The Irish Economy - Worrying Signs?

silverharp

Whizzbang, I like Rabo, I bought their World Energy Fund in Nov after the dip in energy share prices. If you don’t already listen to them already there is a great website www.financialsense.com they have pod cast every week (updated Sat) and they do a good all round analysis of precious metals /energy and the markets. Their general view of gold at the moment for what it’s worth is that the Majors are valued as if they have gold in the ground at around $670 , ie premium to their NAV, where as the juniors are selling at a discount to NAV, as the XAU index (unhedged gold producers) hadn’t moved with the gold price this was seen as a non confirmation, hence the expected pull back in the bullion price. I’m holding after following the work of Marc Faber and he is of the opinion that most assets classes should be cheaper later in the year,

whizzbang

silverharp wrote:

Whizzbang, I like Rabo, I bought their World Energy Fund in Nov after the dip in energy share prices. If you don’t already listen to them already there is a great website www.financialsense.com they have pod cast every week (updated Sat) and they do a good all round analysis of precious metals /energy and the markets. Their general view of gold at the moment for what it’s worth is that the Majors are valued as if they have gold in the ground at around $670 , ie premium to their NAV, where as the juniors are selling at a discount to NAV, as the XAU index (unhedged gold producers) hadn’t moved with the gold price this was seen as a non confirmation, hence the expected pull back in the bullion price. I’m holding after following the work of Marc Faber and he is of the opinion that most assets classes should be cheaper later in the year,

yep, I have some of those energy units as well, they are doing nicely since November alright!

I am not very well educated in the full workings of the gold market but I am aware that in general gold goes up when there is uncertainty in the air and when stocks go down. Do you believe that the price of gold will go down later in the year even though there is a lot of uncertainty with Iran, oil prices and property bubbles?

I'll have a listen to that podcast, hopefully it won't be too far over my head!

silverharp

whizzbang wrote:

Do you believe that the price of gold will go down later in the year even though there is a lot of uncertainty with Iran, oil prices and property bubbles?

I try to be patient and sit back when things get over excited like now, I have roughly 50% of what I want to invest in energy and precious metals, and it is always a balance of not wanting to be left behind. But my guess is that alot of this news is priced in, and that alot of the rise is due to momentum driven tech funds.

If there was a recession in the next year (US) then alot of commodities would drop and I guess gold as well, when the Fed cuts rates then this is the time to plough in more cash.

in the 70's gold went from $190 back to nearly $100 before ending up at $800 so it is always useful to keep some powder dry

Robert Burns

The energy you should be watching is the energy Wall Street puts behind buying the LSE
and the Street all ready owns 14.9% of it.
Everyone seems to have bought into this Global Economy nonsense so keep your eyes open
for whoever it is that wants to run that economy. They'll tell you what your stock is worth.

Pa ElGrande

Hints of all not being right under the surface.

The regulator took action after carrying out an inspection of Monaghan Credit Union last year. It is understood credit unions generally make a provision of 100 per cent for any bad debt that had not been repaid within 53 weeks. However, one source said the rules allowed that the debt would no longer be classified as bad if even €1 was allocated against the debt as late as week 52.

He said some credit unions had been using this loophole to reduce the stated level of bad debts on their balance sheets, in order to leave funds available to pay their members a dividend. He described the policy as ‘‘putting more sand on the landmine. It covers it up, but it doesn’t make it any less dangerous’’.

Financial Regulator had doubts over Monaghan Credit Union guarantee
http://www.sbpost.ie/post/pages/p/story.aspx-qqqt=THE%20MARKET-qqqs=themarket-qqqid=13857-qqqx=1.asp

Pa ElGrande

Irish outlook: Damien Kiberd: You don't know what you've got till it's gone
http://www.timesonline.co.uk/newspaper/0,,2769-2157675,00.html

THE lobby group representing the country’s petrol stations claims the number of outlets has dropped by 400-500 in the last five years, and blames this on the small profit margins on petrol. The only thing keeping many of them in business, apparently, is the sale of sweets, newspapers and soft drinks.

Having seen the books for one station, I have to agree the above is true for a lot of stations.

With some of the world’s biggest companies taking a strategic decision to withdraw from petrol retailing in Ireland, it seems likely that the flood of sites coming to the market will continue. Motorists can expect to drive much greater distances in future to fill their tanks.

