Deflation or Inflation? What to expect in 2010

We have felt for quite some time that the risk of deflation will be met by monetary and fiscal stimulation to the point where it will give rise to several strong years of inflation. This extract is by James Grant of ‘Grants Interest Rate Observer‘. The question of ‘when’ the scales will tip in favour of inflation away from deflation is likely to be at some point in 2010.

This is why we are letting our clients know that we are watching the long term bond yields and when we see a divergence either in short to long or medium term to long we will be encouraging people to consider a longer term fixed rate. When the five year and one year cross that might be a good time, meanwhile, because more rate cuts are expected in 09′ it would not be the time yet for this kind of move.

We don’t have a crystal ball but we are keeping our eye on the bond market so that we can try to gauge …

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What affects your investment planning

Did you ever wonder why some people seem to be doing better in the investment arena than you? Or why certain people seem to always lose or consistently win? The truth is that there are very few ‘superstar’ fund managers, like in any industry there are those that are the best and they totally outshine the millions of others who do the same job but never to the same degree.

If we were to look at some of the factors that may have an effect on your investments you can quickly identify that there are those which you cannot control, and therefore can only hedge against, and those that are within your control for which you are responsible and must consider, these will now be considered:

1. Being too conservative: If you stayed only in the safest areas of the market you would actually lose money over time as the effect of inflation grinds down your investments. This would be because the deposit interest rates would likely not give positive returns when you …

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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 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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Proving your Income to a Lender

One of the most critical aspects of gaining mortgage approval is showing concrete evidence of your income. The reason for this is to show a lender your ability to meet your mortgage repayments every month and to assess how much (using their credit criteria) they will commit to lending you.

For PAYE workers you must evidence your income in several ways:

1.Three recent payslips 2. a P60 3. Salary certificate completed by your employers 4. Bank statements for the previous 6 months

What does a bank determine from this?

Your payslips show how much you are earning every month, the net amount should then correspond with the lodgements into your bank account every month (unless you are paid fully/partially in cash). It will often show pension contributions, expenses/mileage and other vital information (in some cases credit union loans come out of wages for companies that have a Credit Union attached to them).

A P60 will show your previous years earnings and if …

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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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Brokers short sell themselves in a race to the bottom.

It is clear that I am no fan of the new ‘homeloanchoice‘ scheme brought into being in the 2009 budget. I have always felt that ‘if it ain’t broke, don’t fix it’ and this is a case in point. There has been no empirical evidence to suggest that this scheme was called for, there is no research, no surveys, nor any hard fact that gives the foundation to the creation of a scheme that will potentially see upwards of half a billion going towards it.

When you take medical cards away from old people and give income levies to even the most low paid of workers, a scheme that helps create debt when none was asked for seems ridiculous at a minimum. So why was it created? There was no demand for it, and we know from speaking to our customers and from other people in the mortgage market that …

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The best monetary decision will be that which is taken

I have looked back at market crashes, the Dutch Tulip Bulb crash, the Railway crash in the USA, the Great Depression, the Oil Crisis in the 70’s, The 1987 Stock crash, the S&L crisis, the dotcom bust and our most recent and several things have become clear.

The ‘solution’ is whatever was done at the time thus meaning we try to find the answers of tomorrow by looking back at what worked in the past and applying it to the new situation, it is one of the most basic human methods of learning. Children will get a burn from a fireplace once and it is then engraved in their minds that fires are hot and can burn you. Thus we see the same happening with monetary policy and with businesses.

The question though is this: What if what we did in the past was wrong? Does it make a solution that appeared to work relevant? If for instance I was the sole solution provider for the Great Depression …

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NIB's 'LTV' Tracker now extinct

NIB had long championed their ‘LTV Tracker’ as the best value product on the market. Indeed it was, but today we have seen the removal of it and must question why they even continued selling at a loss so far into the worldwide financial crisis as NIB themselves would accept, it was a negative margin offering for quite some time now.

NIB’s LTV tracker was born two years ago and ceased to exist as of close of business yesterday. NIB have shown a trend in their marketing, they were amongst the last to offer tracker mortgages and now they are amongst the last to cease offering them. The news comes hot on the heels of news that NIB is responsible for a third of the losses of parent company Danske Bank, those losses amount to c. €80 million.

We had mentioned in the past on this blog that their loans were unmatched, however, …

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