We made an appearance on Primetime last night to comment on the property market and the issue of negative equity in ireland.
‘House of Cards’ the fall of Bear Stearns
This is a video on the fall of Bear Stearns, it is based upon the book ‘House of Cards’ by William Cohan, it is a six part interview so rather than post them all on our blog, if you want to watch the rest go here. Minyanville is also a site worth bookmarking!
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 …
Are you getting your full tax relief?
There was an article in one of Ireland’s national newspapers last week describing the major issues surrounding the rescinding and subsequent re instatement of mortgage Interest relief. For those who are uninformed about this subject, mortgage interest relief (or TRS) was suspended pending the requirement for every person that previously claimed relief to re-apply for it. This was not a move intended to deprive anyone of their entitlements, more a housekeeping exercise to make sure that things are as they should be.
Thousands of Irish home owners had their tax relief temporarily suspended so that a general process of reassessment could take place whereby people would ascertain that whatever they were receiving in tax relief was correct. The Government spends millions every year on the TRS scheme, and with the exchequer being frightfully strained like Mary Hearney doing a triathlon, it was a necessary to ensure that the recipients of tax relief at source were indeed fully entitled to it.
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Rent to buy: The pitfalls in practice
Rent to buy is not a ‘new idea’, one of my mentors is a man who built over 10,000 homes in Dublin (he retired in the 70’s having started his business in the late 40’s), but in talking to him he spoke of almost exclusively selling houses in staged payments and renting them out to prospective buyers as a way of paying for the property.
The resurfacing of rent to buy is not evidence of the wheel being reinvented but purely of the prevailing economic environment, however, unlike the way it operated over thirty years ago, today renting to buy is having obligations stitched into the contract that may not be possible to meet in the future and therefore it leaves the renter/purchaser in some slight uncertainty.
One of the primary issues is that of ‘loan offers secured’. When you rent to buy you are essentially (in most cases) saying you will buy the property at a point in the future for the market value at the time of completion of …
Euribor yield curve changes April 2009
Below are two charts of the Euribor yield curve (many thanks to Bank of Scotland Treasury for their excellent daily reports!).
Here we can see that there is not much of an inflationary expectation at year two or three, it is virtually a dip at the 3year mark, then there is some uncertainty, in year four it goes up by about 75 basis points, then we are back into a general steady upward trend.
Only a few days later and the three year price has shot up by 50 basis points, we would read this as being an indication that the markets are forward pricing in some expectation of inflation at the two or three year mark, if the rise filters through to the left hand side then it will be showing a stronger and stronger likelihood of this happening. Appropriately banks have just raised their fixed rates meaning that the window in which people on variables can cash in low are …
The pincer of fixed rates while in negative equity
A recent article in the Independent stated that ‘fixed rate borrowers are taking all the pain’. The base rate has fallen from 4.25% to 1.25% with a further rate reduction expectation taking the EU to a base of 1%. What this means is that people who felt the drop off in base rates (tracker mortgage holders & most variable rate holders) are now better off to the tune of about €425 per month.
However, for those on fixed rates the story is the reverse of this, they have not felt any reduction in the amounts they are spending monthly while at the same time many have had to live on less due to wage cuts, levies, and job loss. The fees for ‘breaking’ a fixed rate are usually from 3 to 6 months of payments.
So what can you do? If you have the savings to pay for the move you can go that route, but if you have been …
Rent or Buy the 5 year outlook
Today we are going to look at a comparison of renting vs buying with a five year outlook given the current interest rates, the yield outlook and lastly the cost of renting.
The following figures factor in real life examples taken from existing lending rates/rental prices and the forward estimation on rates is taken from presumptions in the current yield curve (chart is below). The terms applied in each example are 30 years, and the purchase is assumed to be a couple buying together, we can examine the impact for a single person in a separate post.
If you were to take a price of €313,000 for a two bed property (current average taken as a mean of prices in todays daft report – this figure is the Dublin average price across all geographic areas, the figures can be determined for any county the same way) and do the following.
1. Compare the total cost of ownership (we are not factoring in house insurance, bin …
Geithner plan, re-explained by Khan Academy
Another video from the Khan Academy, talking about the working reality of the Geithner Plan. Really it seems that the plans sole purpose is to allow investors to use taxpayer money to buy assets with all upside and little or no downside by using a credit default swap to insure the deal. Even a zero return isn’t to be balked at when investing during a period of deflation, the way it’s described here puts it out in plain english.
Warren Buffett Interview
The ‘Sage of Omaha’ Warren Buffett talks to Bloomberg about the financial crisis, about some of his miscalculations and how he sees things panning out in the future.