Every day we are seeing further evidence of how rising land values are affecting business transactions. Not only are petrol stations disappearing, but so too are schools, playing fields, hotels and pubs. Indeed, in one suburb alone, Ballsbridge, the pace of change is extraordinary.

But the wider implications of untrammelled development have not yet been considered by the government or economic planners as the construction boom continues to wag the economic dog.

Lets start

• Housing built in areas prone to flooding.
• Long commute times because of lack of affordable housing near where people work.
• Increased energy bills because of the the lengthy commute on clogged arterial routes.
• Large fines under the Kyoto Agreement due to above.
• Increasing energy bills due to depletion of the cheap sources of energy (Peak oil concept).
• Long term decrease in the population due to cost of childcare and mortgage.
• Two incomes needed to support a household, cars & mortgage.
• A generation of latch-key kids, bored out of their minds in suburbia.

Pa ElGrande

Robert Burns wrote:

The energy you should be watching is the energy Wall Street puts behind buying the LSE
and the Street all ready owns 14.9% of it.
Everyone seems to have bought into this Global Economy nonsense so keep your eyes open
for whoever it is that wants to run that economy. They'll tell you what your stock is worth.

Interesting this
http://www.forbes.com/facesinthenews/2006/03/13/lse-furse-greifeld-cx_cn_0313autofacescan04.html

stepbar

A good sign the "economy" is goin down the swanny is when you see people getting mortgages for houses that are valued at 10 times their gross pay!! And its been happening for years now!! Add to this the era of 100% mortgage the likes of BOI and PTSB are plugging and the "preapproved loans" BOI constantly offer and what you get is the biggest economic fraud going. People constantly forget that your house is not an asset per se until the day the bank hands back the title deeds and u have a cheque in ur back pocket from the sale and even at that u might not even get back the entire worth back. Until that day ur house is a Liability, most people seem to forget this. Interests rates are historically low but this wont last for much longer, the ECB have already signaled that they are likely to approve a rise in the key base rate next month. What this means for homeowners is that cost of their mortgage could hit 4%. Finding another €100 odd eur on a 300,000 mortgage, 35 year loan (which are becoming increasingly popular these days), could be challenging. And remember that €100 eur has a knock on effect, the local publican wont get the few extra quid from you, ull think twice about having that latte before you go to work in the morning and you might not see as many new cars on the road. So it all has a knock on effect, and whats even more disturbing is that more and more people are waiting to get on the ladder, talk about the blind leading the blind. The day every1 become a financial expert is the day we should all become worried and believe me there is a lot of them out there as it is. Thats my spiel for the time being, I only hope the public in general dont go mad spending their ssia money over the next few years because we will be really be in the s**ts

Pa ElGrande

stepbar wrote:

I only hope the public in general dont go mad spending their ssia money over the next few years because we will be really be in the s**ts

A lot of people I have spoken to are using the SSIA to pay off existing debts, so while it will provide somewhat of a boost to the economy, it won't be the boost the retailers expect. The SSIA effect as I see it, is psychological, creating a buzz in the country which is leading to increased spending/borrowing.

In 2006, we are cocooned within the bubble, inhaling it's rarified air, high above the clouds and can't, nay, don't want to see beyond its confines.

Step back and watch what is happening abroad as the housing bubbles around the world begin to pop one by one.

DENNIS ORROCK: By the end of 2006 there will be a percentage of a decent size of the home owners in Sydney and Melbourne who will be in a position of negative equity by the end of 2006. That's based on the 2005 property performance.

Australia: Mortgages rise following property boom
http://www.abc.net.au/pm/content/2006/s1631068.htm

A GROWING band of Sydney home owners who bought near the peak of the property boom in late 2003 are facing negative equity as property prices sag.

Property investors hit hard
http://www.smh.com.au/news/national/property-investors-hit-hard/2006/05/06/1146335933244.html

Many of these homeowners may soon face a "can't pay, can't sell, can't refi" situation that could lead them to lose their homes.

The negative equity epidemic
http://moneycentral.msn.com/content/Banking/Homefinancing/P148861.asp#msnhp

Pa ElGrande

"'The Grip of Death' is a literal translation of 'mortgage', when the owner of a house pledges his or her house to another with a handshake...unto death."

