Windsolair

That's when those louses go back to their spouses...

2011-02-20T08:18:00.000-08:00

“He’s your guy when stocks are high
But beware when they start to descend.
It's then that those louses go back to their spouses;
Diamonds are a girl’s best friend”.

These words were immortalised by the great Marilyn Monroe towards the middle of the last century.

Plus ça change, plus c'est la même chose, as my Francophone friends would say, because there seems recently to have been a rash of property transfers to spouses, for "Estate Planning" purposes, coincident with the economic downturn and with at least the suspicion of attempting to forestall the arrival of agencies such as NAMA and others seeking unencumbered assets. You’d have to stay pretty close to your wife, in every sense of the word, if you had just transferred significant real estate and other property into her name.

As a strategy, though, it’s unlikely to be effective. As Friel Stafford, Corporate Recovery specialists of Fitzwilliam Place, Dublin (Phone 01-661 4066) have pointed out, the Land and Conveyancing Law Reform Act 2009 has provisions that will allow for such transfers to be reversed in cases where they have been carried out for the sole purpose of protecting assets from creditors.

Come and enjoy a wonderful evening with the Chamber Philharmonic Europe

2011-02-13T03:40:00.000-08:00

I am absolutely delighted to be able to announce the return to Ireland of the Chamber Philharmonic Europe orchestra. I heard their concert in Dublin last year and it was wonderful - all the better for being performed in St. Ann's Church, Dawson Street with its emotive, historic ambiance and its excellent acoustics.

Here are the details:

Click here for Ticketmaster booking for the Dublin Concert

Chamber Philharmonic Europe - Powerful Emotions Tour 2011

The Chamber Philharmonic Europe orchestra is revisiting Ireland along with the award-winning soloists Pawel Zuzanski (Violin) and Kirill Gusarov (Trumpet). You can enjoy an evening of versatile sounds and complex emotions with selected works of J. S. Bach, A. Vivaldi, J. N. Hummel, E. Grieg and G. Faure.

Tour dates May 2011:

4th May 2011 - 8 pm, Friars Gate Theatre Kilmallock http://www.friarsgate.ie/ Phone: 063 98727
5th May 2011 – 8 pm, Waterford Christ Church Cathedral http://www.christchurchwaterford.com/ Phone: 051 858 958
6th May 2011 – 8 pm, Dublin St. Anne's Church Dawson St. Ticketmaster
7th May 2011 – 8 pm, Bray Mermaid County Wicklow Arts Centre http://www.mermaidartscentre.ie/ Phone: 01 272 4030
8th May 2011 - 8 pm, Naas The Moat Theatre http://www.moattheatre.com/ Phone: 045 883030
9th May 2011 - 8 pm, Kilworth Village Arts Centre. Phone: +353 25 27109
10th May 2011 - 8 pm, Thurles The Source Arts Centre Thurles http://www.thesourceartscentre.ie/ Phone: +353 (0) 504 90340
11th May 2011 – 8 pm, Kenmare Carnegie Arts Centre http://www.carnegieartskenmare.ie/ Phone: 064 6648701
12th May 2011 – 8 pm, Nenagh Arts Centre http://www.nenagharts.com/ Phone: 067 34900
13th May 2011 – 8 pm, Carlow The George Bernard Shaw Theatre http://www.gbshawtheatre.ie/ Phone: 059 917 2400
14th May 2011 – 8 pm, Omagh Strule Arts Centre http://www.struleartscentre.co.uk/ Phone: 028 8224 7831
15th May 2011- 8 pm, Armagh St Patrick's Cathedral http://www.stpatricks-cathedral.org/ Phone: 028 37527359
17th May 2011 – 8 pm, Listowel St. Johns Theatre and Arts Centre http://www.stjohnstheatrelistowel.com/ Tel: 068 22566
18th May 2011 - 8 pm, Macroom The Briery Gap Cultural Centre http://www.brierygap.com/ Phone: 026 41793
19th May2011 – 8 pm, Ballina Arts Centre http://www.ballinaartscentre.com/ Phone: +353 96 73593
20th May 2011 – 8 pm, Londonderry Waterside Theatre http://www.watersidetheatre.com/ Phone: 02871 31 4000
21st May 2011 – 8 pm, Galway Town Hall Theatre http://www.tht.ie/ Phone: 091 569777
22nd – 8 pm, Limerick Belltable http://www.belltable.ie/ Phone: 061 319 866

Tickets in all cases are €18 Adults and €15 seniors, unwaged, students and children. Tickets for the DUBLIN concert can be booked here on Ticketmaster. In all other cases tickets can be obtained from the venue.

The Chamber Philharmonic Europe is a private orchestra initiative founded 2006 in Cologne/Germany, which engages musicians to create a demanding artistic ensemble. It employs over 60 talented professional musicians from 18 nations, a compilation of years of experience on international stages. Since its inception, the Chamber Philharmonic Europe has been built upon a broad range of professional experience. Our musicians have performed in many reputed concert halls and opera houses, including:

Théatre des Bouffes-Parisiens, Paris
De Munt Opera, Brussels
Koninklijk Theater Carré,
Amsterdam Grand Théatre de la Ville,
Luxemburg Konzerthaus, Berlin

Voting participation in the general election

2011-02-12T06:58:00.001-08:00

We’re fully engaged now in the runup to the general election. While the economy and the way it has been handled in recent years dominates matters of debate between the various contenders, there are many other issues being aired. There is a feeling that most voters have already made up their minds on how they will cast their preferences.

Whatever the issues in this election, there is one matter that does not seem to get the attention it perhaps deserves. This is the fact that, for the last thirty years in Ireland, there has been a gradual but significant fall in the number of people who are eligible to vote actually going to the polls in general elections. As the graph above, which is built on data supplied by the Central Statistics Office, shows, while there was a pick up in voter participation between the 2002 election and the one in 2007, nevertheless almost one third of those who were entitled to vote on the later occasion, did not do so.

Given the concern in other parts of the world for democracy and all that goes with it, it is curious that so many Irish citizens do not take a sufficient interest to bother making their way to a polling booth to take part in the process.

Overcharging at AIB: Letters page, Irish Times

2010-12-27T06:55:00.000-08:00

My contribution to today's letters page of the Irish Times is about the fine imposed recently by the Financial Regulator on AIB Bank for overcharging:

Madam, – Your headline “Allied Irish Banks fined record €2 million for overcharging customers” (Finance, December 22nd) has to qualify, at least, as joke of the week. The €2 million must be paid from funding that has been made available to the bank by Irish taxpayers. The very same people who were overcharged, joined by those who had nothing at all to do with this particular institution. – Yours, etc,
SEAMUS McKENNA,

Give a dog a bad name

2010-12-17T08:23:00.000-08:00

Oh dear. I picked up this picture from Marketwatch.com, an online subsidiary of the Wall Street Journal.

The "way out" plate has been on the railings at Bank of Ireland College Green probably since before I was born, but who supplied the exit sign, which would have been a superfluity even in the best of times? Was it put there by the photographer, for extra effect, or did some helpful soul in BoI decide to gild the lily?

AIB bonuses: Irish Times letters page

2010-12-17T02:14:00.000-08:00

The Irish Times has been good enough to publish a letter of mine today on the subject of the AIB Bank bonus payment controversy and Minister Brian Lenihan's intervention, as representative of the majority shareholder in AIB, the Irish state, where he caused the payment of any further bonuses to be cancelled.

The letter is here. The following is the text:

Madam, – Minister for Finance Brian Lenihan claims that a supervening event is the justification for cancelling the AIB bonuses, which were subject to contract. Surely this is exactly the argument the bank traders would use to have the payments made.
They were not responsible for the recession and, even if the were, it is hardly likely that such a circumstance was the subject of a clause in the contract.
How is it possible, given our property laws, to create legislation that will govern contracts in retrospect? Is it now open to commercial property tenants to claim the supervening event of the recession as a defence when their landlords take them to court to recover unpaid rents? Where will it stop? Is contract law to be thrown out the window?
A question for the bank: if these payments are contractual and definably related to production, why are they called bonuses at all? Does the logic of the Minister’s action mean that piece workers in our few remaining manufacturing facilities are now susceptible to a similar action? Do certain salespeople run the risk of being confined to their meagre basic pay, which in some cases is actually nonexistent? – Yours, etc,

SEAMUS McKENNA,

The market bully

2010-11-23T10:18:00.000-08:00

Here's something interesting I came across on the Internet. An analyst at Societe Generale is quoted as saying:

"The market has moved on from Greece, is beating up Ireland and is looking closely at Portugal now," says Suki Mann at Societe Generale. But "Spain is delivering on reducing the size of its deficit and has a far more diverse economy than the others, supported by a significantly larger tax base. There's no doubt refinancing could become an issue for the sovereign... but there are perhaps easier targets the market bully could attack."

Hmmm.... Is it possible to place a ban on short selling Government Bonds, in the same way as a ban was placed on short selling bank shares at the start of the current melt-down?

2010-11-23T10:17:00.000-08:00

Are we really this important in Ireland?

2010-09-28T08:06:00.000-07:00

This is a screen shot from the respected online stock and investment subsidiary of the Wall Street Journal, MarketWatch, for Tuesday 28th Sept 2010. It seems to indicate that equity traders the world over are hanging on every maneuvre that occurs in and around Anglo Irish Bank.

During the Celtic Tiger years we were flattered by the contention that we "boxed above our weight" in world economic affairs. Even so, it is hard to believe that we can now move the mighty DOW, NASDAQ and S&P. It's questionable if many of the participants in these markets even know where Ireland is situated geographically.

Or could it be that a headline writer lost the run of him or herself?

