Stock Crash

[Reality Bites]

I was replying to pete ORA. You've already conceded that the property bubble has burst, and of course the property bubble is responsible for a very large proportion of employment in Ireland. Century Kingspan laid off 24 last week, and that's only the start of it in the building manufacturing sector. Employment on site has been in trouble for months now, what with half of them being closed or on a go-slow and all...

It's over, we just have to cross our fingers now and hope that the dimwits in the US - and closer to home of course - don't drag us all the way down with them.

adam

I am with Adam, I hope we go and OneRedarmy - heres to a recession /depression, Its the four horsemen of the apocalypse if you ask me - Worldwide property Crash / Stock Exchange Crash / need two other Jockeys - possible suggestions include Terry Venables as Irish Manager and deadly strain of Avian Bird Flu...

[dahamsta]

I'm not averse to a recession, in fact it could could suit me both professionally and personally, as my business is less likely than most to be affected; and I've held off on buying a house for a long time now because of the economy. Neither are guaranteed though, and it doesn't take a lot to push a recession over the brink to a depression.

In general, our economy needs an adjustment in a big way, and that's not going to come from the blinkered economic policies of the incumbents.

I wouldn't wish a depression on anyone though.

adam

[jebus]

I'm not adverse to a recession because I'm a work shy *******, one who isn't in debt I might add, and a recession would suit my choice of lifestyle

[beautifulrock]

FTSE nicely up and recovered some of the losses of yesterday, Dow was calm(ish. All eyes on the Hang and the Nikkei now.

[Poor Student]

Unfortunately for Ireland its a bit of a perfect storm, as the wheels falling off our property bubble (to use a Bertie-style metaphor), which is a welcome and overdue event for our long-term health, this has coincided neatly with what appears could be a global recession driven by rising inflation and the credit crunch.

You forgot to mention the strengthening value of the euro against the dollar and the pound making it harder and harder on exporters. Also, it's possible the ECB will go on to increase interest rates in the near future in an attempt to curb inflation.

[pete]

Firstly Fed rate cut is a dramatic move when in one go. However they have numerous .25 rate cuts close together in recent years as much quicker to make changes than EU Central Bank. The Federal Reserve is a private bank so possibly not under as much political influence as others.

There is no doubt the Irish construction market in decline but using 24 job loses as an example of a property crash is to put it bluntly bizarre. Could such logic be used in any other sector of the economy? I am sure there are many other job loses in that sector on a daily or weekly basis.

Ireland is still close to full employment & I would prefer to be entering into possible worldwide recession off 4.5% unemployment than 9% (EU average).

I work in an industry that has nothing to do with construction. I find it bizarre that anyone could wish for a recession. Hoping for property price reductions is fair enough but recession? How does that benefit anyone aside from rich equity investors looking to join at the bottom...



p.s. In the last 2 years Ireland unemployment rate gone from 4.4 to 4.6%

Bizarre Article on Irish Property

Morgan Kelly, professor of economics at University College Dublin: He forecasts unemployment reaching 12%-13% within the next year to 18 months, as builders continue to cut back on construction.

[Stuttgart88]

Just on the pension argument, if I'd put 100 euro into stocks on Friday I'd still be quids in because of the tax concession. It's a long term investment anyway and unless you're about to retire this isn't necessarily bad news for anyone with a pension.

There are major imbalances in the global financial system and since the mid to late 90s money has been cheap and its value diminished as a result, hence bad lending decisions and lack of aversion to extreme indebtedness.

My only surprise has been that it has taken the equity markets so long to cop on to what the credit markets have known for months.

My personal view on the US rate cut is that it has been knee jerk feelgood driven rate cuts over the last decade that has caused a lot of the imbalances that have built up this century and that maybe a good old recession - not a deep one - is what's needed to inject a reality check and to restore some normality. On the flipside, the sheer scale of the real asset declines and the absolute aversion to moderately risky lending in the US could be the start of a Japanese style recession so action is justified. It'll be interesting to see how it pans out. My personally favoured policy response is specifically targeted fiscal measures accompanied by appropriate monetary policy. Vague, I know, but monetary policy itself is too blunt an instrument (these rate cuts punish savers for example and it's a lack of savings that has caused this mess) and in Japan monetary policy was like, as Keynes said, "pushing on a piece of string".

The sheer contardiction in the US economic model is funny on a philosopical(?) basis: zero regulation at grass roots lending level (i.e., their favoured "small government") versus the almost communist-style state agency involvement in the mortage market in aggregate, further underwritten by a federal morgtgage bank last resort lender (the FHLB). What is it George W? Big government or small government, or both?

If it's on youtube, Jim Cramer's Dunphyesque rant on CNBC last week is well worth a look.

Very interesting times.

[dahamsta]

There is no doubt the Irish construction market in decline but using 24 job loses as an example of a property crash is to put it bluntly bizarre.

that's only the start of it in the building manufacturing sector

(For that matter I'm pretty sure it isn't the start of it, weren't there other layoffs in construction manufacturing earlier in the year?)

