seamus Brennan gave a talk at the Merrion Hotel on the subject of the ‘Issues facing an ageing population’. The statistics are particularly relevant as they have not changed much since then.

(Excerpt) ‘The facts speak for themselves, in 2002 almost half a million people were aged 65 or over. The latest population projections suggest this may increase to 1.1 million people aged 65 and over by 2036. Right now we have almost 5 people working for every pensioner, when the demographic challenges are at their height this will decline to two workers for every pensioner. This fact has …

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The investment method of property valuations.

I recently enjoyed the company of IPAV lecturer Frank Quinn and during our time together we discussed the Irish property market and more importantly that of valuations, he explained that while the investment method of valuations is virtually unused in Irish property that it is relevant, not only for investment properties but also for residential housing.

First it is important to realise that there are two broad ways of valuing a property, the first is where you value at the ‘market’ price, in an upward market this can have the issue of pushing values higher as bidders vie to outdo each other on comparable properties, in a downward market it can be equally distorting, but in a fairly stagnant market the absence of transactions is, of itself a distortion, estate agents can’t look at their own back book of sales for information if that back book is empty.

It is therefore desirable at times, to use the valuation method, it is a simple way of viewing property valuations,  it does tend to …

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Living in the past, Irish property prices.

Paul O’Connor of MyHat.ie and PropertyWeek.ie has written up a great post on the Irish property market, the single biggest hindrance in the Irish property market is that of it being totally non-transparent when it comes to sales prices, most of us would settle for some opacity but alas, even that is too much to ask for.

Here is Paul’s Take on it:

An auction is a sale conducted in public. As such, prices paid at auction have always been available to the general public, and until auctions themselves became a victim of the market crash, we had become used to seeing auction results reported every week in the property pages of the newspapers.

In contrast, a private treaty sale is conducted in private. It does not specifically imply price secrecy, just that you can negotiate a deal at your own pace …

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Jingle Mail, Jangle Mail, or ‘Voluntary Possession’.

I had the honour of being a speaker at a MABS seminar on the 21st of May, it was called ‘Keeping a roof over your head’ and it was focused on the issue of housing, and in particular that of the collections/repossession process of Irish Banks. One of the speakers was a solicitor named Colin Daly of the Northside Community Law Centre. He spoke about ‘Voluntary Possession’ which is the process of coming to an agreement with a lender whereby they take your house with your consent (you are not getting thrown out), it isn’t the legal terminology for ‘jingle mail’, ‘jangle mail’ or ‘sending the keys to the bank’ which is a totally different matter, it was a fascinating insight into the process and it is good to know that there are resources such as the NCLC out there for people in difficulty who need legal advice.

There was some information …

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Jingle Mail, Jangle Mail, or 'Voluntary Possession'.

I had the honour of being a speaker at a MABS seminar on the 21st of May, it was called ‘Keeping a roof over your head’ and it was focused on the issue of housing, and in particular that of the collections/repossession process of Irish Banks. One of the speakers was a solicitor named Colin Daly of the Northside Community Law Centre. He spoke about ‘Voluntary Possession’ which is the process of coming to an agreement with a lender whereby they take your house with your consent (you are not getting thrown out), it isn’t the legal terminology for ‘jingle mail’, ‘jangle mail’ or ‘sending the keys to the bank’ which is a totally different matter, it was a fascinating insight into the process and it is good to know that there are resources such as the NCLC out there for people in difficulty who need legal advice.

There was some information …

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Get ahead of the curve on fixed rates… Oops! Too late!

We have been touting fixed rates for quite some time on the basis that people needed to fix at the time rates were heading for historic lows, not after the fact, as well as that, the indications from the ECB that they would not go below 1% and instead would seek alternative options (such as QE) meant that once we got close to the 1% the forward market would price that in, but when we actually reached the 1% base that equally the forward market would price in rising rates.

That is exactly what has happened, it wasn’t front page news when we said it, although the Sunday Times did do a big story in their business section in mid-February, but now that banks are starting to raise their interest rates it certainly is!

It gets back to planning, without exception every client we had that deliberately went for a fixed rate in the interim is in a good position, some who have opted for variable rates are doing well …

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Current account interest rates are set to drop

Banks have a pool of money called ‘zero rated funds’, this is the money that they hold for which they are paying no interest. Lots of current accounts fall under this category, and banks can figure out with time, the block that is there on a regular basis when you remove the marginal volatility in the funds held at any time.

Imagine you own a money shop and you buy in money and sell it too, in the till you know that no matter what  happens you always seem to have at least €60 in the till, that would be the equivalent of your zero rated funds (hope that makes sense!).

When banks lend they take these zero rated funds and mix them with money bought on the market to come up with ‘blended rates’. So while some money is costing 0% other money might cost 1.269% (that’s today’s 3 month Euribor ), you then get an average of these and depending on what the ‘blend’ or ‘mix’ is your …

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Irish economic policy for the crisis: What next? (first session)

On Wednesday there was a conference in Trinity College Dublin called ‘Irish economic policy for the crisis: What next?’. This post is video footage taken at the conference (thanks again to Philip Lane and Patrick Honohan for allowing me to film it).

There are some really fascinating ideas in the talks and for those of you who couldn’t make it on the day it is really worthwhile watching.

The first speaker of the day was John Fitzgerald of the ESRI who gave a talk about competitiveness. The other parts are here ( part 2, part 3, part 4, part 5 )

Karl Whelan of TCD followed with a piece on Potential Output. Karl’s talk raised some great points about the structural deficit but pointed out (towards the end) that the actual deficit is the thing to focus on. …

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