"The Grip of Death: a study of modern money, debt slavery and destructive economics" by Michael Rowbotham (Jon Carpenter Publishing, 1998)
http://lowbudgetlife.com/readarticle.php?article_id=1

You can read chapter one from the link above, the book is available on Amazon.co.uk
http://www.amazon.co.uk/exec/obidos/ASIN/1897766408/026-4325621-7962838

7mountpleasant

I think the big variable in any analysis of the Irish economy is the boys in the Ivory tower in Frankfurt. If base rates hit 4-5% any time soon god help us

Captain Trips

Yeah, and I think they are looking for aroudn 5% in a year or so.

I do think the market in property in Ireland has calmed down a lot. Prices of property now are far beyond what you could expect to get in rent, or at least, enough to make profit marginal unless you have been in since before 2004.

WOuld anyone care to tell me which place is going to go like Dublin so I can buy a property for cheap and then get hundreds profit every month in rent? Galway? Cork? France?.

Pa ElGrande

Berlin/Germany seems to be flavour du Jour for Irish property investors at the moment, it has a well regulated rental market (This is good for both tenant and investor) and if predictions are correct the economy is picking up there, + they are due to open up to Eastern Europe in the next few years, it could be win/win as property is cheap there relative to Irish prices. Downside of doing business in Germany is the bureaucracy .

Looks like we in Ireland are going to get the boiled frog treatment as the ECB (European Central Bank) is cautiously edging European interest rates higher.

WRAPUP 2-Euro zone GDP speeds up, ECB keen to raise rates
http://today.reuters.com/business/newsarticle.aspx?type=tnBusinessNews&storyID=nL10649674&imageid=top-news-view-2006-05-11-080909-RTRDSEL_Comp%5B1%5D.jpg&cap=File%20picture%20of%20an%20Opel%20worker%20driving%20a%20fork%20lift%20truck%20at%20a%20plant%20in%20the%20German%20city%20of%20Bochum%20October%2020,%202004.%20Figures%20released%20on%20Thursday%20showed%20the%20German%20economy%20grew%20by%20a%20slower-than-expected%200.4%20percent%20in%20the%20first%20three%20months%20of%20this%20year,%20dampening%20the%20outlook%20for%20the%20broader%20euro%20zone.%20REUTERS/Wolfgang%20Rattay



* They say that if you put a frog into a pot of boiling water, it will leap out right away to escape the danger. But, if you put a frog in a kettle that is filled with water that is cool and pleasant, and then you gradually heat the kettle until it starts boiling, the frog will not become aware of the threat until it is too late. The frog's survival instincts are geared towards detecting sudden changes.

MG

I think yesterdays inflation announcement might well mark a watershed for the economy. George Lee of RTE seemed to convey a feeling of shock and reality biting among economists whio seemed to have been totally been taken surprise by this none too surprising event. I have always found Lee to be very astute and I think the signals were there yesterday that there seems to be a real uncertainty about the future.

Pa ElGrande

The union has already said that it wants any new wage deal negotiated as part of the social partnership process to include a 10% pay rise over two years.

It is also seeking a local-bargaining clause to allow workers to claim extra increases from highly profitable firms.

Banking union slams Cowen’s call for wage restraint
http://breakingnews.iol.ie/news/story.asp?j=182432518&p=y8z433zz4

Minister for Finance Brian Cowen called on the social partners to observe moderation in response to the figures. "The bottom line is we need to be very careful about not putting ourselves in the position of seeking to award ourselves wage rises now that would undermine our competitiveness," Mr Cowen said.

He attributed the rise in inflation to the impact of higher oil prices and energy costs.
Surge in inflation puts more pressure on pay talks
http://www.ireland.com/newspaper/front/2006/0512/179780837HM1INFLATION.html

Any interview with Colm Rapple and Mark Coleman on Newstalk this morning made the the point that a significant contribution to inflation is being driven by the public sector (Health, Education & Transport)

The interview starts 13 minutes into the podcast and lasts for 10 minutes.
http://www.newstalk.ie/podcasts/library/ed1205.mp3

THERE will be no cap placed on recruitment into health and education but there will have to be reforms in the sectors, Finance Minister Brian Cowen has said.

