Drop in Fixed Mortgage Rates likely

In watching the movements of the Euribor Yield Curve we saw that margins were likely to increase on fixed rates, however, over the month of April we are seeing the yield curve drop below levels seen at the start of the month and that will likely result in a repricing of debt.

What we are seeing is the increasingly bearing outlook feeding through to interbank rates with the expectation of the May cut showing a strong likelyhood of going too 1%, that is why the 1 month money has actually dropped below that mark when earlier in the month it was slightly above it.

The yield curve is generally feeding the market information about inflation and it would appear that after the May rate decrease that the medium term outlook is depressed. The lines hold a tight margin until the two year mark at which point the earlier curve trends higher and today’s keeps that c.20bip difference. Fixed rates don’t always change with rate drops because they are priced off of …

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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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The Criteria Crunch

We have just been informed that one the lenders we deal with are only getting through applications received by the 4th of March, that is a near 20 day delay on new applications they are considering. Why the backlog? Has the market suddenly recovered? Are they being flooded?

No, rather it is a case that in banks nearly everybody has been enlisted to work in ‘collections’ and the staff were taken from every other department, in particular the ‘new business’ section. The bank we are talking about today merged their direct channel with brokerage so even going via a branch makes no difference, the whole company has only four working underwriters.

So inasmuch as the credit explosion saw too many resources being thrown at lending and the expansion of same, the crunch is doing the exact opposite by overshooting the mark in the reduction of resources. For a publicly quoted bank to be 20 days behind means that the market is facing yet another hurdle in reaching its rational level. Lending hasn’t frozen, people are …

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Preventing Inflation

We’ve had some problems with the embedding code, if the video doesn’t play for you click here

The common view (my own included!) is that there will be some serious inflation coming down the line, the valid point raised here is that all of the liquidity is currently trapped in many mechanisms from deleveraging to recapitalising financial institutions. The hard hand to play will be that of timing with taking the right moves, which frankly doesn’t inspire me hence my belief that we will not get it right and the inflation will come one way or the other! Having said that, it is vital to accept and consider all counterpoints and this is an easily understood one.

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The numbness of the bottom

When bad news stops having an effect then it is a sign that we may be approaching the bottom, if that bottom is an L shape or a U shape is down to how the crisis continues to pan out. However, the acceleration of the decline has been so rapid that unlike the depression, we are seeing wealth wiped out much faster, in the late 20’s early 30’s the drop in the Dow went from 343 to 71 over the course of three years, today the Dow went from 14,000 to 6,900 in just over a year. That same 50% drop took more than a year and a half from 29′ to 31′ (the crisis accelerated after that). However, an important difference between now and then is that the state sponsored institutions didn’t exist, such as state supported medical care and social welfare.

Bearing this in mind what can we determine of the near term future? For a start, bad news is no longer effecting share prices the way they normally would, a …

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Valuations in property are currently meaningless

Free markets, or indeed markets in general, have a tendency to set prices, not through control, not by one person holding up a placard and shouting from the rooftops, but rather through the process of prices reaching a point at where they occur, where demand and supply are reacting with each other.

So if you look for €3 million for a three bed semi in Donnycarney your property will not sell, no matter how much you want it to. At the same time, if you were to list a property there for €50,000 it would sell overnight, and both of these extremes demonstrate a pricing being totally out of balance with the market. The interesting point now though is this: The market itself doesn’t know what is happening, so valuations are currently meaningless. By that I mean the people who go out and value property are not able to make accurate assumptions about property prices in this market, we are seeing this daily, and then dealing with the end result which is …

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Why wasting the talent of 400,000 people is a mistake

With unemployment expected to reach 400,000 it tells you one thing instantly: among the group you will have a cross sector encompassing every facet of society. Scientists, builders, finance workers, bus drivers, fast food employees et al will stand shoulder to shoulder in the dole queue, likely with little or no interaction because, quite frankly, unless you’ve signed on before then you know not the frustrating depression that comes with it.

So what could we do? Does it even make sense to allow such a waste of talent? If we have a state that pumping money into the system so that we can be saved from ourselves then should this extend into how we think about welfare? I would say the answer is yes.

There are many people who have lost jobs who probably didn’t love what they did to begin with, obviously they love it more than the dole but if this is the case then why not use this juncture to help them pursue something that …

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