Intel and education in Ireland

2010-07-22T03:54:00.000-07:00

On July 8th. last your blogger attended the Intel sponsored symposium on the possible need for transformation in Irish secondary education which was held in Trinity College, Dublin. The positivity that permeates Intel’s events is always something to look forward to, and this one was no exception. Dr. Martina Roth, Intel’s Director for Global Education Strategy, Research and Policy, gave the keynote address. Coming, as she does, from the Intel stable, Dr. Roth was keen to point out that the education system of any country should emphasise the scientific and mathematical dimensions that are important to advance innovation and economic growth on a national level.

There followed a panel discussion, moderated by Mark Little, formerly of RTE (Irish TV) Primetime fame, with well chosen contributions from some knowledgeable and committed members of the audience. The panel consisted of Professor Ferdinand von Prondzynski, outgoing president of Dublin City University (DCU), Bernie Ruane, President of the Teachers’ Union of Ireland (TUI), Paul O’Riordan, Managing Director of Oracle in Ireland and Jim O’Hara, General Manager of Intel in Ireland.

Ireland has been traditionally and justifiably proud of its educational system but there is a definite tendency for us to rest on our laurels in this regard. Nothing testifies to this better than the fact that, as a nation, we failed miserably to put resources into education when they were available during the Tiger years. This was brought out well during the discussion, as was the intense interest that many parents take in their own children’s education (Prof. von Prondzynski thought this was a problem but one solution might be to engage the energies of said parents in improving the overall system as a means of catering for their own offspring); the converse, de-facto exclusion of some children from education because it is not valued in the home; and, of course, the deficit in terms of mathematics and science teaching in favour of more academic subjects, which is where Intel has been coming from in the first place.

Whatever criticism might be made of Intel for concentrating on the scientific facets of education in order to cater for its own requirements, the fact remains that its former CEO, Craig Barrett, has a genuine and deep respect for all aspects of education. See here. There is also such a thing as enlightened self-interest, and we should appreciate Intel’s efforts in beefing up our technological education – students who are not technically inclined, or indeed those who are but who desire a more rounded education as well, are well served and protected by many of the contributors from the audience, and by Ms. Ruane and the members of her organisation, the TUI.

The general feeling one was left with at the end was a positive one. This was remarked upon by Dr. Roth, after she had listened to the discussion. This writer’s feeling is that, however, we would need to be very careful in attempting anything like a profound transformation in our secondary education system – the collateral damage of a less than perfect effort could be considerable. That said, there is a definite need to continue the debate and to enact progressive, incremental improvements, some of which are self evidently desirable.

Goldman Sachs and the Greatest Trade Ever

2010-04-19T10:28:00.000-07:00

The charge brought by the Securities and Exchange Commission (SEC) in the US against Goldman Sachs, one of the world’s leading investment banks, has its roots in the desire of a small number of individuals, led by John Paulson, to take advantage of what they perceived to be the formation of a housing property bubble at a time when nearly everyone else seemed to be of the opinion that residential real estate prices would continue to rise at a rapid rate, and for ever.

The story is told in a new book, by Gregory Zuckerman, called “The greatest trade ever”. Paulson and a small number of others, some acting independently, proved, as we all know now, to be correct. It seems as though their biggest problem was how to take advantage of their insight. It is not possible to sell property that you do not own and then buy it back when the market collapses, as can be done with equities in a so-called ‘short sale’.

The book is more about the search for a method of cashing in on the prediction of a housing price collapse than in the methodology of their research into why it should happen, although that is touched on. After a lot of work, Paulson, in particular, was able to convince Goldman Sachs to apply a derivative that had been used to safeguard the income of institutions that were active in the bond market, called a Credit Default Swap (CDS), to Residential Mortgage Backed Securities (RMBSs).

A CDS is an insurance policy for large institutions which issue and subscribe to bonds in order to obtain and / or lend funds. By paying a premium they are able to protect themselves against the possibility that the bonds will not be capable of being redeemed at their maturity or have their coupon, which is effectively a regular interest payment, left unpaid. There is normally also a secondary market in the bonds. If this secondary market believes there is a risk they will default or fail to be redeemed, they will lose value.

Credit Default Swap insurance has one important characteristic that sets it apart from most other forms of cover – buyers can use it to insure risks held by other people. What happened, in this event, it is alleged, is that Paulson indicated to Goldman Sachs the blocks of mortgages he believed would be most likely to end up in default and told GS that he wanted to enter into a CDS agreement against non-payment, with whatever financial institution was interested in the deal. The attraction for the counterparty was the fact that Paulson would have to pay regular premiums on the CDS. As the institutions concerned believed that the housing market was not under any threat (an idea that was reinforced at the time by the low premiums these CDSs then carried), they saw this as a means of obtaining a regular flow of income for effectively nothing.

Paulson, of course, was correct. The mortgages went into arrears, on a massive scale. Far from getting money for nothing, the institutions that Goldman Sachs had sold on the idea of providing this form of insurance now had to pay Paulson very large amounts of cash indeed. According to both Zuckerman’s book and the SEC charges, Paulson profited to the extent of over one billion dollars on the Goldman deal alone, and made an additional $3 Billion when all such transactions were taken into account.

The core of the SEC charge against Goldman Sachs is that they did not reveal to the institutions concerned that Paulson, a well known operator in the hedge fund business, had specified the blocks of Residential Mortgage Backed Securities that should be included in the CDOs, and further, that Paulson wanted this for no other reason than that he wished to make a bet that the underlying mortgages would default.

2010-02-10T07:48:00.000-08:00

I was fortunate to be able to book a place at the lecture given by Craig Barrett, former CEO of Intel, at the Mansion house on Monday last, February 8th. 2010. The presentation was an enlargement of the words spoken by Dr. Barrett to the Farmleigh international forum of business leaders, where top global executives with Irish roots were asked to expound on what they saw as needed for the Irish economy in the current environment.

Dr. Barrett’s focus is on the value of education. He says that in this sphere Ireland is nothing better than average in the world. In today’s global economy average is not good enough. His priority is for national excellence in maths and science, which is in keeping with his career as and engineer and as the leader of one of the foremost innovative engineering companies in history.

One thought remained in my mind throughout the lecture and the responses afterwards. This was that education and ideology do not belong together. Our primary schools, in particular, are not places where institutions, movements or even governments should be allowed to push their agendas. We don’t really need to worry too much about our university students because by their time to go there they're old enough to assert themselves and, in general, young enough to have independent ideas.

We should teach our children how to think, not what to think. Apart from that we should provide them with the means to leverage their innate talents along with the basic cognitive and knowledge tool kits to enrich their experience of life. In this way the state will benefit also, to an immeasurable degree.

A genuine indicator of economic growth, at last?

2010-01-19T11:44:00.000-08:00

For some time now there has been a negative correlation between the strength of the US dollar and the main US equity indices, the DOW, the S&P and the NASDAQ. While the dollar was falling these measures of the average value of US equities were having a marked rise.

Various reasons were given for this phenomenon. One was that a weak dollar encouraged non-US investors to buy US equities because they gained a currency conversion discount on the investment. Another was that a strong dollar would impact on the overseas earnings of US companies as exports would have a lower dollar value and the repatriated profits from subsidiaries abroad would be worth less in the US. A weaker dollar was also seen as likely to extend the life time of the easing measures the US government had taken to support the US economy, thereby keeping the FOMC target interest rate close to zero.

All of the above had the consequence of discrediting the rise in equities as a leading indicator of a return to growth in the US economy, and by extension that of the rest of the western world. After all, there was not much point in getting too excited about a rise in stock prices if this only came about because of artificial stimuli, and a weaker currency that only served to negate the real value of the stock price increase.

There is some reason to believe that we are now seeing a significant change in the relationship between the equity indices and the US dollar. Both now appear to be on the rise, stocks strongly and the dollar somewhat tentatively but nevertheless noticeably.

The chart above shows the US dollar index (see here for an explanation) with its 50 period simple moving average. Technical analysts would regard the fact that the price has moved up through the moving average to be a positive sign, and also that the 50 MA has itself turned up. That the price now seems to be using the moving average line as a support, as indicated by the arrow, would be regarded as an indication that the upward move has some probability of being sustained.

In the meantime all equity indices are at or near their 52 week highs.

Global warming, rising oil prices and the extinction of animals. Are they connected?

2010-01-13T05:23:00.001-08:00

The video above is an excerpt from a lecture that was given by Dr. Albert A. Bartlett at the University of Colorado at Boulder.

There seems to be little doubt that the earth is warming up. Although temperature records only started to be collected very recently, in terms of geological time, the ones we have do seem to indicate a rising trend. There is at present strong debate about whether or not this is caused by human activity.

Undomesticated animal species, other than human, are becoming extinct at a greater rate than ever before. Even those that are not threatened now have had their numbers greatly reduced from the levels they were at in former times.

For most of the 20th century the world took energy supplies for granted. More recently we have become aware of the rising price of oil. This is because it is a finite resource for which demand is growing. And we are hearing more and more about ‘peak oil’. This represents the point in time at which the reserves of oil in the earth will reach the stage where production must, because of depletion, decrease rather than grow. Peak oil occurred in the United States in 1971 and as a result the US is no longer self-sufficient in that commodity, but must import more and more of what it needs.

There is one phenomenon, also without question a fact, which could serve to connect all three of these occurrences. This is the dramatic, unprecedented and inexorable rise in the human population growth rate over the last hundred years or so. In the chart above the population is shown as growing at what might be called a reasonable rate between 1750 and 1900, while after that the increase is nothing short of amazing.

