The ISEQ Thread Part I - March 2008 - October 2008 **LOCKED**

How are we doing Ard. Still another 3900 to go.

youngdan wrote:

How are we doing Ard. Still another 3900 to go.

Well it is at about 4900 now. It doesn't make any sense anymore. Bank of Ireland is trading far too low. They're at a P/E rating and dividend yield totally at odds with the fact that they've grown profits against a very tough environment.

If anyone knows anyone who is about to retire, advise them to put it off for another couple of years. Pension funds are being smashed by the on-going crash in Irish equities. Pension funds have lost lots of value this year and last. It is worth putting off the date by another 2-3 years as you will have enough to live on in your golden years. That is not the case at current values.

Ard-Taoiseach wrote:

If anyone knows anyone who is about to retire, advise them to put it off for another couple of years. Pension funds are being smashed by the on-going crash in Irish equities. Pension funds have lost lots of value this year and last. It is worth putting off the date by another 2-3 years as you will have enough to live on in your golden years. That is not the case at current values.

Tell me about it, the old lad was going to retire next year, except his pension has devalued by gettin on towards half a million.

Quote :

02/07/2008 - 19:09:24
Four of the country’s biggest banks united today to stress that business remained open as usual despite the economic slowdown.

As fears heightened that Ireland was on the wave of a recession, the financial services maintained that they would survive the national and international downturn and had the best interest of the country at heart.

AIB, Bank of Ireland, Permanent TSB and Anglo Irish Banks also stressed they were responsible money lenders, that mortgage arrears were low, and blamed an international credit crunch on rising interest rates.

Pat Farrell, of the Irish Banking Federation, said banks were in the business of building long term relationships with borrowers and savers and had an obligation to customers and employees.

He told the Oireachtas Committee on Finance and Public Service that 87% of personal debt was secured on home ownership – with mortgages accounting for €145bn of the country’s total value of property which stands at €500bn.

Mr Farrell said just 50 homes were repossessed in 2007 – some of those made voluntarily after a family break-up – and added that only 4% of homes have been bought on 100% mortgages.

“It is not a substantial amount of money,” he said. “It was a brief development in the Irish market for a short period of time.”

Fine Gael’s Richard Bruton accused the bankers of pulling in their horns in when people were losing jobs and in financial difficulties.

“It is in the public interest not to have a credit crunch when things are going wrong,” he said.

Banks 'open for business'

AIB MD Donal Forde denied his firm had changed or tightened its mortgage or lending criteria.

He – and his banking colleagues – said customers were borrowing less and turning down mortgage approvals as personal assets fell and cash flows tightened.

“AIB has been open for business and remains open for business,” he said. “We are operating in very difficult financial markets and we have to maintain the confidence of a variety of different stakeholders.

“However I am confident that we are getting the balance right and I can reassure the committee that we are determined to manage our business in the best interests of our customers and in the best interests of the continuing development of the Irish economy.”

Anglo Irish Bank’s Willie McAteer said €60bn had been lent to businesses in the country in the last five years.

He said the sentiment that Ireland was in difficulty was a concern to them.

The banks also reassured politicians that strict and thorough policies from the Financial Regulator ensured the stability of banking in the country and would prevent a Northern Rock scenario from happening.

Richie Boucher, of Bank of Ireland, also disputed claims the drop in property equity was having a direct effect on customers.

Mr Boucher said most customers buy properties they can afford, where they want to live, and where they intend to stay for a number of years.

“Negative equity does not impact on the ability to pay (mortgage payments),” he said.

Meanwhile David Guinane of Permanent TSB said arrears were at an all time low.

“Repossessions have not changed over the last three 12-month periods,” he added.

This sounds a little scary. It reminds me of some other reassurances we have heard in the last few months.

I find this thread really interesting, although I don't pretend to understand the context or implications of most of the information posted.

What impact will a savaged, depleted ISEQ have on the economy and individuals in ordinary layman's terms?

What is the likelihood of a recovery?

What is the best/worst case scenario as it stands?

Four main problems;
1 Lots of money swilling around with nowhere useful to go.
2 Incredible levels of debt personal and governmental and US printing money like there is no tomorrow.
3 Energy costs rising due to supply restrictions and the uncertainty that that causes to future predictions.
4 Mood. The markets behave more like a herd than a rational person. When on the up people MUST get in and when on the down people MUST jump to avoid loss. The second Must is more true than the first but in truth you have to be out well ahead of the pack.

We are entering a spiral, tight credit, rising costs, less disposable income, less demand, loss of jobs in construction, suppliers, manufacturing, then retail and services. The question is just how big will the downturn in demand be? How many jobs will be lost? It is worth remembering that many people are in relatively safe jobs.

Worst scenario we go into a meltdown and it is soap kitchens for all and world stagnating for years with lack of demand. Economic depression could have serious political consequences.

Best scenario, an adjustment down in the value of houses and shares to more realistic levels. A few sluggish years.