No cap on recruitment into health and education, says Cowen
http://www.irishexaminer.com/irishexaminer/pages/story.aspx-qqqg=business-qqqm=business-qqqa=business-qqqid=2622-qqqx=1.asp

Inflation looks out of control driven domestically by an expanding costs in the public sector. The Government is preparing for an election.......
Looks like we are in for some pain after the next election or sooner.

ronbyrne2005

the inflation figures arent too bad when oil increase and interest rate rises are stripped out. Its mainly down to oil and rising rates but the euro is going higher recently and will go even higher if rates go higher than expected,oil is pricedmin dollars so stronger euro reduces the impact of higher oil

Pa ElGrande

ronbyrne2005 wrote:

the inflation figures arent too bad when oil increase and interest rate rises are stripped out. Its mainly down to oil and rising rates but the euro is going higher recently and will go even higher if rates go higher than expected,oil is pricedmin dollars so stronger euro reduces the impact of higher oil

Irish annual inflation rose to 3.8% in April
http://www.finfacts.com/irelandbusinessnews/publish/article_10005802.shtml

The most notable changes in the year were increases in Housing, Water, Electricity, Gas & Other Fuels (+13.2%), Transport (+5.6%), Health (+4.6%), Education (+4.6%) and Restaurants & Hotels (+3.5%).

amp

I wonder will we start to see more strikes given the inflation rise?

Kinetic^

amp wrote:

I wonder will we start to see more strikes given the inflation rise?

Amp don't be giving them ideas, all we need is another blue flu or something similar from the rest of the civil servants!!!!

ambro25

Pa ElGrande wrote:

In fact Dublin people may have noticed that quite a few petrol stations in the city have closed or are closing.

Seconded.

Captain Trips wrote:

Would anyone care to tell me which place is going to go like Dublin so I can buy a property for cheap and then get hundreds profit every month in rent? Galway? Cork? France?.

Not France, you'll get murdered by taxes - that's from experience (base rate for o/seas landlords is 25% from the first cent of income after deductions)

Galway's on the up, from what I hear.

amp wrote:

I wonder will we start to see more strikes given the inflation rise?

Any bookies taking bets? Now there's a sure earner

Look, either buy to live, or buy (o/seas) to rent-then-retire, but don't buy to let here, because the returns atm are... well, inexistant, and will become increasingly so with rising interest rates.

Obvious enough, but my €0.02

Better that you accumulate maximum net worth through capitalisation, to a level where it can sustain revenue generation itself even through the basest of interest rates, rather than dump after-tax €s on a 35-year liability (which won't really turn any income until you sell it once it's yours, sooo...?). That is, of course, unless the 'liability' adjusts and becomes a realistic investment proposition, as opposed to a speculative venture.

(btw, a very good point bystepbar, indeed lost on far too many home-acquirers)

DublinWriter

amp wrote:

I wonder will we start to see more strikes given the inflation rise?

Be very clear about this - the train strike is more about blatent opperunism than workers struggling to put break on the table.

Pa ElGrande

The central fact in Ireland is that we are dangerously over-dependent on multi-nationals and apart from their activity, we are nothing more than an economy that sells houses to one another, financed by other people's money. We have a serious deficiency of native companies doing well and - although there is no shortage of capital - all this spare cash is going into property.

Today, Microsoft, Dell and Intel, account for 20pc of our GDP. Think about that for a moment. The turnover of the operations of three multi-nationals in Ireland accounts for one euro in every five in circulation here! Furthermore, 72pc of all our exports came from two sectors - the "pharmachem" sector (chemicals and pharmaceuticals) and computer sector.

Multi-nationals accounted for an astounding 87.6pc of Irish exports, yet there are only 100,000 people working in the multi-nationals as opposed to 1.9m in the rest of the economy.

Of the remaining 12pc of our total exports, close to 8pc were agricultural goods, so domestic firms only account for a tiny 4pc of exports. Are things now becoming clear? The engine of growth in Ireland, the sector that earns hard currency for us, is the multi-nationals.

Partnership,(n): Charade; fraud; myth
http://www.davidmcwilliams.ie/Articles/view.asp?CategoryID=-1&CategoryName=&ArticleID=363

When the tap that pours credit into our economy gets turned off, there is going to be one hell of a crash in the domestic economy.

Pa ElGrande

The halcyon days of the Celtic Tiger

With the SSIA money beginning to flow and the property boom continuing to boost public finances, the good times continue to roll.

However, with one-fifth of the private sector workforce engaged directly or indirectly in construction and 30 billion (equity and borrowings) invested in commercial property both at home and overseas, in the past five years, as the industrial sector has contracted, what does the future hold in the absence of reform?