The full lecture by Dr. Bartlett is on YouTube in eight parts starting with this one. His delivery is concise, very clear and a pleasure to behold in itself - he's obviously a man with many years of lecturing experience behind him. The full version is not, unfortunately, for the mathematically challenged but it does, as nothing else could, bring home the importance of the public at large having a greater understanding of matters numerical, if only so that they could have an appreciation of the issue that is presented in this lecture.

Known unknowns

2010-01-10T03:27:00.000-08:00

When Donald Rumsfeld gave the piece of wisdom above he was inspired by an analysis tool developed for risk managers and project planners. As such it has a function similar to those of the Boston Matrix and Porter’s Five Forces. As most commentators failed entirely to understand it at the time and as Rumsfeld was part of the accident prone Bush administration the same commentators, almost without exception, chose to ridicule it.

Now the idea seems to be making something of a comeback among newspaper columnists. Unfortunately some of them, at least, still have grave difficulty in getting their heads around the concept. Take Michael Clifford in the Sunday Tribune of January 10th 2010, for example. He says and I quote: “NAMA is an unknown unknown”. Not so Mr. Clifford. If it were you wouldn’t be able to write about it – you would not even know the name of the beast. NAMA is, at least as far as anybody outside of the National Treasury Management Agency (NTMA) is concerned, a known unknown. We know it exists but we do not, to our extreme discomfort, know how it is going to work out in practice.

WindHydro - Reliable, clean energy by integrated coastal wind power and hydroelectric generation

2009-12-29T03:23:00.000-08:00

Ireland has:

* Good wind patterns and strength
* A long shoreline relative to its landmass
* The lowest population density and therefore the most uninhabited land per capita in the EU
* Long established and successful Hydro Electric stations
* Indigenous Wind Power expertise

It makes perfect sense to bring these elements together to provide cost effective, reliable, non-carbon-emission energy for the island of Ireland by means of Coastal Wind Power and Hydro Electric integration.

Reliability is the key: Conventional wind power generation is bedeviled by the variability of wind. Apart from a tiresome tendency to not be there on certain occasions when power is most needed, the gusting nature of wind causes fluctuations in voltage and frequency that make the generated electricity difficult to feed into the national grid. On the other hand, because the release of stored water can be easily controlled, electricity produced at a hydro electric plant is totally free of all these problems. The generation of electricity from water in rivers (conventional hydro power) is well tried and tested as it has been in use for generations.

Ireland does not have:

* Oil reserves.
* Either a national appetite or the capital funding for Nuclear Energy.
* The best available connectivity, because it is an island off the continent, to the European electrical grid.

These facts provide a strong argument for EU assistance in developing WindHydro for Ireland.

The combination also creates an excellent commercial opportunity for investors because it eliminates, by its inherent synergy, a major issue for each of the constituent parts: The variable nature of wind and the fact that conventional hydro has, globally, used up all the existing elevated water sources that are suitable for its deployment.

WindHydro has been proposed as a solution to Ireland’s long term energy requirements by The Spirit of Ireland group. Go there and give them your support.

Global warming - a home experiment

2009-12-20T05:02:00.000-08:00

A consequence of global warming, we are told, is that the polar ice caps are melting causing sea levels to rise. According to the predictions this will eventually result in already low lying areas, such as the Maldive islands in the Indian Ocean, disappearing altogether.

It would be nice to try to get beneath the claims that are being made – to come as close as possible to an understanding of what’s going on.

To this end a great piece of luck came by some time ago in the form of a book by the great Antarctic explorer, Ernest Shackleton, called simply “The Polar Journeys”. This volume contains two works by Shackleton: “The heart of the Antarctic” and “South”. It is in print and available from Amazon.com and probably a lot of other sources.

Shackleton had been at sea since he was 16. He was joined on the expedion which is the subject of "The Heart of the Antarctic" by many others who were either experienced merchant navy ships' officers or members of the Royal Navy Reserve (RNR), as was Shackleton himself. He and his staff were therefore well trained and experienced in the art of navigation, and disciplined in the keeping of records. The books, which are highly recommended anyway for a good read, are replete with coordinates giving the latitude and longitude of where the expedition was located at various notable times. One of these was when they sailed between pack ice and the great Barrier, a cliff of ice that is the boundary of the cap around the South Pole, with “barely fifty yards of open water to spare between the Barrier and the pack” (“The Polar Journeys”, Page 52). His position about an hour before that time was latitude 78 degrees 20 minutes South and longitude 162 degrees 14 minutes West, “when the ship turned”. The date was the 24th. of January 1908, over one hundred years ago.

The next bit of good fortune is in having that wonderful resource, Google Earth, to hand on the Internet. Here it is possible to locate the position as indicated by the coordinates given by Shackleton. There’s the great Barrier. There, also, is the pack ice that Shackleton mentioned, to the right of the ship’s location in this screen shot. It is not known when NASA, whose images Google uses, surveyed the area around the Antarctic but it had to have been in recent times relative to when Shackleton made his journeys.

Google Earth has a measuring feature and from this it can be seen that, today, the great Barrier is 6.73 kilometres from where Shackleton took the reading above.

If we assume that the ship was directly under the great Barrier at the time of the reading, then the ice at this particular location has receded 6.73 km. What does this mean in the great scheme of things? The average diameter of the ice cap in the Antarctic, from a paper by a Russian scientist, Dr. Shumsky, published in 1967, is given as 3934 km. Using the well-known formula for the area of a circle, (Pi x D squared) / 4, we calculate that a disc of that diameter would amount to 12,155,091 sq km. The ice sheet of the Antarctic is not a plane (flat) disc, but is significantly convex in shape because it follows the curvature of the earth, so this is just an approximation. However, as the next calculation, of the reduced area, is an identical approximation the error is almost perfectly cancelled out. If anything, it makes this exercise more conservative than it otherwise would be. The average diameter is reduced by two times the distance that we assume the great Barrier has receded at the edges in the hundred years that have passed since Shackleton was there (it is assumed that any reduction in the ice sheet is uniform around its circumference). Thus the reduced diameter becomes 3934 minus two times 6.73, or 3920.54 km. Using the same formula as before this gives a reduced area of 12,072,057.43 sq. km, a reduction of 83,033.88 sq. km., or 0.6831% (say 0.68 per cent) of what it was, over a hundred year period.

Even in Shackleton’s day, the great Barrier was constantly changing its shape and features were being modified, as is evidenced by readings that were taken by his crew and compared with others that were made in 1902, six years earlier, by another expedition. Shackleton himself records the dramatic breaking off of huge sections of the ice cliff in a process known as ‘calving’, which produced an explosive, booming sound that could be heard from many miles away.

It is not certain that Shackleton was directly under the Barrier ice cliff when he took his readings. All we know is that this was the location “where the ship turned”, prior to steaming under the cliff. Finally, the Shackleton readings were taken in January, which is high summer in the southern hemisphere. In what season were the NASA images produced that are used by Google Earth?

Is an estimated reduction in area of little more than a half of one per cent in a hundred years significant? It probably is but, given the historic constantly changing nature of the ice sheet, it is far from catastrophic. It appears we are still at the mercy of the climate change prophets and their computer models. What is useful is that we have the means, right in our own living rooms, to make even this small personal estimation of the validity of what is being talked about.

A good sign: The long US Dollar decline has stopped

2009-12-15T05:17:00.001-08:00

I have been asked by some readers to explain what I meant in a previous post (The tipping point?) when I said that there were strong reasons for believing that the US Dollar has reversed its prolonged slide against other currencies.

The chart above shows the progress of the US Dollar index since the start of 2009. This particular index measures the strength of the USD against a basket of other currencies, namely the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swiss Franc and the Swedish Krona.

As can be seen, the Dollar had been in decline since last March. This has coincided with a rise in both equities and commodities, most notably oil but also gold. On a few occasions the chart above attempted to move up through the 50 period moving average but never managed to do so. That is, until the first friday of this month (December 2009) when the US non-farm payroll statistics for November showed a significant improvement (Only 11,000 jobs lost against an expected outcome for that month of in excess of 100,000). Then the move through the 50 period Simple Moving Average (SMA) was decisive and sustained, and at this writing it looks like it has actually turned up itself. Good US retail sales figures will have provided reinforcement. We therefore have a technical indicator (SMA) confirming what might be expected from a fundamental indicator (Payroll stats and retail sales), and all pointing to a global economic upturn in the New Year. Bring it on!

The tipping point?

2009-12-12T04:19:00.000-08:00

Chart courtesy of CMC Markets. Click on the illustration to see a larger version.

There has been talk of green shoots in the economy. All governments around the world have been spending, and even printing (the so-called Quantitative Easing), lots of money in determined efforts to stimulate recovery. In the US, where any upturn realistically has to start (unless China takes over global economic leadership), the latest unemployment figures (covering Nov. 2009) provided a pleasant surprise when they showed that only 11,000 people had lost their jobs in that month compared with an average of 135,000 per month in the previous quarter. November was expected to have over 100,000 jobs lost. There are also strong indications that the US Dollar has ended its long decline in value against other hard currencies. All these are positive signs for economic recovery.

Even the timing is right, psychologically, as we are coming to the end of a decade and not just any old decade, but the first of the 21st. century. Just as with the Millennium itself, the count of the years does not have any practical significance but round numbers still attract attention and we tend to see them as milestones.

We look, naturally, for signals that might indicate what is going on. Many can be taken from the financial markets. Equities, in particular, are often regarded as a leading indicator of the march of the world economies. Developments are 'priced in', to a degree that is supposed to continually reflect the best consensual assessment of their future effectiveness. We might, therefore, like to take a look at the performance of the Standard and Poors index of the top 500 companies on the New York Stock Exchange (NYSE) (see chart above), which is widely regarded as the benchmark for other equity indices around the world.

