In the spirit of the new attitudes at this blog: a 'No Comment Needed' section will be appearing in these pages on occasion. This is one such occasions: story in the Indo linked here is certainly worth a read. It left me breathless!
And here is another link - this one made me cry with laughter. To describe 80,000 people disagreeing on pronunciation in an obscure (from the point of view of the entire humanity and the vast majority of Irish people themselves) linguistic parlor game as a schism is about as absurd as to label a queue of three at your local Tesco till a sign of food shortages hitting the Western World.
What the story does really tell us is the extent to which our state focus on engineered national identity (with Gaelic at the heart of these efforts) crowd out our real culture and history - global, internationally convertible and fully integrated culture of our world class writers, several superb painters, a handful of world class composers, masses of folk arts practitioners and so on. Instead of studying obscure and globally irrelevant historical and cultural events and figures, our children will do better learning Western and Eastern philosophers, histories, thinkers. They are better off learning Latin and Greek tragedy, Roman and Renaissance literature, the ideas of Enlightenment and so on than be boxed into a proto-nationalistic dead-end street of the Romantic version of the 'Irish identity' now fully embraced, practiced and subsidized by our state.
When 80,000 people can evolve such distinct dialects and attitudes to their language, replete with total breakdown of communications between the two, one has to fear that our cultural isolationism has finally yielded its inevitable denouement: cultural inbreeding. Irish Times, of course, can not be accused of spotting this much...
Also, my favorite blog, Calculated Risk (here), has recently highlighted the topic I've been covering for some time now - the Fed cutting back its liquidity operations (for now, via balance sheet adjustments). Good to see my earlier predictions coming true.
Another item: the latest listings of academic jobs for January 2010 show trouble brewing in the European paradise of the 'knowledge economy'. Early in 2009 I have stated in Sunday Times article that in few years time we might end up with an army of unemployed PhDs. Once the EU numerical targets for science and technology PhDs hit the jobs markets - who will be their future employers?
Back then I said that the problem is now apparent in the fact that majority of these PhDs find only temporary employment post-degree completion, largely in the form of post-doctoral researchers. These contracts tend to run 2-3 years and are non-pensionable, non-tenure track and are state-subsidized. These contracts do not lead to permanent academic employment in the majority of cases and if the subsidies were to run out, the freshly-minted PhDs have no where to go.
Well, this month I found out that we have a follow-up subsidized employment category for some of these PhDs. Several institutions in Europe now advertise for Senior Post-Doctoral Researchers posts, offering another round of 3-year contracts to bridge the gap between the doctorate and the welfare check for the lucky few who can get it.
In years time, prepare yourselves for a prospect of a friendly dinner at the house of Dady Post-Post-Post Doc Senior, kids with Senior Post-Doc grants in tow and grandchildren with Junior Post-Doc Applications in their rooms, ready for signing by the grant-supporting lead researcher: Mommy Post-Post-Doc Junior.
And lastly - current issue of the Fortune magazine has a story about the plans for converting urban land in Detroit into agricultural land. Given that land in Detroit (within 8-mile Road) sells for USD3,000 per acre, while Iowa's average agricultural land is selling for USD5,000 per acre, the idea makes sense. Of course, here in Ireland we do have Nama-lands. So hanging vegetable gardens off multistory shells in Sandyford anyone? Or pig farms in the abandoned estates in the Midlands? Mushrooms growing in three-bed semis out in the West's Bungalow Blitz Estates? You've never thought D4 stores might supply fresh produce grown hydroponically in the historical and irreplaceable D4 hotels rooms?
Saturday, January 16, 2010
Friday, January 15, 2010
Economics: 15/01/2010: Bank levies
One can rationally expect the EU to follow the
Economics 15/01/2010: Negative equity & entrepreneurship
There is an interesting piece of research relating to the issue of negative equity that sheds some light on potentially disastrous effects on the economy from our current crisis in house prices.
