Tuesday, May 25, 2010

Economics 25/05/2010: Looking at the Financial sector

As of now, both BofI and AIB are trading below 52-weeks lows. The financials are continuing to experience pressures. But a look back at the overall sector is warranted. Here are some stats:
Let's start from a far: dramatic or not, but the current market conditions are in line with the long term time trend in Irish financials. If anything, per almost 11 years of data, we are currently above the long run trend line. Guess there's more room for downward pressures, should long run dynamics matter.

Zooming in:
Note the chart above - this shows the totality of value destruction since the beginning of the credit crunch back in July/August 2007.

To see some more dynamics, consider the snapshot from the peak to today:
The chart above shows the entire extent of the crisis, with the medium term (through crisis) trend pointing to consistent positioning of the current market valuations. In other words, per trend, nothing dramatic is happening in the markets right now. I also posted some key dates that mark our policy and opinion makers' ability to track markets and predict the future.

Lastly, chart above shows the dynamics in Irish financials over the span of the 'rebirth of optimism' - the last 12 months during which various Government officials and politicians have made a score of statements to the effect that:
  • Ireland has turned the corner on recession
  • Irish banks are now in a stronger position than before
  • Irish Government has made right decisions and these are now evident in the markets' approval, etc.
Revealing, isn't it?


Anonymous said...

Hi Constantin,

Good post again. Is it fair to assume that you are broadly in agreement with Morgan Kelly's assessment in last Saturday's Irish Times?



TrueEconomics said...

Broadly, John? Well, my ballpark numbers might be slightly different, but I do believe that his conclusions are fully supported by evidence. I wrote on so many occasions about the back-breaking burden of banks and public sector liabilities and the debt mountain we carry, I stopped counting! Morgan is right in being pessimistic about our debt dynamics.

Anonymous said...

So just to refresh how many billion spent for no result?