While technical analysis is not always held to be the most reliable way to analyse a market it is nevertheless widely used, at least at present, and its popularity has made it something of a self fulfilling prophesy - if a lot of traders use it, its precepts will, at least on occasion, work for that reason alone.

The chart above has two trend lines, which are among the most basic of technical indicators. From these it would seem that we have, in fact, passed the point that marks the end the most recent bear market (one in which the dominant trend is down). The red downtrend line, which began in October 2007, has been crossed by the rising price action on the S&P 500. A significant event and one which, if technical analysis has validity, could mean the end of that particular secular bear market. Or it could be a false breakout, which is another technical term and a useful one for those annoying situations where the indicator of choice fails in its predictions. The S&P appears to have done a reasonable job of anticipating the present downturn. It peaked on the 11th. of October 2007. Only in hindsight do we know that the recession had started at that time but most commentators were still predicting a 'soft landing' and other benign outcomes of that nature.

The blue broken line indicates the very long term trend. From this we can see that, since about the middle of 1995, we have been either in the build up or in the bursting of a bubble. Not only that but, if equity prices are an indication, we are well started on another one. What can it all mean?

Whatever about the future of bubbles, does the breaking of the downtrend mean that we are on our way out of this recession? Will the uptrend hold or will we head back down for the dreaded 'double dip' event that could add significantly to the recovery time.

We seem, right now, to be at the tipping point.

Futures trading: The ability to sell short is important

2009-11-25T11:46:00.000-08:00

An article by Joe Gill in the Irish Times of Monday November 23rd. (“Crackdown on commodity trading abuses needed”) is only partially correct in its analysis. The rhetorical question in the piece, asking why Irish food producers are not able to garner a living at present creates, in itself, a problem for its main thesis, which is that futures traders are responsible for an inexorable rise in the price of commodities.

Gill is in good company, though. The following is a quote from a Marketwatch article on the same day, on the price of crude oil:

"'Despite significant surpluses in physical commodity markets that are mirrored in rising inventories, commodity prices continue to rise,' the Commerzbank analysts wrote in a note to clients. 'Apparently, the absence of physical demand is being compensated for by investors.'"

Government restrictions on futures trading would be extremely hard to implement. The activity is essential to the running of most of the world’s global businesses, where it is used to hedge prices so that risk is reduced on both sides of the market and reliable budgets can be put in place. While it is true that a great many of the participants in the futures markets are concerned only with making a profit on the price movement of the futures contract and are neither geared up for, nor remotely interested in, taking delivery of product, they nevertheless play an important role in providing risk capital to offset the hedges put on by those who do actually deal in the underlying commodity. And hedgers can become speculators. Nobody can convince that a futures trader with a major airline, for example, whose main activity is to enter the market to limit his or her employer’s exposure to aviation fuel prices, will never close a position early in order to take a profit on the futures contract, judging that the price will move again so that the primary objective can be achieved at a later time.

A fundamental characteristic of the futures markets is the ability to sell short with the same ease as to buy long. Participants can sell a contract before they actually own either the underlying or an offsetting agreement to purchase it in the future. Despite all that has been written and said about short sellers destroying value, for example in the Irish banks when they were in meltdown mode at the end of last year, there is nothing sinister in this. It must be the case so that commodity producers can use futures to insure against a decline in prices between the start of production and the bringing to market. This fact alone means that speculators are only required to have a view about the direction of the market – they are not at all necessarily motivated by a desire to see prices rise. For this reason it is hard to envisage a sizeable proportion of the world’s tanker fleet at anchor storing crude oil that has come into the hands of financial institutions because the have a long position. In fact, logically, the very existence of the futures market should work against such a scenario.

Of course, the producers of a commodity will have a motivation to do all they can to raise prices, and certain of them will not be above using the world’s futures exchanges to bring this about if they can discover a means of doing so. And therein lies the rub. The very size of these markets is expected to make it impossible for them to be manipulated. They are traded every day, very often around the clock, at levels of buying and selling that are mind boggling. While dealings in the shares of individual companies can be abused by insider trading and by selectively distributed comments from analysts, no such activity is likely to move the futures markets. They are extremely large and extremely liquid.

While trading in futures does not inevitably lead to rising prices it nevertheless can distort the market, but only in the short term. The reason for this is that, while the markets are effective, they are not always efficient. A herd mentality among traders, involving both speculators and genuine hedgers alike, can take over. This it was that gave rise to the serious losses made by certain airlines last year who bought into the idea that, even when it was at $140 a barrel, the only way that oil could go was up. Many were seriously burned when it reversed and went to about one third of that level in a matter of months. Where such inefficiencies come into being for a period the consequent corrections can be severe, and painful indeed for anyone found to be on the wrong side of them.

In a deep recession, a carbon tax is a redundant tax

2009-11-15T03:17:00.000-08:00

The nation has being conditioned into accepting a carbon tax in the recent budget. Right now, this is a mistake. While such as tax might be designed to be revenue neutral it will most certainly not be cost neutral from the point of view of the people who will have to pay it. This fact is of fundamental importance in the present circumstances, where every household in the land is struggling to maintain a standard of living.

The stated purpose of this kind of tax is to create a disincentive to carbon generating consumption. It should not be news to its proponents that such a deterrent already exists – it’s called a recession and the one we are in is, despite the fact that measures of prosperity were lower in the past, easily the most traumatic in living memory. This is because of the speed if its onset and the depth of its reach.

This tax is therefore redundant at the present time, and it is nothing short of amazing that it should be contemplated while private sector workers are being laid off at a frightening rate, the public sector has taken to the streets in opposition to pay cuts that go on top of those they have already endured, and the level of financial distress in homes and businesses has reached crisis proportions.

Consideration of a carbon tax should be postponed, as a matter of principle, until there is a rise in per capita GDP in Ireland to levels approaching that which pertained prior to the start of the current economic downturn.

A sense of perspective

2009-11-07T04:42:00.000-08:00

Brian Lenihan (above) is getting stick in some quarters at the moment. I wonder about that. Before I defend him I have to establish my objectivity by saying that I would have been very slow to vote for any candidate with a Fianna Fail flavour in the past.

However, right now I cannot see that anyone at all on the opposition benches would have done any better when the financial crisis hit. It came out of a blue sky and because of that the government was, and still is to a large extent, in uncharted waters. Certainly there are commentators now, such as George Lee and Jim Power, who can make claim to voicing their unease before the event but in all cases their concerns were long on generality and short on specifics. They certainly had nothing whatever to say about securitisation gone mad – sub-prime mortgages packaged into multi-layer exotic derivatives, done on a massive scale and offloaded to naïve banks and other institutions all over the world, that was the root cause of the collapse. The reason for this is that they probably didn’t know about them, just as the two Brians and their advisors didn’t know about them until the fan got hit. Brian Cowan may carry the legacy of his days as Minister for Finance where he presided over “light touch” financial regulation, but Brian Lenihan has no such baggage on his CV.

Given the above, Lenihan and Cowan have consistently done two things that have been positive. They’ve been decisive when it was required and they have, to this writer at least, proved that they are prepared to take on board realistic proposals from both the political opposition and their critics in private life, where these are helpful. In considering all of this it is important to keep the existence of the EU and the European Central Bank (ECB) in mind and to be aware that they have had, and will maintain, a role in whatever resolution to the crisis eventually plays itself out.

Brian Lenihan’s spat with David McWilliams is the most irrelevant of side shows. McWilliams’s utterances, for example that Ireland should leave the Euro(!), are designed for one thing only – to get publicity for David McWilliams. He’s a media personality, an entertainer. The government might as well get its economic advice from Tommy Tiernan.

Flow on lovely river

2009-11-01T02:17:00.000-08:00

The opening, earlier this month, of the new high-level bridge over the river Suir at Waterford, said to be the longest bridge in Ireland, serves to remind us that this particular river is an important one, with a rich history.

The Suir flows from the Silvermines mountains in Tipperary to the sea at Dunmore East in County Waterford. On the way it takes in some of the best land in Ireland and many towns and villages, including Mooncoin in Co. Kilkenny, the Rose of which wandered down by its banks, and the city of Waterford.

The ships that called to Waterford came from all over the world and carried merchandise of every sort. They came right into the city until the requirements of containerisation and bulk transportation moved the traffic to the deep water port downstream. There were grain carriers, coal boats and cattle ships tied up alongside fishing trawlers, cruise liners, naval vessels and tugs. The river had its own dredger called, of course, the Portlairge (the Irish name for Waterford). According to John O'Connor in "The Munster Express", she was the last working steamboat in Ireland. The “Great Western”, a merchantman of 1,659 tons, carried cargo into and out of Waterford on a regular schedule and always docked in the same berth, beside where the Tower Hotel now stands. According to older people this ship had a gun mounted on its foredeck during the second world war.

The River Suir has carried its fair share of adventure in the past. It was up here that Cromwellian forces, under the command of General Ireton, sailed to attack Waterford in 1650. The Roundhead ships bombarded the city and, to this day, a cannon ball from that period remains lodged and very visible high up in the wall of Reginald's Tower, a resilient Waterford landmark although most of the ancient city walls, of which it was a key component, have disappeared. It is to be hoped that the municipal authorities are keeping an eye on this ball because it would be incongruous, not to mention tragic, to have it fall from its lodgement and kill or injure occupants of Waterford on the pavement below, hundreds of years after it was fired in anger against their antecedents. The likelihood now, of course, is that it would strike a tourist.