First, a quick synopsis of the paper (available here):
“In the absence of any correlation between wealth and entrepreneurial talent, initial net wealth should have an explanatory power in the decision to become an entrepreneur only for households that are financially constrained; its importance should decrease with wealth.”
In other words, if you believe that higher starting wealth does not make for a better entrepreneur further, then only households that have no capacity to borrow – no assets to borrow against – or that have insufficient income to take on the risk of becoming an entrepreneur should be constrained in their pursuit of entrepreneurship by wealth considerations. This means that as household wealth increases, the constraint of wealth on ability to take up entrepreneurship falls.
The paper tests this theoretical predictions for the Italy, showing that: “…household's initial wealth is indeed important in the decision to become an entrepreneur and its effect is lower for the richest households.” (Point 1)
“Furthermore, the effect of net wealth is stronger when legal enforcement of the loan contract is weaker...” Which, of course means that as the regulators, government, or lenders fail to enforce lending contracts, such lax enforcement increases the role that initial wealth plays in constraining entrepreneurship, making it harder for assets-poorer households to pursue business opportunities. (Point 2)
“Finally, conditional on becoming entrepreneurs, initial household wealth does not significantly affect the size of the business.” So that once a person becomes entrepreneur, the levels of their initial asset holdings do not act to determine the rate of their success in business. (Point 3)
“In summary, it seems that imperfections in capital markets can induce people to accumulate assets in order to facilitate the decision to become entrepreneurs.”
And so now, to interpreting these results for Ireland.
Majority of our households rely on house equity to act as their main life-cycle asset. As house equity is being destroyed by the negative equity, two things happen to household financial position:
So on the net, the twin effects of negative equity in Ireland have so far (during this crisis) meant that as property prices declined by ca 40-50% already, while rents have fallen over 15%, Irish households worst affected by the negative equity (home buyers in 2006-2007) have seen combined effect of falling wealth to the tune of 49-58%.
That is a serious chunk of wealth being destroyed, implying some adverse effects on future entrepreneurship rates. Since the rates of success in entrepreneurship do not suffer from initial wealth effects, we can assume that entrepreneurs lost due to negative equity are of average type. Which means some serious losses to the economy over the years to come.
But wait, there is more: Point 1 clearly suggests that the adverse impact of negative equity will be felt more by those would be entrepreneurs who come from lower wealth-holding groups of Irish population. No, not exactly the poor (although them as well), but from:
Points 2 & 3 go straight to NAMA. As NAMA in effect simply means a bailout clause for bankers, it undermines enforceability of lending contracts – for bankers directly, for developers indirectly via NAMA holiday clauses, and for households also indirectly via political manipulation of lending going on behind the scenes. Which means that overall, Ireland is moving, thanks to NAMA, toward a society where entrepreneurship will be even more polarized into the domain of the better-off. Yet another obstruction on that social mobility ladder that business ownership entails.
So here you go, to all those (like some of our economics commentators) who say that negative equity only matters when people want to move, I’d say – read real evidence, folks.
First, a quick synopsis of the paper (available here):
“In the absence of any correlation between wealth and entrepreneurial talent, initial net wealth should have an explanatory power in the decision to become an entrepreneur only for households that are financially constrained; its importance should decrease with wealth.”
In other words, if you believe that higher starting wealth does not make for a better entrepreneur further, then only households that have no capacity to borrow – no assets to borrow against – or that have insufficient income to take on the risk of becoming an entrepreneur should be constrained in their pursuit of entrepreneurship by wealth considerations. This means that as household wealth increases, the constraint of wealth on ability to take up entrepreneurship falls.