With houses it is relatively simple the average house should be affordable to the average person and be say 3.5 times the principle income plus 1 times the secondary plus good deposit. So Average house should be say 150,000 - 180,000 Rented property should not cost more than 11years rental. But it is a market and nothing is straightforward. With property you tend to get reluctance to sell at below what the owner thinks the property is worth. Yes we will get a chunky fall but unless there is a serious upturn in unemployment much of the correction is more likely to be due to prices staying static against inflation. So property is unlikely to be a place you want to invest in for some time unless it really plummets now.

With shares, what is the value of a share, if I could answer that I would be worth a fortune. Keep it simple look at the fundamentals, don't go for high risk and spread. The current market has gone down over 50% some say it will go much lower. I think once it is in the 4000-4500 zone it will be worth paying very close attention. End of summer I intend to spend some time trying to weigh up sentiment. Are the companies in the ISEQ worth 40% of what they were a year ago or less? Are any likely to go under, importantly which are most likely to survive a bad downturn and if the fall goes below whatever it is at the end of the summer how large will the continued fall be and how long could the possible recovery take? If it bottoms will there be a bounce? Where is the bottom? Not at all clear right now as there is little confidence, but we are entering territory where it is starting to feel wrong. However right and wrong has little to do with the price of shares.

Worst affected are pensions and the ability of businesses to borrow against assets. More difficult to borrow against the house to go on holiday but that shouldn't be encouraged anyway.

Very informative post Squire thank you for taking the time to write that.

Unaligned. Why don't you spend a bit of time and learn about money. Most people don't even know where it comes from and who makes it.

youngdan wrote:

Unaligned. Why don't you spend a bit of time and learn about money. Most people don't even know where it comes from and who makes it.

I've been thinking exactly the same thing YD. I need economics 101.

youngdan wrote:

Unaligned. Why don't you spend a bit of time and learn about money. Most people don't even know where it comes from and who makes it.

And some money doesn't really exist at all. We just think it does.

The ISEQ is down a portly 17 points at this stage. The FTSE has been pummelled in recent weeks as well. I'd love to see the high-class restaurants of London now. It'd be dead easy to get a table. The City boys and girls wouldn't be able to afford them now since their positions are down over 20% in value. Gordon Ramsay must be feeling the economic heat.

Ard-Taoiseach wrote:

youngdan wrote:

Unaligned. Why don't you spend a bit of time and learn about money. Most people don't even know where it comes from and who makes it.

And some money doesn't really exist at all. We just think it does.

The ISEQ is down a portly 17 points at this stage. The FTSE has been pummelled in recent weeks as well. I'd love to see the high-class restaurants of London now. It'd be dead easy to get a table. The City boys and girls wouldn't be able to afford them now since their positions are down over 20% in value. Gordon Ramsay must be feeling the economic heat.

I just got a hair appointment at an hour's notice. A week and a half in advance was the norm last year. Things must be very serious out there.

cactus flower wrote:

Ard-Taoiseach wrote:

youngdan wrote:

Unaligned. Why don't you spend a bit of time and learn about money. Most people don't even know where it comes from and who makes it.

And some money doesn't really exist at all. We just think it does.

The ISEQ is down a portly 17 points at this stage. The FTSE has been pummelled in recent weeks as well. I'd love to see the high-class restaurants of London now. It'd be dead easy to get a table. The City boys and girls wouldn't be able to afford them now since their positions are down over 20% in value. Gordon Ramsay must be feeling the economic heat.

I just got a hair appointment at an hour's notice. A week and a half in advance was the norm last year. Things must be very serious out there.

Yep, which reminds me, I must read Alex off the Torygraph for a good laugh.

The FTSE hasn't really taken the same scale of hammering as the ISEQ.

Squire wrote:

The FTSE hasn't really taken the same scale of hammering as the ISEQ.

No, but it is very far down from its previous highs. It's very off-colour in London.

Is the difference in decline an anomaly that will correct or is there substantive reason? One to ponder.

Squire wrote:

Is the difference in decline an anomaly that will correct or is there substantive reason? One to ponder.

The FTSE 100 is more broadly-based since it includes weighty non-financials like vodafone, GSK, Tesco and Diageo. We don't have as much diversification in the ISEQ. That means we follow a slightly different path of losses and gains.

The FTSE is also a major index, up there with the Dow, NASDAQ and Nikkei. It is the flagship index of the world's financial capital. That means it gets saturation media coverage and is at the centre of global equity portfolios in general. The ISEQ does not enjoy that status, we are a peripheral market. There is some evidence to suggest that peripheral markets like ours have been sold by international bankers in order to make up losses in markets like the FTSE and Dow.

We're under greater pressure here. The ISEQ, by its nature, will be more volatile and more keenly affected than the FTSE.