Also up this river, at an earlier time, came the pretender to the throne of King Henry VII of England, Perkin Warbeck, during the rebellion that bears his name. The good citizens were able, on that occasion, not only to expel the attacker in the name of Henry, but also to pursue him until he was captured and delivered into the king’s hands. The monarch was suitably grateful, having made one thousand pounds available for the taking of Warbeck. The rebellion is supposed to have cost the throne thirteen thousand pounds in all, a prodigious sum at the time and one that was calculated to stretch even the resources of a King of England in the 15th century.

Closer to modern times the River Suir, although located about as far south as one can go in Ireland, was the location of one of the first shots to be fired in what became known as The Troubles In The North, when an anti-tank shell was fired from one of its banks at a British Naval vessel on a courtesy call to the port of Waterford. This happened in 1965.

The quay in Waterford is also, to all intents and purposes, the city’s main thoroughfare. A tourist standing on Rice Bridge, which adjoins the quay and was the only crossing up to now south of the one at Fiddown, twelve miles upstream, is reported to have asked a local the name of the river flowing underneath, to be told that this was - the Quay River.

Now Waterford is to have a spanking new high level, “signature” bridge, of a cable stay design similar to the one that is part of the M1 near Drogheda and the LUAS bridge in Dundrum, Dublin. This is for high-speed traffic and it is therefore unlikely that conversations with tourists on its elevated deck will figure large in the folklore of the city in the future.

Neither is it likely to become the repository of a cannonball.

The centre of the Universe

2009-10-31T05:06:00.000-07:00

Isn’t it wonderful the way Ireland tends to believe that it’s a totally insulated marketplace. The best example of this is the manner in which bankers, developers and government have all been held responsible for a fiscal disaster that had its genesis and its implementation in the financial hothouses of such as Wall Street and Frankfurt, and which only was visited on us because people with access to cash in Ireland behaved in exactly the same way as their counterparts around the world.

Our situation could actually be worse. While Irish institutions have problems, these are centred entirely on property related loans. In other jurisdictions they have to contend with the massive write off of money advanced for Collaterised Debt Obligation instruments (CDOs) and their derivatives. When the dust eventually settles the property will still be there while the CDOs, CDOs squared and CDOs to the power of x will have evaporated like the smoke from just so many firecrackers.

Anyway, back to the idea that we are situated smack in the centre of the Universe. Over a number of days last week commentators were very keen to tie in the latest movements of the shares of Irish banks with the debate on the NAMA legislation going through Dail Eireann. On Wednesday a report in the Irish Times said that, inter alia, “…discussion of the National Asset Management Agency (Nama) in the Dáil yesterday may also have been an influence [on the decline in bank shares on the Irish Stock Exchange (ISEQ)]”. To be fair, the report also alluded to more global issues. On RTE Nine O Clock news the fall in bank shares was also linked to NAMA. Thursday morning’s front page headline in the Irish Times told us that “Bank shares plunge as Lenihan signals delay over NAMA”.

The real reason for the decline was that bourses around the world were perfectly poised for a sell-off because they had been excessively run up since last March on the back of a weak and weakening dollar. That Financials should lead the retreat was hardly surprising, since they were the stocks that had led the advance in the first place.

On Thursday the decline was reversed, albeit temporarily, due to a report on US GDP which showed annualised expansion of 3.5% in the third quarter and “the end of the recession”. On Friday, when it was realised that the apparent growth was due entirely to government stimulus, including the printing of money (a.k.a. Quantitative Easing) and the consequent steady decline of the dollar against all other major currencies, the stock market slide continued in earnest. On the same day the responsible US government agency closed nine regional banks. CIT Group (not to be confused with Citigroup, although that’s not in great shape either), an important lender to small business in the USA, looked like it might have to go into Chapter 11. Of course the financial sector was affected, and with it the Irish banks. On our island, though, the performance of Irish financial institutions continued, according to our media, to be almost entirely due to what was said or not said in Leinster House.

Letters page, Irish Times 5th. October 2009

2009-10-06T04:46:00.001-07:00

Lisbon Treaty referendum

Madam,

The necessity for a second Lisbon Treaty referendum had a very positive side effect. It forced those who understand the importance to Ireland of the European Union out of their complacency. The No campaigners are to be thanked for creating an environment where it was incumbent upon the government, business interests and the EU itself to explain the benefits, not just of membership, but of a whole hearted national enthusiasm for the European project. The pity is that this process had to take place at the risk of undermining our position.

Those of us who are old enough to remember Ireland before the EU tend to forget that a great many citizens alive today have no experience of the inward-looking island that Ireland could be on occasion before we joined. They are just a little bit weary of being told the Angela’s Ashes stories, and who would blame them?

On the other hand, democracy is alive and well when a diverse collection of groups and individuals can campaign so vigorously, even aggressively, for the rejection of a treaty designed to make the EU more streamlined in its operation.

It is always more important to be effective than it is to be efficient, but the EU needs to communicate its relevance to all citizens to a greater degree than it has been doing, as the Lisbon One result demonstrated.

Seamus McKenna

Share and Futures trading by small investors - new departures

2009-09-19T09:27:00.000-07:00

The Financial Times has reported a surge in share trading by small investors, while the world’s markets have been rising steadily since last March. It would seem that the level of dealing via execution-only brokers is rising most noticeably. Private individuals are trading online and are using methods other than straight forward share purchase and sale, such as the use of CFDs and spread betting.

The Internet has revolutionised share trading. It has handed vastly more power to the customer than was ever enjoyed in the past. Just as people are now quite prepared to plan and execute their travel and holiday arrangements directly, to the detriment of traditional travel agents, so the share trading public has become its own research department for the purposes of share speculation. Brokers have, by and large, been quick to attune their efforts to this by providing for online trading while allowing the customer to proceed without the benefit of advice on what to buy and when.

So a part, at least, of the middle man function has been cut out. Market makers are still required, which is to say that exchange members must be active themselves on the buy and sell side in order to regulate fluctuations in share price. For this they receive payment in two ways - through the spread between the bid and offer price and / or by means of straightforward commissions, which are primarily transaction based.

The spread can often be contentious. For shares that have low liquidity (are traded relatively seldom) it can be so large as to have a disproportionately negative effect on the profitability of the trader. It can also spike up at times of volatility, when the share price changes a lot in a short space of time. Some traders suspect that these things happen because there is human intervention required for the calculation of the buy and sell prices. The really insidious thing about all this is that changes in the size of the spread are not always immediately apparent to the customer. In this online trading can sometimes resemble an airport based bureau de change. Having to change euros into dollars at one of these that advertises “No commissions” should make one especially wary – the actual fee is paid through the difference between the rate at which they buy and sell the currency – the spread.

Apart from trading in equities either directly or through CFDs and spread betting, it is also now possible for an individual to open an account to trade Futures – contracts based on future prices of commodities or equity indices, and foreign exchange (Forex). Of particular interest is the fact that the tendency nowadays is for this type of trading to be carried out electronically. In this context, the term electronically means a lot more than having a software trading platform on your computer. It means having your computer at home or in your office connected directly to the Futures exchange computer, which is programmed to match buy and sell orders and to use the interaction between these to decide on whether or not the price should change, by how much and in which direction. Not only that, but by carefully choosing the service provider for the online trading the trader can ensure that his limit and stop orders are also placed on the exchange’s computer so that there is no risk of a stop-loss order, for example, failing to activate because of a breakdown of the Internet connection, or for any similar reason.

Does this cut out the market maker? Not exactly. He’s still required, but even he must enter all his trades through the same computer system as is used by the private trader. The effect of all of this is to eliminate as far as possible the fear of manipulation. True electronic, exchange-connected trading provides a very significant benefit over normal broker-based order filling for the private customer, even when orders are given to the broker through a regular online system.

The spread is also still there, but for heavily traded Futures markets such as the ones that exist for the Dow Jones Industrial Average or the Standard and Poors 500, it rarely goes above one tick. A one percent move on the Dow, which is not all unusual, especially intra-day, would represent around 100 ticks.

Futures have other benefits over equities or their derivatives. On the Futures exchanges, going short is as normal as going long. If the trend is downward, which it often is, this can be anticipated and taken advantage of by the trader with the same effort as is required to take a long position. When trading Futures the possibility that a trader will wake up one morning and discover that his favourite company has had the receivers called in or the bank on which he has made a significant bet has been nationalised, is completely eliminated.

Many, if not most, participants in the Futures markets operate as day traders. This requires a serious commitment in terms of time, concentration and discipline. It is not for everyone. So much so that the US authorities have made it a legal requirement that all Futures brokers carry a health warning to the effect that such activity carries risks that can mean the loss of much more than the amount that had been originally invested. They did not do this for the fun of it.

Craig Barrett's comments on Irish education provisions

2009-09-19T04:40:00.000-07:00

Craig Barrett’s criticism at the Global Irish Economic Forum in Farmleigh House of the provisions made for education in this country serves once again to highlight the attitude, which is as hypocritical as it is short-sighted, of successive governments towards preparing our people, and therefore our nation, both for life and for economic progress.

Let’s call a spade a spade: The post of Minister for Education is not regarded as one of the senior ministries. It is held either by competent people en route to what they would regard as a more important job or by placemen whose purpose it is to ensure that government priorities, now mostly concerned with cutbacks in expenditure, are implemented without too much opposition from those who are most directly affected. One’s heart sinks when one hears the incumbent remark that he will “remind” the Minister for Finance of Mr. Barrett’s concerns. What he should be doing, off his own bat (no pun intended), is pounding the cabinet table to ensure that more, not less, is spent on education, now more than ever.

Our recent foray into the world of high flying and big spending, and the subsequent global correction, has highlighted many scandals. One of the greatest, but least recognized, is the fact that we actually lived through a period when cash was plentiful but yet, at the end of it, a great many sub-standard classrooms remain in our schools, our children are still often forced to travel to and from classes on some of the oldest, most clapped-out buses in the country and we continue to see education as an area where expenditure cuts can be imposed.

