The errors of compensation

One of the most pointed arguments that we hear about is that of bankers pay, some people have even started to refer to them as ‘banksters’ instead of ‘gangsters’. The reality is that both the industry and the shareholders and everybody else got it terribly wrong, even the corporations with their internal and agent remuneration models got it wrong. We were rewarding short termism in a long term game, something akin to having a footballer who has to play the full 90 mins but we base all their pay on the first five minutes.

On one hand the general mass of decision makers didn’t see the financial crisis coming, granted, there were some who were shouting it from rooftops, in some cases those same people have predicted 15 of the last 2 market meltdowns (our most well known one began calling it from late 1999), with others they were just plain ignored. The best analogy I have heard so far came compliments of a very respected colleague with over 40 years of banking experience …

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The banking ‘Whitewash’

Meredith Whitney talks about the ‘banking whitewash’, saying that the recent gains in many banks (they have been beating expectations by and large in Q1) are not all down to ‘recovery’ but instead due to other factors.

She says that the factors that lead to these gains are not replicable and that the underlying assets are still deteriorating. This makes for some interesting observation because the great deleveraging of both companies and individuals is still in full swing so there is little reason to doubt the observations Meredith Whitney makes, rather it will be how these factors play into the real economy that concern me.

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The banking 'Whitewash'

Meredith Whitney talks about the ‘banking whitewash’, saying that the recent gains in many banks (they have been beating expectations by and large in Q1) are not all down to ‘recovery’ but instead due to other factors.

She says that the factors that lead to these gains are not replicable and that the underlying assets are still deteriorating. This makes for some interesting observation because the great deleveraging of both companies and individuals is still in full swing so there is little reason to doubt the observations Meredith Whitney makes, rather it will be how these factors play into the real economy that concern me.

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Yipee! lets blow 44 Billion!… or should we say Yahoo?

Do you Yahoo? Statistically the answer is probably no, you don’t, but in a world of decreased market penetration for every search engine (other than the Ubersearcher Google) the megalith companies like Microsoft -who’s MSN (I won’t even ask ‘do you MSN’) is even lower on the scale – are looking for ways to corner a portion of the Internet search engine market, initially they thought that the success of Internet explorer over Netscape navigator was a big deal, in hindsight it wasn’t, ask people the difference between Mozilla and IE7 and expect a blank stare, except from the closet online gamers whom I seem to be meeting more and more recently.

Google came from nowhere and used a simple approach, they have an interface that could only have been dreamt up by Mac or …well…. Google, and it was a huge success. I lived in Chicago the first time I heard of Google, it was around the year 1999 or 2000 and I recall there was another search engine called ‘snap’ or something that also impressed me, anyways, these …

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Obama wins Iowa caucus.

I take an active interest in American politics, and their economy, because so much of what happens there affects us and because I’m half American too. Born in Los Angeles and lived here and there including three years in Chicago which is where I first heard of Barack Obama, an inspirational and highly intelligent politician.

It is on the basis that several months ago I made the first political donation of my life, and it was to his campaign. Naturally I was absolutely delighted to see him win the Iowa caucus. The Iowa caucus is considered to be an early indicator of who will gain the nomination of their political party. Sometimes the losers win out, Bill Clinton (my favourite president since George Washington) only got 2% in the Iowa caucus in 1992.

However, only once since 1974 has the winner of the Iowa caucus actually won the election and that was George Bush, although he didn’t really win the election so I don’t know if it counts or not. Hopefully the next president won’t be a half-witted hillbilly …

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Expect more inflation as Oil Reaches $100

Inflation… commodities bull run is not finished by a long shot! the upsurge in prices of the basic things that we all need is going to cause base level inflation to rise, the kind that could upset China and India’s growth as the things they manufacture become more expensive to make, however the market doesn’t embrace increased end user prices as the are suffering already from the same inflation.

For Oil to hit $100 a barrel is something that people used to joke about, today its real. There is upset in too many of the worlds oil producing regions. Nigeria has some of the best oil but they also have some of the best examples of abuse in human rights (read the story of Ken Siro Wiwa) and there are rebels out there fighting agains the way oil profits are distributed they are called ‘MEND’ or Movement for the Emancipation of the Niger Delta.

Here is something to think about, not a consipracy theory so much as a novel observation: What if it serves the Oil companies to have such …

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Goodbye Mervyn Percival.

Mervyn Percival passed away just before Christmas. He was the Chairman and founder of Cornmarket, one of the countries leading Brokerages and a powerhouse in the market which he built from nothing.

I met Mervyn at a barbeque in St. Andrews in Malahide about five years ago, and it was in speaking to him that I was first turned onto brokerage as opposed to direct sales which is what I had done up until that point. He was part of the inspiration for me in being part of a start up brokerage, and my own father (r.i.p.) also cited him as one of the main success stories of people he knew in the finance game.

His funeral packed the church and the crowds were out the door of St. Andrews and almost onto the road, he was obviosly a hugely popular man and will be sorely missed by many, of the attendees that I knew there were many locals as well as a veritable who’s who in the financial industry with CEO’s of companies like PermanentTsb showing their respect to …

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Talk the talk and walk the walk (economically speaking)

I wrote an article back at the end of 2005 called ‘the changing face of the mortgage market’ and I sent it off to a few newspapers and several magazines, it went largely un-noticed, when I say ‘largely’ I actually mean ‘totally’. Apparently I was ranting lunacy or something close to it, if you know me you’ll also know that this was a possibility….

Last weekend in a smokey Krakow it was mentioned during a conversation that you need to make a call on things and then fall on your face when you are wrong but remain vindicated when you are right. In the spirit of that conversation (with thanks to our own resident Enda Munnelly) I will list the predictions I had and then we can either collectively laugh at me or not. The main thing is that I put my predictions on the line and show whether or not I can walk the walk.

1. More than 100%!

Traditionally there were two things stopping people from getting a mortgage, the first was qualifying for the loan, the second …

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Credit Freeze and the effects on the ECB

The credit markets in the U.S.A., Asia, and Europe are in the midst of a freeze at the moment. Banks are not willing to lend to each other hence the big hike in the Euribor (European inter bank ordinary rate: this is the rate that banks lend to each other at) rates and in the U.K. the Libor (London inter bank ordinary rate) rates, they are trading much higher than the central bank rates and this indicates that there is (to a degree) a general mistrust between banks, mainly because they don’t know the exposure to sub-prime exposure the other may have.

The response thus far has been a Fed rate cut, this came a little late, and the indication is that Ben Bernanke will cut the rates again within the next week. Earlier in the year (March 28th) Bernanke claimed that ‘the impact on the broader economy & financial markets of the problems in the sub-prime market are likely to be contained’. Later in June he again re-iterated that there was not a strong chance of a spill-over into …

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Pensions Panic is Largely Unfounded

Recent turbulence in the stock markets has panicked many investors contributing to pensions funds. The stock market falls of the past three weeks have left countless investors worrying about the state of their funds and wondering if their future returns will be affected. Some are even switching funds from equities to cash. A rash move by many, and one that may have been made too soon.

With such high growth levels being experienced in the three years previous, a market correction was somewhat inevitable. It was also necessary in order to weed out the less profitable investment funds from the more established investors. For the last couple of years, Irish pension funds had grown at a rate of over 16% per annum. Growth at this rate was not sustainable, yet despite the falls of recent weeks, most pension funds are still looking healthy.

Reasons behind the buoyancy of the pensions schemes include strong equities markets in 2006 leading into 2007 and continuous increases in interest rates. Higher interest rates lead to better returns from investments such as bonds, which pensions …

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