American companies have been at the wheel of the Irish car for a long period. How can we take the wheel ourselves without reform that matches responsibility with accountability?

Comment: The Driverless Car Syndrome - The Celtic Tiger roars on for now but significant reform is not on agenda
http://www.finfacts.com/irelandbusinessnews/publish/article_10006099.shtml

Well lets see what the ECB have in store this week.

Catney

another point.... I know a guy in middle management in a bank. Hes owns a EUR 800k house, probably has a feck all mortgage at this point. Anyway... he has 4 average earning children, whom he has persuaded the bank to lend 8-10 times their income, a little pre-December 2006.......

He has also advanced them EUR 25 k each of his own money.

Now all is well. But.....when house prices start falling, and he has to bail each of his over-extended children out, well hes going to have a problem. Not only will he have to help his children out, but the asset with which he funded the initial payments to them will be falling.

Retirement in Spain wont be looking so possible then.

ronbyrne2005

ronbyrne2005 wrote:

the inflation figures arent too bad when oil increase and interest rate rises are stripped out. Its mainly down to oil and rising rates but the euro is going higher recently and will go even higher if rates go higher than expected,oil is pricedmin dollars so stronger euro reduces the impact of higher oil

Then why have our european neighbours not been affected in the same way??

They use the same oil and are bound by the same interest rates..

DublinWriter

Catney wrote:

Now all is well. But.....when house prices start falling, and he has to bail each of his over-extended children out

Firstly, not when, if.

Most twenty somethings only use the dot-com boom/bust as their template when looking at the dynamics of any market. Wrong.

The worst thing that can happen is if the ECB has to jack up interest rates to around 10% because of sudden volitility on the global currency FX market. This exact situation happened in the UK in 1990 and the market bounced back 4 years later with property prices being as strong as ever.

Catney wrote:

Not only will he have to help his children out, but the asset with which he funded the initial payments to them will be falling.

I presume these are the type of 'children' who are in their early to mid twenties?

Catney

DublinWriter wrote:

Firstly, not when, if.

Most twenty somethings only use the dot-com boom/bust as their template when looking at the dynamics of any market. Wrong.

The worst thing that can happen is if the ECB has to jack up interest rates to around 10% because of sudden volitility on the global currency FX market. This exact situation happened in the UK in 1990 and the market bounced back 4 years later with property prices being as strong as ever.


I presume these are the type of 'children' who are in their early to mid twenties?

yeah of course they are in their early to mid-twenties. A case of keeping up with the Jones. Funding your children, the equivalent of buying a beemer. Look at all my kids, they have really expensive houses. One of them bought a 370k apartment, pre December 2005. He earns 35k a year. 3 interest rate hikes since and he is just about to move in. Problem???

I actually dont think that house prices are going to tumble, I think they are going to steady off, as I think lots of people are going to sit on their properties. They will try to keep up with the increasing payments but ultimately, Id say a 5 year time frame, there will be a problem.

Im selling up shortly and am going to buy a place that I know that I could live in for 5-10 years. House prices are irrelevent if you are in a place that you dont mind living in and will suit your ever developing needs.

DublinWriter

Catney wrote:

I actually dont think that house prices are going to tumble, I think they are going to steady off, as I think lots of people are going to sit on their properties.

Me too, as I said in another thread, most 20 somethings experience with market forces is coloured by the dot-com crash and comparing the Irish property market with the global equities market is pure foolishness.

What I think will happen in about four years time is that the property prices will level off at fairly high rates and will just grow in line with inflation, rather than have the double-digit growth levels we've been seeing of late.

daveirl

This post has been deleted.

DublinWriter

daveirl wrote:

This post has been deleted.

Lovely graph and a great example of "How to lie With Graphs" (go buy the book, it's a classic).

Basically that graph is outlining the entire UK property market.

And there's the problem. Having worked in the UK until 2002, the market in the South East bounced back fairly quickly five years after the crash.

However prices in the North remained pretty stagnant, dragging the whole UK average down. You could have bought a stately pile in Lancs for about 150K in 2000.

Essentially it would be a bit like factoring in house prices in Leitrim/Donegal without factoring in statictical weighting.

Anyways, if you don't agree me on the above, just plot a straight line and plot the median between the start of the graph and the end on the Y-axis.

As I said, in the long term, you don't lose money with bricks and mortar.