Of course, if you are a retailer in Ireland, it is the value that you care about. The rise in core (ex-Motor) sales in April (+0.5%) was the first m-o-m increase since September 2008. But in terms of value, m-o-m rates were:
Is this a 'dead cat bounce' or a real sign of stabilization? My gut feeling that May-June figures might come in with a moderately positive rebound (weather and recession-fatigue effects will drive people into shops), but the real test will be September-October. Notice, however core value rates staying below the waterline - signaling continued jobs pressure in the sector into the summer months.Also telling - a look at the actual indices of activity:
Core value index still heading South and a mixed picture in other measures... Again - wait and see...NAMA delay - predictable stuff of governance... So Brian Cowen (June 17th, Dail comments) thinks that the vote on NAMA might happen as late as in September and other decision-makers (e.g DofF) are indicating that even that might be an optimistic deadline. And, of course, going by the Government record on decision-making - the latter are right:
- Unemployment increases onset - November 2007. Problem acknowledged - July 2008. Policy solutions proposed - still waiting;
- Fiscal deficit onset - Fall 2007. Problem acknowledged - July 2008. First steps taken to raise taxes - October 2008. First (real) steps taken to reduce public spending costs - February 2009;
- Currency crisis onset - on exports side - January 2007. First acknowledged - Summer 2008. First steps taken to address - still waiting;
- Competitiveness (using HCI) crisis onset - around 2002. First acknowledged - around 2004. First (real) steps taken to rectify - still waiting;
- Cost of public services crisis onset - around 2002. First acknowledged - still waiting;
- It took the Government less than 3 months to draft and implement sweeping tax cull of our incomes (July-October 2008), but it took the same Government the same 3 months (since April 23rd) to reduce redundant Ministerial/TD pensions by a miserly 25%. It will now take at least 3 years before we can see a real change in the way our politicians pay themselves.
- banks, absent NAMA clarity, are constrained in raising own capital;
- banks might be facing much higher rates of interest in raising funding in the latter months;
- political risk of the Government bailing out (partially or wholly) of NAMA has now risen as well;
- political risks are now amplified by the fact that NAMA costs are going to play-out coincident with 2010 Budget;
- development projects and investments are now placed under a new round of uncertainty;
- banks valuations are now being impacted by the post-August detailing of the NAMA exposures; and so on.
And on related issue: Davy's note today contains an interesting discussion of Minister Lenihan's statement in the Dail on banks capital. Quoting from the note: "Regarding the suggestion that there was a danger in raising capital ratios, the UK raised them to give confidence to markets in respect of the banks. We did not follow suit, keeping with the minimum capital ratios. I do not propose to change that because I agree ... that if one raises capital ratios too high we will inhibit lending. We must have a minimum and that must be adhered to'.
Davy's analysis: "This would seem to confirm our suspicion that the Irish government is not planning on setting the capital bar particularly high for the Irish banks post-NAMA. Instead it
plans to let the preference shares help offset a slightly lower level of equity tier 1 (maybe 5%+) versus UK peers. In Ireland, the minimum capital requirement is a core tier 1 of 4% whereas in the UK the new FSA requirement is 4% but after a severe stress test. The market will of course make up its own mind on this but it is inevitable that ALBK and BKIR are going to need to do rights issues at some point if they are (a) going to pay back the government preference shares, and (b) want to lend again rather than be focused on reserve building."
My analysis, in addition to agreeing with Davy's: Minister Lenihan is consciously trying to alter the issue of post-NAMA capital adequacy of the banks by not imposing strict test-linked capital bounds. The whole exercise has nothing to do with actually freeing banks funds for increased lending in the economy, as, per Davy analysis, the banks will still face constraints in paying (a). Instead, it is about reducing, artificially, the demand for government recapitalization funding post-NAMA and making it palatable for the banks to accept slightly higher discount rates for assets transferred to NAMA. Investors will have to face a choice in this case:
Option 1: banks accepting the deal and running with lower capital reserves, exposing themselves to the downstream risk of emergency recapitalization should financial conditions deteriorate further in Fall 2008-Winter 2009;
Option 2: banks raising adequate by international standards capital outside state recapitalization scheme, undermining future profitability, but compensating for the above risk.
Good luck to anyone pricing the difference in two Options...
Minimum Wages... ETUI Policy Brief Issue 2/2009 titled "European Economic and Employment Policy Minimum wages in Europe: new debates against the background of economic crisis" provides an inetresting set of comparative charts and tables on minimum wages in Europe. Here they are:
In the above, don't let Luxembourg's numbers deceive you - Lux is a country where national accounting produces vast distortions in per capita incomes and earnings that make it irrelevant for comparisons with other EU states.
In the above, PPS adjustments in Lux and Belgium are distorted by large shares of external transfers into the economy, while the UK PPS-adjusted wage is adversely impacted by the strength of Sterling in 2007. Another issue not reflected above is the tax impact on minimum wage earners.
It is worth mentioning here that while the levels of minimum wages are a problem for Ireland, the rate of growth in minimum wages over 2000-2008 is relatively modest, especially once we control for purchasing power.
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