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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Beware of Expert Opinion from Promoters.

Lately we have been witnessing a resurfacing of property promoters in the press after a long period of silence. We want to reassert our advice that people should do their own homework before embarking on a large asset purchase be it property or otherwise.

How can you tell if it makes sense to buy a property? Our suggestion, as a financial firm, is that you talk to a financial adviser, you determine your own circumstances, you look at your own unique situation, and that you don’t base your opinion on what you hear on the radio or TV from people in the property business. The people who are restarting to champion property now are doing so under the banner that ‘it is cheap to buy’, part of the ‘cheap’ is due to exceptionally low interest rates, which invariably will go up some day.

That is not to say ‘don’t buy property‘, far from it, what we are trying to tell people is ‘make prudent decisions’, don’t buy any asset you can’t afford …

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Will stimulus plans lead to disaster?

In this video which was featured on Yahoo! Tech Ticker Peter Schiff of EuroPacific argues that any additional stimulation of the economy or bailout packages will actually exacerbate the situation rather than remedy it. The outcome of the current economy will perhaps decide once and for all who holds the keys to recovery, the Keynesians or the Austrians.

The Keynesian solutions were fine tuned post-fact and this is the first time since the 1930’s that the theory is getting a real life test, in watching the Davos Debates one interesting factor is that Austrian Economics seems to be getting an equal amount of airplay. Stephen S. Roach said at Davos that we need to get on with the ‘heavy lifting’ where the global rebalance occurs, current account deficit nations have to start saving while current account surplus nations need to spend, this is the inverse of what Keynesians would perscribe because under their guide countries like the USA (deficit nation) need to spend their way out of …

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Understanding Deposit & Lending Margin relationships

Part of the way you can get a view of a lenders margins is by looking at the deposit margins they offer because deposit margins usually reflect – at least to some degree – lending margins. This is because there are two sides to a balance sheet with any bank, on one hand you have deposits which you attract in order to fund lending so if you have low deposit margins that is probably indicative of having low lending margins (although not always!), however, if you have higher deposit margins it is almost certain that you have high lending margins.

NIB released their results today so we’ll take them as an example as well as Anglo Irish Bank to demonstrate the way that you can read into certain elements of how a bank is run from the outside and also on the type of business they engage in.

For a start you’ll need to know that average margin on a mortgage with many banks is less than 1% and that is from …

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Understanding Deposit & Lending Margin relationships

Part of the way you can get a view of a lenders margins is by looking at the deposit margins they offer because deposit margins usually reflect – at least to some degree – lending margins. This is because there are two sides to a balance sheet with any bank, on one hand you have deposits which you attract in order to fund lending so if you have low deposit margins that is probably indicative of having low lending margins (although not always!), however, if you have higher deposit margins it is almost certain that you have high lending margins.

NIB released their results today so we’ll take them as an example as well as Anglo Irish Bank to demonstrate the way that you can read into certain elements of how a bank is run from the outside and also on the type of business they engage in.

For a start you’ll need to know that average margin on a mortgage with many banks is less than 1% and that is from …

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Short selling, what is it? What does short selling do?

Most of us are familiar with the idea of being able to buy and then sell a share, normally this is referred to as going ‘long’ in other words you feel it is a good share and you want to hold on to it. The opposite of this is where you sell and then buy which is going ‘short’, in other words you don’t think the stock is good and you don’t want to hold on to it so you borrow it and sell it today, buy it tomorrow (and dispose again to the original owner) and your position is set by the difference.

In a short sale a drop in the price makes you money because (for instance) if you sold today at $3.00 and bought back at $2.80 then you made 20c per share. If however, the price goes up to say $3.20 then you have to make up the difference. This is before we get into other areas like options or any derivatives. An easy …

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