For shame.

Whither the Irish banks?

2009-09-12T08:09:00.000-07:00

It’s been an interesting twelve months on the world’s stock exchanges. Since the collapse of Lehman Brothers in early September 2008 we’ve had what must seem like to many, but particularly to those with any exposure to banking and other financial stocks, nothing short of pure chaos.

There was an interesting period there around the end of 2008 and the beginning of 2009 when someone with access to cash (remember that stuff?) could have made a killing by loading up on Bank of Ireland, AIB or Irish Life & Permanent. Anything, in fact, except Anglo Irish. That got nationalised. Although there is no doubt it had and indeed still has fundamental problems, it seemed at the time that the ultimate trigger for the decision to nationalise was the fact that its share price had fallen off a cliff. The really interesting thing is that, subsequently, all the other publicly quoted banking institutions on the ISEQ fell, at least in percentage terms to their total capitalisation, as far if not further than Anglo. But they only had, at least to the time of writing, a preference share deal imposed on them by the government. Was Anglo just unlucky in being the first one to hit such extremely low levels?

Now the future of our banks and our economy as we know it seems to be in the hands of the people at the National Asset Management Agency (NAMA). There has been a lot of debate on this subject and one suspects that some at least of this has been ill-informed or driven by agendas other than that of getting the best possible solution to the problem that we face and which we face, not irrelevantly, in common with the rest of the developed world.

What follows might be simplistic and if so I am willing to be brought to task, but as I understand it now NAMA will take over responsibility for property loans from the eligible institutions and transfer, in return, specially created government bonds in an amount to be agreed, but which, while less than the nominal value of the loans, will be higher than the current market value of the assets that secure the loans. The difference between the true value of the assets and the value specified by NAMA will be characterised as state aid and will need to conform to EU rules on state aid for this reason. The bonds will carry a coupon, or effective interest rate, of something in the region of 1% - 1.5% per annum. The banks will then offer these bonds for sale on the open market. If they are not all sold, the balance left on hand will be bought by the European Central Bank (ECB).

This is designed to provide the banks with sufficient liquidity and capital ratios to enable them to start functioning as retail banks once again.

Then NAMA will start on what is expected to be a long term undertaking – the working out of the loans for which they have assumed responsibility. In due time, after the economy has started working again and the true (non-bubble) long term trend in property values is re-established, the bonds will be redeemed. Nobody knows how long this will take.

In graphical terms it should look something like this (Click on the graphic to see it properly):

Have I got it right?

Vote Yes to Lisbon

2009-08-21T02:08:00.000-07:00

The material advantages that have flowed to Ireland from membership of the EU are well documented. A net €40 billion in monetary transfers allowing reform of agriculture and the build out of our infrastructure; the ability to use our membership of the EU to attract significantly more inflows from Foreign Direct Investment; and interest rates so low, through our adoption of the Euro, that we could only have dreamt about them before our accession.

There are other benefits that do not get rehearsed so much when something like a Lisbon treaty comes about. The most important of these is the imposition on the Republic of Ireland of equality and non-discrimination laws which are central to the founding treaty of what was then the European Economic Community (EEC), the Treaty of Rome. Glad as our political leaders were to be accepted into the Community in 1973, they were to get a series of sharp wake-up calls as time progressed and the consequences of subjecting certain parts of our national legislation to the various treaty provisions were brought into focus. From the point of view of anyone but the most restricted conservative, they were all good but make no mistake about it - we would not easily have adopted most, if any, of the required measures on our own.

In 1993 a new law was passed which outlawed corporal punishment in our schools. The importance of this has been brought into stark relief by the recent Ryan report into institutional abuse. Prior to that corporal punishment in schools had been banned, largely due to the efforts of an Irish medical doctor, Dr. Cyril Daly. However, it was a ruling of the European Court of Human Rights, against the UK government in this case, that eventually forced our legislators to put the matter beyond doubt.

Up to 1974 all women employees of the Civil Service including, incredible as it might now seem, women teachers, had to resign their positions if they got married. In that year this ban was lifted. This was as a result of EU directives on equal treatment of men and women in the workplace.

Senator David Norris had long been campaigning for the decriminalization of homosexuality. In 1988 he won a case in the European Court, which ruled that the law that made homosexuality a crime in Ireland was contrary to Article 8 of the European Convention on Human Rights. This law has now been repealed.

Apart from social legislation, there have been other non monetary benefits. Although road accident deaths are still far too many in Ireland, the statistics have improved dramatically since the 1970s. Deaths due to traffic accidents were in the region of 540 in 1970. Although the number of vehicles and drivers has increased significantly, road fatalities have been steadily reducing until they are now running at around 340 per annum. A major factor in this outcome has been the institution of the National Car Test (NCT). Where did the NCT come from? Why, from an EU directive, of course. As an indication of where we would be without the stimulus of the EU, it is to be noted that we were one of the last countries to implement this one. It was one of the many from which our government sought, and received, a derogation for a period of years.

And so it goes on. Building Energy Rating (BER) certificates for homes and other structures, which are set to assume major importance when the recession eventually comes to an end, are with us because of the EU EPBD, the EU Energy Performance of Buildings Directive. The same document stipulates many other measures that are designed to ensure that Ireland plays its part in limiting the global emissions of carbon and other gases that are believed to lead to environmental degradation. And you thought all this came from the Green Party.

Fintan O’Toole has pointed out elsewhere that, prior to our accession to the EU, the majority of our exports (55%) went to our nearest neighbour and former colonizer, Britain. In 2005 the proportion going to the UK was 17%, so that now all our eggs are not in one basket. This is undoubtedly a consequence of EU membership.

Read the Lisbon treaty. It is not any more difficult than Bunracht na hEireann. How many voters will have consulted that document when they make a decision in October on how it will be affected by the new treaty?

An alarming nuisance

2009-08-09T02:14:00.001-07:00

It is not unusual to be woken by an intruder alarm nearby in the early hours of the morning. For people working at home, great disturbance is caused during the day by the horrific sound of such equipment. Often, the enjoyment of a barbecue or any other garden activity can be destroyed when one goes off and there is no way of predicting when the next one will sound. They operate for a statutory twenty minutes and then time out. Because of the extremely high probability that they represent false alarms the Gardai ignore them and, if one were a burglar, all one would have to do is to equip oneself with a set of industrial ear protectors, available at any builders’ supplier, and proceed to rifle the premises, safe in the knowledge that most other people are hurrying from the source of the nuisance.

Minister John Gormley, as a Green Party member in high office and presumably therefore one who is both motivated and in a position to do something about this very serious form of noise pollution, has been receiving emails about this problem. A reply from his people claims that he is not the appropriate person to contact as the responsibility for dealing with false alarm noise nuisance lies with the County Councils. The minister, however, is the one who’s announced that he is preparing legislation on the matter. He has even made a number of statements in relation to it, such as that the Gardai might be given powers to enter premises to turn off such alarms and that Anti Social Behavior Orders (ASBOs) might be considered against persistent offenders.

Both of these pronouncements, unfortunately, indicate a lack of understanding of the problem. These alarms sound for twenty minutes, which they are allowed to do under current legislation. Then they cease but, particularly on a windy day, some time later another one will sound, and then another. Are the Gardai to be expected to go around to them all as they go off? In addition, the minister or his advisors do not seem to have addressed the very real Constitutional implications around Gardai entering onto private property without a warrant issued by a court of law.

The ASBO idea falls down because the people who own the properties are wholly law abiding citizens. Without exception, when approached they are horrified that their security arrangements have led to disturbance of their neighbours. For them, protecting their property against burglars is a necessary overhead – they are not experts in the field. Where we have all been let down is in the way the industry has been permitted to evolve. Here, the most expedient and therefore the cheapest solution for the supplier, but certainly not for the consumer, has been allowed to come into being. This is another failure of regulation for which, once again, Irish citizens are having to carry a high social cost.

The current method of dealing with this problem involves finding out where the alarm is sounding and sending the address of the premises to the County Council. They will then write to the property owner and advise them of the fact that a nuisance has occurred. Most property owners take note of this. The difficulty lies in the fact that, in a densely populated area, one must go outside and travel perhaps a block or two to pinpoint where the alarm is sounding. Not a trivial exercise, particularly in the early hours of the morning and when it might have to be repeated numerous times on a bank holiday weekend, when many householders have taken a break and business premises are unoccupied. Add to this the fact that this particular service of the County Council is not well publicized.

There are Noise Regulations that can be enforced by private individuals in the District Court. These are applicable to continuous noise pollution by serious offenders and are will do nothing for the occasional nuisance, made serious be the fact that it is repeated by many different individuals, of false alarms that sound externally.

There are now intruder alarms available, at reasonable cost, that sound only internally and therefore represent no nuisance to neighbours. If they are monitored, the Gardai will respond to them provided that no individual installation sounds as a false alarm more than a set number of times. This feature alone means that property owners have an incentive to ensure that they are properly fitted and regularly serviced. It also makes them infinitely more effective for their purpose, which is to deter or aid in the detection of unauthorized intrusion.

Anyone who has spent time in any other built up area in the developed world will realize that, whatever arrangements are in place in those jurisdictions to deal with the security of property, they do not involve the kind of intolerable noise nuisance that pertains in Ireland.

Alarms that sound only as high pitched external noise should be banned completely.

The sunday Tribune and Sean Quinn

2009-06-28T04:17:00.000-07:00

During campaigning in Waterford for the Yes vote in the second Nice treaty on EU enlargement, Garret Fitzgerald joined the canvassers to lend his considerable weight to their efforts. Nell McCafferty accompanied Garret, to report on proceedings for the Sunday Tribune.