Unaligned. You need to know how central banking, fiat currencies and to a lesser extent fractional reserve banking works. You will learn that a deal was made between bankers and monarchs whereby the king got all the money he needed and the banker got license to create money out of thin air. Wars like Vietnam could not be fought without central banks.
Knowledge is so lacking that the ECB can flood hundreds of millions of bailout money in to the system and 6 months later come along and raise the interest rate to fight the inflation that they themselves caused. The mugs pay and they can not figure out what is as plain as day.
Spend 3 hours and change your life http://video.google.com/videoplay?docid=-515319560256183936&q=the+money+masters&ei=DntuSMuFDI_UqAKu2cWDAg&hl=en

Has this market fallen to my predicted 1000 yet.

4844 just now I think

What does the drop in value of irish stocks signify? It is fairly clear that we have been re-branded as a junk economy so how is that going to manifest itself?

My interpretation is that the markets expect the abnks to write off massive amounts in terms of securitised land asset values with the result that future lending will be hugely restricted and the economy will contract. Is that what the markets are suggesting or is it deeper than that?

Zhou_Enlai wrote:

What does the drop in value of irish stocks signify? It is fairly clear that we have been re-branded as a junk economy so how is that going to manifest itself?

My interpretation is that the markets expect the banks to write off massive amounts in terms of securitised land asset values with the result that future lending will be hugely restricted and the economy will contract. Is that what the markets are suggesting or is it deeper than that?

Land assets securing share purchases on the irish stock market ..? How much of the money on the ISEQ is backed up by land though - isn't it pensions and excess money and so on that purchases shares? I'm probably not understanding you there right.

I'm not fully clear on the connection between share price and how a company operates from day to day either to be honest - is the share price connected with research and development, growth and the opportunity for risk taking by the company moreso than liquidity? Doesn't liquidity come from businesses that are well-run and from the turnover?

I'm still reading the Stiglitz chapter on the East Asia Crisis where a number of south korean companies had high levels of debt (but were otherwise healthy) and banks wouldn't lend to them to keep them ticking along so the shit started to quickly hit the fan after that. Seems to have been a precarious position for the companies to have been in in the first place but then the IMF are blamed for raising interest rates to 25% in order to curb lending (and entice foreign investment) but that can't happen here as we're restricted by the ECB and the growth and stability pact.

Stiglitz blames the IMF for not looking at the details of the companies rather than simply looking at gross indicators like the debt to product ratio (or something like that). Investors will look at these ISEQ company details even if the IMF would never do so, so isn't there a floor to which these shares will fall? (way above youngdan's prediction, one assumes)

We are a little bit at cross purposes indeed A#9. My point was that the valuations of the bank shares are so low that it is likely that investors have taken the view that the property assets held by the banks (as securty for property transactions) are not worth as much as the banks are saying. This was Ivan Yates's assessment of what the low share prices meant when he was on Q&A last Monday. In summary, what I am pondering is the impact of those facts which the share prices are indicating rather than the impact of the low share prices themselves.

I don't know that our link to the Euro will stop the interest rates going up. New loans are not linked to ECB and if you can get them linked to Euribor you will be doing well. I do not know if our banks are bound to stay close to ECB.

The way I see it (i.e., extremely amateurish), there is a possibility that we could get into a vicious circle. The tighter the banks get with money, the less people can afford to pay for assets, the less the bank's security (i.e., those very assets) is worth, the less they can lend, and so on. In this way, it could become a self fulfilling prophecy. If rates go up it will affect business + working capital loans. Repayments will be higher so stress testing will not allow as much lending. Higher repayments/less money both mean less job creation meaning less consumers and lower asset values. I don't know if my model is correct though as it would seem to inevitably lead to boom-bust cycles. I suppose resilience in an economy means that we have good products and many enterprises will keep making money even if the banks do cut off a lot of credit.

talking about amateurish, here goes ...

Banks are starting to tighten up on loans now, aren't they? which is only right really but shouldn't the interest reflect the loan purpose more fully? I know banks are supposed to give different rates for different products but what about the collateral? would that be affected by your scenario above (which sees a lack of paper around in the economy - I think - I don't know if you have an opinion on sentiment, if that matters here)

It's the banks which are getting most hit in the ISEQ fall isn't it? so it would be right to analyse the money supply I suppose. Sentiment is the thing though and I'm convinced that will be driven by energy prices; if there is money to be had then a lot of it might end up going on renewables

http://miranda.hemscott.com/ir/sse/ir.jsp?page=graph

there's Scottish and Southern Energy which bought Airtricity, disappearing it over to the FTSE, when the share price jumped but the price hasn't changed so much overall since - is this the case in general with the FTSE? I can't help thinking the share price is tied to energy and that subprime thing, although Kingspan has also dived fairly dramatically over the last while when it might be expected to rise or stay steady at least

http://www.ise.ie/app/equityDetails.asp?equity=573

There's amateurishness for you.

The Dow Jones is falling too - another energy-importer - the main movers upwards lately, Campbells Soup and Blockbuster videos - does that stock market data indicate what people are doing in the real world?

All the main car manufacturers there - Ford, Toyota and GM are down but Volkswagen isn't, due according to Bloomberg, to its small car lines..

In short, where's the sentiment going to come from and how can it be provoked or stimulated?