The paper tests this theoretical predictions for the Italy, showing that: “…household's initial wealth is indeed important in the decision to become an entrepreneur and its effect is lower for the richest households.” (Point 1)
“Furthermore, the effect of net wealth is stronger when legal enforcement of the loan contract is weaker...” Which, of course means that as the regulators, government, or lenders fail to enforce lending contracts, such lax enforcement increases the role that initial wealth plays in constraining entrepreneurship, making it harder for assets-poorer households to pursue business opportunities. (Point 2)
“Finally, conditional on becoming entrepreneurs, initial household wealth does not significantly affect the size of the business.” So that once a person becomes entrepreneur, the levels of their initial asset holdings do not act to determine the rate of their success in business. (Point 3)
“In summary, it seems that imperfections in capital markets can induce people to accumulate assets in order to facilitate the decision to become entrepreneurs.”
And so now, to interpreting these results for Ireland.
Majority of our households rely on house equity to act as their main life-cycle asset. As house equity is being destroyed by the negative equity, two things happen to household financial position:
- Net wealth declines directly with increase in negative equity; and
- Net future wealth declines directly with the gap between rental value of the property and the mortgage cost (in effect, people in negative equity are paying more for their property than it is worth, thus reducing disposable income available for other savings and investments.
So on the net, the twin effects of negative equity in Ireland have so far (during this crisis) meant that as property prices declined by ca 40-50% already, while rents have fallen over 15%, Irish households worst affected by the negative equity (home buyers in 2006-2007) have seen combined effect of falling wealth to the tune of 49-58%.
That is a serious chunk of wealth being destroyed, implying some adverse effects on future entrepreneurship rates. Since the rates of success in entrepreneurship do not suffer from initial wealth effects, we can assume that entrepreneurs lost due to negative equity are of average type. Which means some serious losses to the economy over the years to come.
But wait, there is more: Point 1 clearly suggests that the adverse impact of negative equity will be felt more by those would be entrepreneurs who come from lower wealth-holding groups of Irish population. No, not exactly the poor (although them as well), but from:
- Traditionally assets-poor younger households – so Ireland is now foregoing higher future rates of entrepreneurship from younger generations (also, incidentally, most adversely impacted by rising unemployment);
- Traditionally mortgages-heavy families – so Ireland is now potentially cutting into its business potential when it comes to families, thus adversely impacting future population growth rates as well;
- Lower middle class would-be-entrepreneurs – so that Irish society is now running a greater risk of reducing social class mobility, as entrepreneurship is often the only ticket out of lower middle class;
- And yes – the poor would-be-entrepreneurs: people who like many of our best business leaders today came from the poorer family backgrounds.
Points 2 & 3 go straight to NAMA. As NAMA in effect simply means a bailout clause for bankers, it undermines enforceability of lending contracts – for bankers directly, for developers indirectly via NAMA holiday clauses, and for households also indirectly via political manipulation of lending going on behind the scenes. Which means that overall, Ireland is moving, thanks to NAMA, toward a society where entrepreneurship will be even more polarized into the domain of the better-off. Yet another obstruction on that social mobility ladder that business ownership entails.
So here you go, to all those (like some of our economics commentators) who say that negative equity only matters when people want to move, I’d say – read real evidence, folks.
Monday, January 11, 2010
Economics 11/01/2010: Manufacturing Activity Sliding
Once again, spot on with the general trend toward renewed deterioration in Q4, industrial production posted a 9.1% decline in November 2009. Per CSO: “The seasonally adjusted volume of industrial production for Manufacturing Industries for the three month period September to November 2009 was 3.1% lower than in the preceding three month period.” Monthly change was -9.1% as well in November, for Manufacturing Industries as contrasted with 1.6% decline in October. In all industries, November decline was 8%, compared with October monthly decline of 1.4%.
The sectors contributing most to the change in November were: Computer, electronic and optical products (-36.1%) and Food products (-12.5%). The “Modern” Sector, comprising a number of high-technology and chemical sectors, showed an annual decrease in production for November 2009 of 3.7% while a decrease of 17.7% was recorded in the “Traditional” Sector. In seasonally adjusted terms, the picture was slightly less poor: Modern Sectors declined 10.5% in monthly terms, marking second consecutive monthly decrease (the index fell 5.8% back in October 2009), while Traditional sectors fell 2.2% in November, after registering an increase of 5.5% in October. The series are obviously volatile – analysis of volatility is to follow later (grading times for both UCD & TCD) – but all signs point to a renewed deterioration taking hold.