What a contrast. Garret was every inch the elder statesman and towering intellectual, just as might be expected given his public image over the years. Nell turned the air blue, both literally and figuratively, by smoking her head off and by ensuring that every second syllable that came out of her mouth was a swear word.

At one stage Garrett introduced Nell to a potential voter. In doing so he described the Sunday Tribune as a very good newspaper. There were several nods of agreement from within the assembled company.

That was in 2002 and things seem to have changed somewhat in the interim. The Tribune still has a serious side. Its reporting and analysis of social issues by the triumvirate of Doyle, Clifford and McCarthy can still produce agreement, even delight at the fact that these matters are being highlighted in print. But there are more and more disappointments. Running with a piece that the very worst of the tabloids had unearthed about a young woman from an apparently disadvantaged background, who had been lucky enough the have won a reasonable sum on TV’s “Winning Streak” program but who had subsequently been discovered to have outstanding summonses for petty offences which were then made the whole focus of the story, was reprehensible.

Since the start of the current recession all media have found the banks and business people, but especially property developers, to be fair game. In general, stories in this genre tend to be backed by court evidence or by such things as the contents of financial reports. The Tribune, unfortunately, now often seems to go on rumour and / or unsubstantiated leaks. In April – May 2009 it reported that the Aylesbury Road home of the prominent builder and developer, Bernard McNamara, had been sold to “the daughter of a well-known businessman”, which gave the story an air of credibility. Given the credit squeeze and the difficulties of nearly all construction companies and developers, this could have been very much to the detriment of McNamara’s standing in the community, especially as, the following week, the newspaper had to report that the house was not sold at all and had never even been on the market.

Sean Quinn

While Sean Quinn’s early decision to build a four star hotel in rural Cavan might have been perceived as something of a white elephant play at the start, he did make it work and it did emphasise his commitment to his native region (he was born just across the border in Co. Fermanagh and resides in Cavan) by providing many, badly needed, jobs at the time.

Going into cement manufacturing was a move of a different magnitude altogether. The production and sale of cement is highly capital-intensive and, prior to the development of Quinn’s facility, was monopolised by Cement Roadstone Holdings (CRH) in Ireland. Although he undoubtedly had backing from the Northern Ireland development agencies, Quinn took an enormous risk. In so doing and in successfully establishing the business, however, he proved himself the champion of small to medium sized building companies all over the country, the ones who did not have the financial muscle to deal with the former monopoly.

Quinn seems to have garnered a lot of his business ideas from his own experience in and around construction. A major problem for builders over the years had been the attitude of insurance companies to personal injury claims. A practice existed whereby even the most blatant of spurious claims made by employees were allowed in the knowledge that the settlement amounts could be recovered from the insured employer by greatly increased premia in following years. Employers had to pay up as they had nowhere else to go. Then Quinn Direct came along. It provided insurance to builders and others, but with two significant innovations: It insisted on having the Health and Safety arrangements of its clients examined by a safety consultant before it would agree to provide cover and it put in place a policy of rigidly examining all personal injury claims that were made. The result was a major reduction in the cost of insurance and the lasting gratitude of the, mostly small, firms involved. There was also a significant social benefit for the country. Up to then the only incentive for builders to comply with health and safety law came from the government Health and Safety Executive (HSE) inspectorate. Now builders who were less than particular about their safety compliance also had to engage with the insurance company, but in a meaningful, constructive manner, unlike previously. This government – insurance company combination has led to a real, verifiable reduction in the number of accidents and fatalities, especially on building sites.

There is a strong common thread of monopoly busting running through Quinn’s business activities. In 2007 BUPA, the health insurer, announced that it was leaving the Irish market. This would have returned the country to a situation where there would be no competition for the only other player, VHI. Enter Sean Quinn. He purchased BUPA and it now operates as Quinn Healthcare.

Go to Part 2: Risk taking is...risky

How a share stake is built using CFDs

2009-06-28T04:09:00.000-07:00

Contracts For Difference (CFDs) have been used by many market participants in order to build up stakes in companies without triggering disclosure obligations. Since the CFD does not by itself confer any share holding rights on the purchaser, how is the stake build up achieved? The document here, by one Jacques Iffland, esplains how it's done.

Risk taking is… risky

2009-05-30T03:43:00.000-07:00

Risk takers don’t win all their bets. It is now well known that Sean Quinn and his family lost a lot of money on an ill-starred venture into the acquisition of a stake in Anglo Irish Bank. The means by which the stake was built up involved, instead of ordinary shares, the use of Contracts for Difference (CFDs), equity derivatives that have a number of unique features: Capital gains made on the disposal of CFDs are not subject to capital gains tax. Virtual holdings using these instruments did not trigger the stock exchange rules that require a significant stakeholder in ordinary shares to declare his or her interest. In this way, and with the assistance of a cooperative stockbroker who has hedged his position on the CFDs by taking control of a similar quantity of the underlying shares, a large holding can be built up by stealth. This could be the prelude to a takeover bid. Was Quinn going to make a play for Anglo in order to create a company, in conjunction with his insurance interests, to operate in the bancassurance market?

CFDs also allow for the use of high leverage, or the ability to purchase virtual shareholdings worth many times the amount of money initially subscribed by the purchaser. If the underling shares rise, paper profits are magnified. This particular benefit has an important downside, however. If the underlying share price falls, the consequent loss to the purchaser is similarly greatly exaggerated and he or she will get the dreaded margin call, which is a demand for more money that must be deposited unless they wish to see their position liquidated and the loss locked in. This is exactly what happened to Quinn. He had the supreme misfortune to hold an investment in Anglo Irish Bank shares, using CFDs, at the time when the bottom started to fall out of the banking market and when Anglo, in particular, was about to be uncovered as a major lender of speculative property development loans that were destined to turn into toxic debts.

Quinn appears to have met his margin calls by utilising the resources of the, very profitable, insurance company that bears his name, in contravention of company law. For this he was censured and fined. He also resigned as chairman of Quinn insurance group. Later, his monetary loss was in the many hundreds of millions when Anglo was nationalised.

The forged memo affair

In common with all newspapers in Ireland the Sunday Tribune was all over the Quinn family / Anglo Irish Bank saga, writing on everything that has been related above, and more. The use of CFDs provided a basis for suggesting that the whole thing was in some way illicit (“exotic financial instrument” was a common phrase). For a time, there was innuendo that Quinn had been involved in or had influenced the management of Anglo and had therefore been tainted by the revelations about the bank’s internal workings. His net worth was called into question. Quinn has denied all these things explicitly and there does not seem to be evidence to suggest anything other than that he had built up a stake in the bank and had subsequently taken a hit which, though large, he was able to absorb.

On April 1st. 2007 The Sunday Tribune printed a story about a Quinn Direct Internal memo that, the newspaper claimed, showed the company had engaged in illegal practices in order to motivate claimants to settle early and for low amounts. Quinn has a case in the High Court at present over this article. In August 2007 the Irish Times reported that the Gardai had satisfied themselves that the memo was a forgery, which Quinn Insurance had contended since the start. The Tribune has refused to back down in the court case, or to apologise. Since then the paper has been very critical of Sean Quinn or of his companies on many occasions, often in a low level, drip feed manner. For example, Michael Clifford has written about the trauma of a personal injury claimant whose damages had allegedly been exacerbated by the investigation that Quinn Insurances carried out into his case. On another occasion Emmet Oliver was scathing about the RTE interview which Sean Quinn gave to Tommie Gorman, calling it Sean Quinn’s “Oprah moment”.

And so on.

So what is happening here? Has the Sunday Tribune backed itself into a corner over the forged memo affair to the point where it feels it has to use its power as a newspaper to help its High Court case? Has Sean Quinn trod at some point on the toes of Dr. A.J.F. O’Reilly, a major shareholder in the Sunday Tribune and someone who is well known for his willingness to use his position as a press baron to further his own agendas? Dr. O’Reilly’s own company, Independent News and Media, has its own difficulties. Is he trying to goad Sean Quinn into making a bid for the Tribune so as to get rid of one more problem, in the current economic climate? Finally, do the left-leaning journalists of the Tribune, led by Duirmuid Doyle, who are so good on the social issues, see Sean Quinn as some kind of a bastion of capitalism that needs, as they might see it, to be cut down to size?

All speculation, of course, but one way or another it’s a sad business. That the newspaper Garret Fitzgerald had good things to say about in 2002 is moving further and further away from the quality objective reporting and analysis that made it so valuable in the past is unfortunate. That it has chosen to use its position to place doubt in the public mind about the businesses of a man who has done so much to defeat monopoly and vested interest, who has provided employment at home to such an extent and who has contributed so significantly to the enhancement of Ireland’s business reputation abroad, is nothing short of tragic.

ENDS

John Authors in the Financial Times

2009-05-08T13:36:00.000-07:00

One of our favourite commentators on financial matters at present is John 'What we’re showing you here' Authors of the Financial Times. Apart from a very agreeable delivery in his “Short view” (and indeed “Long view”) videos on the FT website, he has approached the current situation from a viewpoint that encapsulates all that is erudite in his makeup. Thus we have had discussions of the efficient market theory, technical analysis incorporating trend lines and Exponential Moving Averages (EMAs), bear market rallies versus bottoms and even Darwinian evolution as it might be applied to the markets, all presented in a very digestible form.

John A. has stopped short of calling a bottom. Nevertheless, it is plain to see where his sentiment lies. Take EMAs for example. On April 2nd The Short View showed us that the 100 day EMA on the Standard and Poors (S&P) index was breached by the market price chart for the “first time since last Spring”. Prior to that, on March 23rd., he was asking if we were experiencing a lasting rally.

