Residential investment property report: Q3 2009

We are pleased to bring you the winter edition of our Residential Property Investor report for 2009.

(Click on the picture to the left to download it)

This time we teamed up with our friends at propertyweek.ie and MyHat.ie as well as with Frank Quinn who is a lecturer in Property Valuations in Senior College Dun Laoghaire to bring you what we feel is a very comprehensive overview of the Irish investment property market.

We used four different methodologies to look at valuations, discounted cash-flows, the investor method of property valuations, and then two unique versions that look at the performance of a property versus bank deposits factoring taxation in both leveraged and un-leveraged examples.

We have published the analysis element of what we have done and welcome any critique readers may have, we accept that every variance and eventuality can never be fully covered, having …

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The future of compensation in financial services (perhaps!)

I wrote before about the errors of compensation in financial services, in a nutshell people were earning money for short term performance in a long term game. However, what I had failed to do was provide potential solutions, this post is about alternative solutions, it will focus primarily on brokerage (because that is what I know best) but it can equally apply to banks or any financial company.

The basic tenets are

1. Long term reward for long term performance 2. Ensuring that bonus’s, while delivered in the short term, have some kind of long term implication. 3. Creating schemes that reward consistency and best advice, rather than one based on transactions.

I would state in advance, that enacting any of these plans will mean further economic pain for a group of workers who are already at the epicentre of the worldwide financial storm, it would also require considerable will to roll out, as well as the co-operation of the banks, the Financial Regulator, …

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A phone call with Bob Frank, author of ‘The Economic Naturalist’

One of my favourite things to do is to talk to the people who write the books I love, often they are hard to reach, others are surprisingly easy, some of them are hard to talk to, others are some of the nicest folks you could hope to have a conversation with, Bob Frank is very much the former and the latter, it took a while to reach him but it was worth waiting for, he has the quality I like best (and I mentioned it already in the review I did on his book ‘The Economic Naturalist’) – namely the ability to talk about complex ideas in plain language.

I called Bob at his house in Ithaca and below are the contents of some of that conversation.

KD: Bob, you have said before that you feel economics has gotten too numerical, that taking that direction can sometimes provide absolute ‘truths’ that simply are not what they seem, so where does the art come into it? Where …

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The Economic Naturalist, Robert H. Frank (book review)

Robert H. Frank of Cornell University wrote a great book called ‘The Economic Naturalist, why economics explains almost everything‘, it has been an absolute winner of a read, and kindly Robert (Bob) took a phone call from me to talk about his book (more on that later).

Regarding the book, it is excellent if you are not actually into economics, because it takes everyday things and tries to use economic foundations for explaining them, the questions are simple every day occurrences and the answers are often surprising!

Here are a few simple examples, ‘why are cans of fizzy drinks round and milk bottles are square’, ‘why do animal rights activists throw paint at women in fur but not bikers in leather’, ‘why do taxi drivers stop working early on rainy days’, ‘why are plane tickets purchased at the last minute more expensive’, and many …

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Pete Peterson formerly of Blackstone, CFR, Lehman and Secretary of Commerce

Pete Peterson is a fascinating individual, he came from humble beginnings and went on to work at executive levels in some of the most well known finance houses in the world. He mentions some of the deficit fears that have been laid out in this blog many times in the past and the inflationary risk that comes with it, Peterson is in agreement with Volcker that there is a serious dollar risk forming.

Peterson is also a human, he is one of the few Wall St. legends to come out and admit that he needed psychotherapy in the past, this interview is absolutely worth watching and learning from.

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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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Blogs and sites that cover the topic of finance and economics

I was at a meeting last week and the topic of ‘what I read’ came up, I spend on average, about six hours a day reading, granted that is not always books, it can be blogs, websites etc.

The sites that I like are listed, in no particular order below, some are article driven, others are debate/forum driven.

The Economist Financial Times Calculated Risk Across the Curve Credit Writedowns Irish Economy The Property Pin Politics.ie NewDeal2.0 BreakingNews London School of Economics John Mauldin’s Investor Insight (ezine/weekly letter) VoxEU Raging Bear

If you do a google search for any of these sites you’ll find them with ease and they are all sources of very interesting information

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Derek Braun vs David Cantwell on the Late Late show

Pat Kenny had two well known commentators on the Late Late show on Friday, David Cantwell a director with the largest new homes estate agent Hooke & MacDonald and Derek Braun author of ‘Irelands House Party’. The section on the show had some interesting debate and both sides had some valid points, some things however were not mentioned – for instance – Braun pointed out that huge profits were made on a certain south side development (and nobody doubts that) but there was no mention of the taxation that is paid via contributions to local councils, VAT, other taxation, paying bubble wages etc.

Cantwell spoke about property prices being at their bottom (granted this is only in his opinion) when considering the supply and other economic factors they clearly cannot be, as well as failing to mention some of the common sense home truths which Braun used to shoot down his arguments.

The only issue I have is that of all the developers I know only one isn’t going into liquidation, in a

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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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