Ireland is still close to full employment

Try projecting the figures for November and December.

Are you still betting on a magical "soft landing" pete?

adam

[BohsPartisan]

Are you still betting on a magical "soft landing" pete?

Did someone say soft landing?
http://newsimg.bbc.co.uk/media/image..._heathrow1.jpg

[dahamsta]

Arf arf. I actually heard someone on a UK TV programme this week mention the term in relation to their housing market, and nearly widdled myself. Funny how the UK follow us these days instead of vice versa, only with all the wrong things...

[OneRedArmy]

I work in an industry that has nothing to do with construction. I find it bizarre that anyone could wish for a recession. Hoping for property price reductions is fair enough but recession? How does that benefit anyone aside from rich equity investors looking to join at the bottom...

Pete I'd wager your work doesn't involve economics either.

Economies move in cycles and unless we find a way to change this (and nobody has), then recessions are inevitable. Surely you have grasped this? Then the only question becomes one of timing and impact, ie when it will occur, how long it will last and how much it will impact GDP.

In terms of how its beneficial, well, there's an element of Darwinian evolution where less efficient companies are forced out of the market leaving strong companies who are comparitively more productive given scarce resources. Also, generally low interest rates stimulate investment and growth (the major worry this time is that base commody inflation means that rates can't drop and we could have stagflation which would probably produce a very long and deep recession).

Lastly, recession is generally thought of as a historic measure. Due to the time it takes to properly aggregrate and produce GDP, generally by the time the figures are produced and we realise we are in a recession, we've been in it for a while.

As for your comments on the housing market, well they're risible. Nobody was suggesting 24 jobs is the only bad news. Do searches on December construction industry employment and second hand housing stock and you'll see a few more indicators.

[Angus]

As a cynical man, who works in financial services, I am struggling with the losses reported by investment banks.

The ego driven culture of large investment banks, to me, says that the new CEO's of these firms will only be focussed on increasing the share prices of their firms.

Therefore, while I have no evidence, the numbers look too big to me - my suspicion is that firms have overstated losses to make it easier to achieve profits later in the year. I reckon those guys have written every illiquid asset down to overstate losses now and to write themn back up later in the year..............allegedly.

[OneRedArmy]

As a cynical man, who works in financial services, I am struggling with the losses reported by investment banks.

The ego driven culture of large investment banks, to me, says that the new CEO's of these firms will only be focussed on increasing the share prices of their firms.

Therefore, while I have no evidence, the numbers look too big to me - my suspicion is that firms have overstated losses to make it easier to achieve profits later in the year. I reckon those guys have written every illiquid asset down to overstate losses now and to write themn back up later in the year..............allegedly.

Undoubtedly the case, but then again it always was.

However, its further complicated by the illiquid nature of many of the structured vehicles that containe the assets which basically means you are valuing, and marking, off a model made of fundamentally untested assumptions.

So the truth is likely to be more than the investment banks don't have a clue how accurate their provisions are.

[beautifulrock]

So the truth is likely to be more than the investment banks don't have a clue how accurate their provisions are.

Indeed and as a result neither do the rating agencies, hence we see sub prime mortgages rated as AAA securities

[OneRedArmy]

Indeed and as a result neither do the rating agencies, hence we see sub prime mortgages rated as AAA securities

Absolutely.

I don't know why a lot of the media seem surprised that ratings agencies have failed to accurately gauge default risk, as every time they are tested they seem to fail. Enron, Brazilian and Asian banks etc have all seen cliff-edge type scenarios with a failure to predict default.

In this context, amount of reliance placed on the credit agencies by the new Basel II Accord is mindblowing (for most smaller institutions who aren't modelling their own default risk).

[pete]

Until the full details of the sub prime loaded financial products come out I think it will hang over the world economy as investors will be suspicious about who is exposed. In that respect better to know sooner & get over with the recession.

When this is all over financial stocks will be a buy. AIB & BOI will still make big profits just not as big as previously.

[dahamsta]

Financial stocks were a buy yesterday pete. Waiting for a market to bottom is just plain greedy, there's enough in buying on the way down for any reasonable, patient person.

adam

[monutdfc]

In this context, amount of reliance placed on the credit agencies by the new Basel II Accord is mindblowing (for most smaller institutions who aren't modelling their own default risk).

And despite my pointing this out several times they want to do the same for Solvency II for insurance

[beautifulrock]

Until the full details of the sub prime loaded financial products come out I think it will hang over the world economy as investors will be suspicious about who is exposed. In that respect better to know sooner & get over with the recession.

Think most of the banks have now hung out their dirty washing by now while paying off their CEO's with buckets of gold. The next "victims" of the sub prime debacle will be the AAA monoline insurers who provided the wrap security for these transactions. Then we will move to the E&O insurers who are also in serious trouble I would imagine.

[Stuttgart88]

Societe Generale (SocGen as it's known) has just announced the discovery of massive trading losses (more than 5 billion euros) in equity derivatives due to the actions of a sole rogue trader. Closing out his positions in a sharply falling market seemed to have compounded the losses.