Economics 11/01/2010: One voice of reason...
On a note continuing yesterday's post - someone (hat tip to Patrick) brought to my attention Dolmen's note on the prospects for 2010, which I personally found to be of an excellent quality. The strategy is backed by serious arguments linked up with fundamentals, unlike the stuff coming out of some other stockbrokers here. The note is available here, but a couple of highlights are below:
"With stronger growth in economies such as the US and Europe compared to Ireland, 2010 will provide a good opportunity for Irish investors to increase the international diversification in their portfolios." You bet. For anyone wearing Green Jersey, my suggestion would be to look no further than IMF forecasts for growth (I plan to publish a comparative note on Ireland v Small Open Economies later this week).
Dolmen guys forecast US economy to grow at 3.5% in terms of GDP, a forecast that - despite having some risks to the downside - is reasonable in my view. Eurozone, held back by 'weaker economies' of Spain and Italy is expected to expand by 1.50%, the UK - by 1.30%, and Ireland, hmmm... Dolmen think +0.25%, my feeling +/-0.5% in GDP and up to -1.25% in GNP terms. Good luck to anyone who believes Irish equities are oversold on these comparatives. To me - they are overbought!
Dolmen predicate their Irish forecast as follows: "Ireland should see a reversal of the two years of negative GDP in 2010. The move away from negative growth will be welcome, but we estimate a slight increase of 0.25% in GDP for next year. The last three budgets have taken 7.4% of GDP out of the economy and with a further 1.8% to follow next year, there remains considerable challenges facing our economy." Correct.
But look beyond the Budget 2011 - Nama will remove some €4-5 billion annually through its operations, stalling the entire property market (due to increased uncertainty concerning supply of commercial and residential properties to the market) and doing nothing to restart credit cycle in the economy (don't take my word on this - look at the banks chiefs' statements).
Unemployment will continue to rise until second half of 2010, when massive scale withdrawals from the labour force and substantial emigration from Ireland will start reducing (artificially) the numbers unemployed. Numbers in employment will not rise, save for the wasteful state-subsidised 'jobs creation'. This means precautionary savings will stay with us, and deleveraging will remain anemic for consumers.
Corporate profitability will remain subdued - Dolmen expect 0.5% deflation in Ireland for 2010, as compared with 2% inflation in the US and the UK and 1.1% inflation for the Eurozone as a whole. Good luck to those stockbrokers who think profitability can be rebuilt with falling prices.
Interest rates gap will close up with US rates expected to rise to 0.75-1% by the end of 2010 from 0% currently, UK rates exected to increase from 0.5% in december 2009 to 1% in 2010, while the Eurozone rates are expected to stagnate at 1%. Now, I personally think the ECB will hike to 1.25-1.50 by the end of 2010. This is significant as far as FX rates for the euro are concerned. If the gap closes, euro will devalue somewhat against the sterling and the USD, implying some boost to exports. But if the gap remains where it is today (roughly), there is little momentum, bar for differences in the growth rates, to devalue the euro.
US and UK bond yields will push away - slightly - from the Eurozone averages, implying that demand for dollar and sterling will be weker (and add to this a bit of the moderation in demand for US Treasuries from China and the BRICs in general). Again, this restricts the scope for euro devaluation.
Dolmen make a call on the USD and sterling vis-a-vis the euro, but I am not that comfortable doing the same.
On Irish property markets: "In Ireland, the problems facing the commercial property sector have not improved. When compared to other Euro-Zone cities, Dublin property yields increased the most in Q3. Vacancy rates are also the highest in the sample of Euro-Zone cities... Any improvement in the sector is dependent on the outcome of NAMA and with the possibility that a number of properties may come to the market in the next year, together with the large level of unoccupied offices, the outlook for Irish commercial property looks bleak for 2010." Dead right!
