Oil at $20?

(podcast here)

Verleger talks about oil falling to c. $20 which may seem outlandish at the moment but the reality is that oil will likely take a fall in the short term, even with OPEC’s efforts to direct the market it won’t change the outcome, if oil is not being bought fast enough then it means that it will have to go into storage, the real story in this for me is one of oil storage and there are only a limited number of places you can store oil, you can leave it in the ground (not likely), you can store it in large land based tanks (these are getting very full) and then there are Ships, and that is a key, oil shipping is probably going to see a lift in business.

There is too much supply for existing demand and in the same way that the end of subsidies along with financial meltdown brought prices down from $147 the ongoing existence of these factors means that we won’t see a short term run up …

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The best education comes with a free lunch

I had cause to have lunch with an economist today, one of whom I am a huge admirer. In our chat over lunch we talked about banking, deficits, employment, inflation and business models, if there is one thing I would emplore anybody in business to do it is this: call or email the people you look up to and ask them out for lunch. I do it all the time, and fortunately I thus get to spend a small amount of time with some of the best minds in the game, even if they don’t like me, at worst its a free lunch, if they do, then all the better.

I won’t make a list of the people I have gone to lunch with, but suffice to say, if you contact a person as a genuine fan of theirs (assuming its not Britney Spears) and ask for some of their time, the overwhelming majority will agree to meet you and in the time you have you’d be surprised what you might learn.

There are some guys who run a software …

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New build a loser?

Banks are now reducing the LTV they will offer for new build properties but not in the second hand market and today we will look at why they might do this.

To begin with there is the rationalising of price in new build developments, that doesn’t mean the prices won’t drop further, it means that many builders are pricing to the market and not to what they want them to be worth. This however, is a tricky proposition for banks who may be lending on said properties.

Imagine this, ‘Phase 1 selling from €365,000’, now just over a year later ‘Phase 2 selling from €250,000’ and these are basically identical or comparable properties. Values are (in essence) set by what a person is willing to pay for an asset, and in this example the properties are all now worth €250,000 irrespective of what price they sold at. This means the banks security has just dropped by a similar amount.

The market is witnessing the most spectacular falls in the new build area, thus banks …

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Charlie Rose with Nouriel Roubini, Mark Zandi, Fred Mishkin and Nina Easton

An interesting talk on the Charlie Rose show with Nouriel Roubini, Mark Zandi, Fred Mishkin and Nina Easton.

At just after 6 minutes Nina Easton makes an interesting point: No fiscal policy ever changed an economy, would this be going on the record saying Keynesian economics were not the cause of the end of the Great Depression? The other economists present didn’t disagree.

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Approval in Principle, the flaws.

Our firm [and I am sure many brokerage firms] are witnessing a conundrum in the market which is causing both clients and the broker a huge amount of heartache. It is that of the ‘AIP’ or ‘Approval In Principle’ not being honoured by banks over short periods of time. One lender in particular [we can’t name names] is doing that on so many cases that we no longer consider their approvals as holding any relevance.

What is an approval in principle (A.I.P. is the broker-speak we use to describe them)? It generally means that you have given a bank enough information to make a strong [and yet preliminary] decision on a case, sometimes it is subject to further documentation, or they want to get a valuation report before making a full offer, in any case an AIP is NOT a loan offer but it is as strong an indication as one can get without dealing with solicitors, in the past an AIP was honoured almost exclusively and they were seen as fundamental to …

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Mortgage Application Requirements: What do I need and Why?

The average mortgage taken out in Ireland is approximately €260,000. Before mortgage providers lend-out such large amounts of money they need to be as sure as possible that the funds will be repaid in full and on time over an agreed period. While a home loan is secured on the property as collateral, this should not reduce the lenders’ lending prudence because repossessing a home in the case of non-repayment of a loan is an absolute last resort which takes a lot of time, costs a whole lot of money and risks generating such grossly negative publicity that it is barely worth it and is entirely unattractive. So, to ensure this possible outcome is seldom reached; lenders vet their potential clients carefully using the following key documents on which to base their underwriting decision…

Photo ID Irish Law demands that a financial institution must establish the identity of a client before entering into any financial transaction. Of course, its logical that …

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The weight of compliance

Compliance is set to become a core area in financial services because one result of the current financial crisis is that people will want to prevent another similar disaster from occurring and the method used to fight this will be (likely) regulation.

After the Great Depression there was a wave of compliance and regulatory measures brought in and it was during this time that the FDIC (Federal Deposit Insurance Corporation) was created, thus guaranteeing depositors funds were safe.

Basel II which was seen as the ‘new’ answer to how risk was mitigated will probably be replaced by some other form of guidance, we’ll call it Basel III for the sake of prediction, or Basel II 2.0 or whatever you like. The fact is that the burden of compliance is set to rise but if not done correctly it could actually happen with little or no benefit to clients or the broader economy.

If compliance becomes weighted heavily in a process rather than principles based approach then it could hamper innovation and the creation of …

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The end of Commissions?

The FSA (Financial Services Authority) in the UK have said that they are not ruling out a future ban on commissions. In the UK financial advisers work on both fees and commissions, however, there is no mention of how they would hope to balance the competition between broker and direct channels.

Currently there are many consumers who cannot afford fees, in Ireland financial advisers work (in general) without fees, relying on commissions for their incomes.  In Ireland consumers have gotten used to a market where they don’t pay brokers, they enjoy independent advice at no difference in cost to that of going through a direct channel (i.e.: walking into a bank where they cannot give you independent advice).

However, if, in the morning the Financial Regulator followed the lead of the FSA and tried to end commissions it would cause a huge market distortion because peoples attitudes to fees would actually drive them out of …

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The shape of reduced credit in Ireland

The current market is one in which mortgage lending rose at it’s lowest rate since the mid 80’s, this is coupled with a property market which is going through a painful readjustment. The figures for how many properties remain unsold are being argued in the public domain with counts from as low as 35,000 to as high as 200,000.

There is no precise and accepted accurate figure and thus the supply side remains unknown, the other issue affecting the market is the reduced availability of credit on certain types of property (apartments in particular) and a more stringent underwriting process as well as a re-assignment of staff away from commercially gaining activity into collections and arrears departments.

What can we expect to see from lenders in the near future? We will discuss some of the possible trends that may start to come into the market.

1. Lenders introducing fees: This is not a ‘fee’ in the traditional sense, such as ‘account fees’ this is a fee paid to them as an …

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