Lastly, if you want to see what I mean by weaker earnings outlook for Ireland Inc on the back of our weak economy - see the end of Dolmen's note with yeild estimates for Irish equities. Marvelous - this does really support the idea of 10% growth for property markets and 100% increase in banks shares that Bloxham chief has predicted for us. I wouldn't hold my breath for that kind of a ride...
"With stronger growth in economies such as the US and Europe compared to Ireland, 2010 will provide a good opportunity for Irish investors to increase the international diversification in their portfolios." You bet. For anyone wearing Green Jersey, my suggestion would be to look no further than IMF forecasts for growth (I plan to publish a comparative note on Ireland v Small Open Economies later this week).
Dolmen guys forecast US economy to grow at 3.5% in terms of GDP, a forecast that - despite having some risks to the downside - is reasonable in my view. Eurozone, held back by 'weaker economies' of Spain and Italy is expected to expand by 1.50%, the UK - by 1.30%, and Ireland, hmmm... Dolmen think +0.25%, my feeling +/-0.5% in GDP and up to -1.25% in GNP terms. Good luck to anyone who believes Irish equities are oversold on these comparatives. To me - they are overbought!
Dolmen predicate their Irish forecast as follows: "Ireland should see a reversal of the two years of negative GDP in 2010. The move away from negative growth will be welcome, but we estimate a slight increase of 0.25% in GDP for next year. The last three budgets have taken 7.4% of GDP out of the economy and with a further 1.8% to follow next year, there remains considerable challenges facing our economy." Correct.
But look beyond the Budget 2011 - Nama will remove some €4-5 billion annually through its operations, stalling the entire property market (due to increased uncertainty concerning supply of commercial and residential properties to the market) and doing nothing to restart credit cycle in the economy (don't take my word on this - look at the banks chiefs' statements).
Unemployment will continue to rise until second half of 2010, when massive scale withdrawals from the labour force and substantial emigration from Ireland will start reducing (artificially) the numbers unemployed. Numbers in employment will not rise, save for the wasteful state-subsidised 'jobs creation'. This means precautionary savings will stay with us, and deleveraging will remain anemic for consumers.
Corporate profitability will remain subdued - Dolmen expect 0.5% deflation in Ireland for 2010, as compared with 2% inflation in the US and the UK and 1.1% inflation for the Eurozone as a whole. Good luck to those stockbrokers who think profitability can be rebuilt with falling prices.
Interest rates gap will close up with US rates expected to rise to 0.75-1% by the end of 2010 from 0% currently, UK rates exected to increase from 0.5% in december 2009 to 1% in 2010, while the Eurozone rates are expected to stagnate at 1%. Now, I personally think the ECB will hike to 1.25-1.50 by the end of 2010. This is significant as far as FX rates for the euro are concerned. If the gap closes, euro will devalue somewhat against the sterling and the USD, implying some boost to exports. But if the gap remains where it is today (roughly), there is little momentum, bar for differences in the growth rates, to devalue the euro.
US and UK bond yields will push away - slightly - from the Eurozone averages, implying that demand for dollar and sterling will be weker (and add to this a bit of the moderation in demand for US Treasuries from China and the BRICs in general). Again, this restricts the scope for euro devaluation.
Dolmen make a call on the USD and sterling vis-a-vis the euro, but I am not that comfortable doing the same.
On Irish property markets: "In Ireland, the problems facing the commercial property sector have not improved. When compared to other Euro-Zone cities, Dublin property yields increased the most in Q3. Vacancy rates are also the highest in the sample of Euro-Zone cities... Any improvement in the sector is dependent on the outcome of NAMA and with the possibility that a number of properties may come to the market in the next year, together with the large level of unoccupied offices, the outlook for Irish commercial property looks bleak for 2010." Dead right!
Lastly, if you want to see what I mean by weaker earnings outlook for Ireland Inc on the back of our weak economy - see the end of Dolmen's note with yeild estimates for Irish equities. Marvelous - this does really support the idea of 10% growth for property markets and 100% increase in banks shares that Bloxham chief has predicted for us. I wouldn't hold my breath for that kind of a ride...
Sunday, January 10, 2010
Economics 10/01/2010: A desperate state of economic analysis
This week has been marked by some remarkable statements on the prospects for Irish economy in 2010 that simply cannot be ignored.
Firstly, yesterday, Irish Times (here) decided to devote substantial space to the musing of one of the stock brokerage houses. Bloxham's chief came out to tell us that things are going to be brilliant in 2010: 10% growth in house prices and commercial real estate valuation, and ca 100% increase in banks shares prices to €3 per share for BofI and AIB. So:
All in, Mr Ghose thinks that the banks shares might reach €3 per share sometime in 2010. He might be wrong, he might be right. I have no prediction on a specific price target. But here is a thought:
The two banks need some €5-6 billion in capital post Nama. At €3 per share two banks market cap will be around €4.5 billion. So with recapitalization - whether by the state or by the international dupes (oh, sorry - investors) - the market value of the two banks will be €9.5-10.5 billion or close to their 2006-2007 valuations. What sort of expectations curve does Mr Ghose have to get there?
A glimpse into his thinking can be provided by his July 22, 2008 note reproduced below:
You judge the merits of this prediction for yourself, but here are the facts
85-142% wrong?
Oh, and do note that in his July 2008 note, Mr Ghose doesn't do any better in historical analysis either. He completely failed to take into the account real (as in inflation-adjusted) returns to equities. If that little inconvenient fact is considered, the '2/3rds of the 1996 price offer' paid on Mr Ghose's family house 8 years after the crisis would represent just 33-40% of the 1996 offer real price. Markets did come back for Thailand, but once inflation (see IMF) is factored in, Mr Ghose's analysis yields a real loss on the 1996 offer of 50%! Ouch...
Mr Ghose's Chief Economist seems to have little time for Mr Ghose's optimism for 2010. Writing an intro to Daft Report this week he states (here): "in overall terms, I would expect house prices to drop another 10-15% on average this year, with Dublin again seeing the biggest decline [now, Mr Ghose thinks prime real estate will lead in growth, which means Dublin]. ...Looking further ahead, I expect house prices to be higher on average in 2011 than in 2010, and should rise on a five-year view as the labour market returns to normal. That said, the level of any increase in house prices over the next few years is likely to be only in single digits, with three factors - the banks' adoption of a more cautious stance to lending than in the 'Celtic Tiger' era, the return of interest rates to 'normal' and the possible introduction of a property tax for 'principal' homes of residence - all weighing negatively on the market."
The second comment, courtesy of today's Sunday Tribune (page 1, Business), comes from Prof John Fitzgerald of ESRI. After largely staying off the topic of Nama and banks recapitalization for the entire duration of the public debate, Prof Fitzgerald decided to offer an opinion on Ireland's 'financial rescue'.
Now that the stakes in the game are low, credit must be claimed for the future 'I too was critical' position, should things go spectacularly wrong on the Nama side.
Prof Fitzgerald thinks that state-injected funds into INBS and Anglo are totally worthless and will be lost. Who could have thought such a radical thingy!?
Some 4 months ago I provided my estimates showing the demand for recapitalization post-Nama totaling €9.7-12.4 billion (here and here). Having spent the entire 2009-long debate on Nama on the sidelines, Ireland's ESRI macroeconomics chief is now telling us that €10-12 billion will be required to complete recapitalization of the banks. This, according to the Tribune is news!
I am delighted to know that Prof Fitzgerald belatedly decided to agree with myself, Brian Lucey, Karl Whelan, Peter Mathews and Ronan Lyons. One only wishes that next time a matter of economic urgency, like Nama, comes up for a public discussion, he joins the debate when it matters - not four months after the fact.
Firstly, yesterday, Irish Times (here) decided to devote substantial space to the musing of one of the stock brokerage houses. Bloxham's chief came out to tell us that things are going to be brilliant in 2010: 10% growth in house prices and commercial real estate valuation, and ca 100% increase in banks shares prices to €3 per share for BofI and AIB. So:
- Pramit Ghose thinks that there is little to Irish economy other than demand for property and banks shares. The implication of this is that the only way that prosperity and growth will be achieved once again in Ireland is through another construction and lending boom. Have our stockbrokers learned anything new from the crisis? Doesn't look like it.
- Mr Ghose also seem to have little time for the fundamentals of Irish consumers and domestic economy. Massively heavy debts loaded onto Ireland Inc don't matter for growth to him. Neither are sky-high marginal taxation and the prospect for more tax hikes in Budget 2011, nor even high unemployment mar his optimism.
All in, Mr Ghose thinks that the banks shares might reach €3 per share sometime in 2010. He might be wrong, he might be right. I have no prediction on a specific price target. But here is a thought:
The two banks need some €5-6 billion in capital post Nama. At €3 per share two banks market cap will be around €4.5 billion. So with recapitalization - whether by the state or by the international dupes (oh, sorry - investors) - the market value of the two banks will be €9.5-10.5 billion or close to their 2006-2007 valuations. What sort of expectations curve does Mr Ghose have to get there?
A glimpse into his thinking can be provided by his July 22, 2008 note reproduced below:
You judge the merits of this prediction for yourself, but here are the facts
85-142% wrong?Oh, and do note that in his July 2008 note, Mr Ghose doesn't do any better in historical analysis either. He completely failed to take into the account real (as in inflation-adjusted) returns to equities. If that little inconvenient fact is considered, the '2/3rds of the 1996 price offer' paid on Mr Ghose's family house 8 years after the crisis would represent just 33-40% of the 1996 offer real price. Markets did come back for Thailand, but once inflation (see IMF) is factored in, Mr Ghose's analysis yields a real loss on the 1996 offer of 50%! Ouch...
Mr Ghose's Chief Economist seems to have little time for Mr Ghose's optimism for 2010. Writing an intro to Daft Report this week he states (here): "in overall terms, I would expect house prices to drop another 10-15% on average this year, with Dublin again seeing the biggest decline [now, Mr Ghose thinks prime real estate will lead in growth, which means Dublin]. ...Looking further ahead, I expect house prices to be higher on average in 2011 than in 2010, and should rise on a five-year view as the labour market returns to normal. That said, the level of any increase in house prices over the next few years is likely to be only in single digits, with three factors - the banks' adoption of a more cautious stance to lending than in the 'Celtic Tiger' era, the return of interest rates to 'normal' and the possible introduction of a property tax for 'principal' homes of residence - all weighing negatively on the market."
The second comment, courtesy of today's Sunday Tribune (page 1, Business), comes from Prof John Fitzgerald of ESRI. After largely staying off the topic of Nama and banks recapitalization for the entire duration of the public debate, Prof Fitzgerald decided to offer an opinion on Ireland's 'financial rescue'.
Now that the stakes in the game are low, credit must be claimed for the future 'I too was critical' position, should things go spectacularly wrong on the Nama side.
Prof Fitzgerald thinks that state-injected funds into INBS and Anglo are totally worthless and will be lost. Who could have thought such a radical thingy!?
Some 4 months ago I provided my estimates showing the demand for recapitalization post-Nama totaling €9.7-12.4 billion (here and here). Having spent the entire 2009-long debate on Nama on the sidelines, Ireland's ESRI macroeconomics chief is now telling us that €10-12 billion will be required to complete recapitalization of the banks. This, according to the Tribune is news!
I am delighted to know that Prof Fitzgerald belatedly decided to agree with myself, Brian Lucey, Karl Whelan, Peter Mathews and Ronan Lyons. One only wishes that next time a matter of economic urgency, like Nama, comes up for a public discussion, he joins the debate when it matters - not four months after the fact.
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