Naturally, we embrace this positivity as a counterpoint to the negative hysteria that has been a feature of much journalistic comment in the past year. While it is important to be realistic and acknowledge that mistakes were made, and that there is a recession in full swing, nevertheless some perspective is called for. John Authors provides it. We recommend him.

Steorn: at a standstill.

2009-04-19T08:31:00.001-07:00

Three years on, an Irish company’s unlikely claim that it can create energy from nothing has attracted €16 million from investors. By Seamus McKenna. This article was published in the April 2009 edition of Village Magazine.

In 2006 an Irish company, Steorn, claimed in an ad in The Economist magazine that - in violation of the all-important first and second laws of thermodynamics – it could create energy through a technology called “Orbo”. Since then it has raised €16 million from investors and has spent more than €10 million of this but it still does not have a prototype of any sort to show for its efforts. Somewhat unromantically though understandably the US Patents Office no longer entertains such “perpetual motion” ideas without a working model. Steorn said it would produce one in 2007 but cancelled when there were problems…caused by heat emanating from the lights that were illuminating it. In 2006 Steorn announced its intention to form a scientific “jury” to evaluate its claims. Nothing is heard of this now. So, where did the €10 million go?

The annual reports, filed with the Companies Registration Office (CRO), are not much help in finding out. The concern is allowed to submit abridged accounts, which do not include a profit and loss statement, because its turnover is under €1.25 million per year and it has less than 50 employees. Company law allows for both the €6 million left on the balance sheet and the accumulated losses of €10 million to be ignored in determining whether or not full accounts must be filed. The end result is that there is no way of knowing how much was spent on Research and Development, how much on items like Public Relations and how much was paid to the directors.

Steorn’s discovery, according to its own publicity, is a technology that allows for more energy to be taken out of a device than is put in. This claim, all by itself, violates principles of mechanics that have been respected by engineers and scientists for centuries. Apologists for the company complain that conventional science is hidebound by laws such as the Conservation of Energy, which holds that energy can neither be created nor destroyed – it can only have its state changed, and which rules out the possibility of a machine that has efficiency greater than unity; in popular parlance, a perpetual motion machine. What is ignored by these people is that the principle is fundamental to modern physics. It is the basis of all engineering design, has been demonstrated time and again in the laboratory and has never been nullified where measurements have been accurate. When asked his opinion of Steorn’s technology, an ESB engineer commented that if there was anything in it his organisation “would be all over it by now”.

The company does, however, seem to have been busy making presentations to educational establishments. It has appeared in the Dublin Institute of Technology (DIT), which counts the company’s CEO, Sean McCarthy, among its alumni. In 2007 it gave a talk at University College, Dublin (UCD). On that occasion UCD provided members of its engineering faculty as a counterpoint to explain the enormity, and the unreliability, of the claims being made. Last month (Feb 09) Mr. McCarthy did a tour of universities in Qater and Oman, where a seminar on “Introducing Orbo - a new way of looking at magnetic interactions in asymmetric systems” was given. There was no mention of perpetual motion in the publicity for the event but it is understood that Mr. McCarthy claimed in his speech that his company had developed a technology that allowed for efficiencies of well over 100% in producing work.

No prototype of any sort has ever been produced at these presentations, or anywhere else. In July 2007 the company did announce that it was about to demonstrate a working model at the Kinetica Museum in London. The demonstration was eventually cancelled because the device provided could not be made to operate. The company later said it was unreasonable to expect its engineers to produce something in the short time of three weeks that was allowed them prior to the failed demonstration. That episode occurred nearly two years ago.

There is reason to believe that some at least of the people who subscribed the €16 million for shares are technologically naïve. And the pattern of investment is interesting. Although CRO filings are less than helpful in understanding Steorn’s expenditures, they do give definition to the share register through the notifications of allocations. These show that the company’s two directors, Michael Daly and Sean McCarthy, who each own 30%, and solicitor Francis Hackett (10%) have paid so relatively little for their holdings that they would have to make a combined profit of €138 million in a trade sale before certain of the later investors, some of whom have contributed millions individually, would break even. Such a sale would value the company at over €200 million. As The Economist itself put it in 2007 in dissing Orbo: “Remember: the first law [of thermodynamics] says the best you can do is break even, while the second law adds, forget it, you can’t even do that! Keep those two principles in mind, and you’ll never go far wrong”

Positive thinking

2009-03-16T13:59:00.000-07:00

Letter to the Editor, Sunday Tribune

Dear Editor,

It’s good to see the Sunday Tribune taking a positive standpoint (15th March 09). It’s also good to see, in the same edition, Prof. John Fitzgerald of the ESRI signalling that an economic recovery will be dependant upon what happens abroad, which indicates in turn that the recession was caused as much by external forces as by anything that was done or not done here.

It would be well to understand, though, that a positive outlook is not something you can decide to have in one edition of your newspaper – it is, rather, a permanent state of mind. And the Tribune has been quite capable on occasion of stoking the negative hysteria we’ve had to live through recently.

For example, while there have indeed been bad business practices and culpable individuals, your paper got it wrong when it vilified Sean Quinn. While Quinn built up a holding in Anglo Irish Bank, he had nothing to do with its running. Michael Clifford has criticised Quinn Insurance because it diligently investigates personal injury claims. He should be praising the company. This policy is a powerful antidote to the former practice where insurers, through short sighted expediency, allowed the most blatantly false claims because they could recoup the losses by increasing their customers’ premia in later years. Quinn was a breath of fresh air for small and medium sized businesses when he put an end to that practice.

Quinn’s cement operation attacked, at considerable risk to its promoter, the monopolistic situation that existed in Ireland prior to its formation. It should also be remembered that there are thousands of jobs now in border regions, both North and South, that would simply not exist were it not for Sean Quinn and his associates.

Perhaps the Tribune might remove the mote from its own eye by highlighting the good that Sean Quinn has done, and continues to do, for the country. It can then quite comfortably hold forth on the subject of positive thinking.

Yours sincerely,

Seamus McKenna

Don't blame house builders

2009-03-16T03:43:00.000-07:00

Business Plus magazine was good enough to carry our words in its March 2009 edition:

There have been claims by many commentators that the current recession has been exacerbated, or even caused, by the rate at which residential property was developed in Ireland in the years before 2007. I would like to argue strongly against that idea.

At the turn of the century the Republic of Ireland needed a significant quantity of new homes to bring the average number of people per dwelling unit down to the same level as that of England and Wales. It also required serious investment in motorways, railways, and other such elements to bring the infrastructure up to anything like the level enjoyed in the rest of Europe.

Why should anyone be surprised that the country strove to achieve these things? The penetration of other measures of economic development, such as mobile phones and private motor vehicles, must have long since reached or even surpassed the levels of our nearest and most comparable neighbours. The Republic’s young people are just as motivated as any others to get a place of their own. Relationship break-down rates here are similar to any other jurisdiction. Parents, either together or as widows and widowers, are living for much longer after their children have left the nest. On top of all that, the 2006 census showed that the population was growing at the fastest rate of at any time since before the great famine, in 1848.

Therefore the demand for housing exists. More houses were and are needed to bring us to developed nation levels. This is not less important than our need for a national travel and communications infrastructure. The good news is that the current economic difficulties have not impacted here materially – the dump trucks are still swarming around the routes of the various motorways that are as yet unfinished, and the cranes are still lifting the concrete decks onto the road and river crossings. The mainline trains and stations are, slowly but surely, reaching Continental levels of service and facility. We could do with more attention to broadband.

The roads and railways are capital projects. They are commissioned by the government and the funding for them was put in place long before the onset of this financial perfect storm. Residential accommodation, on the other hand, has been funded in a fragmented, private sector, current-account manner. It could hardly have been otherwise but it is the misfortune of those who are involved in it that it is thus at the mercy of the economic downturn. Seen as a whole, it is an essential element of the national infrastructure that has been rudely interrupted when in the middle of its development. It is a work-in-progress that has run out of funding, on a national scale.

People say we cannot export houses. People say that tax revenues were over dependent on property development. This is to ignore the fact that property and other economic activity are not mutually exclusive. The IDA has been very successful over the years in attracting foreign direct investment, initially for manufacturing and later for internationally traded services when it became apparent that manufacturing was no longer appropriate to our position in the continuum of global economic development. The IFSC is still there. Indigenous Irish companies, such as ESB International, the Quinn Group, CRH, Airtricity, NTR and many others, too numerous to mention, have been exporting high quality, high value Irish expertise to every other part of the planet for years. This is so far removed from the traditional export of manual labour that epitomised quite recent generations as to be astonishing.

The tax take on property was actually a windfall for the government for the duration of the build-out of the housing stock.

This recession did not begin in Ireland. It was caused by a massive global build up of fatally flawed financial derivatives. It was scale that eventually caused the breakdown. When there was a fall in the value of mortgage backed instruments and a consequent rise in the price of credit default swaps, the market turned out to be flooded and only the supply side was available – there were lots of willing sellers but no buyers. The end result was a sudden stoppage to the creation of new instruments – If existing paper could not be sold, then what was the point of new issues? This caused the guillotine to come down on credit because banks had long since stopped relying on customer deposits for funding for loans – this had been based, for many years, on the very derivatives that could not now be sold or created. Here has been formed the cruelest of vicious circles.

As time goes on the process is made infinitely worse by a total lack of confidence in everything except cash. Those who have it are most definitely holding on to it.

Neither the toxic instruments themselves, nor their scale of development, were the responsibility of any entity in Ireland. We are part of the global economy. It was from there that we contracted the disease and it is to there we must look for a solution. All we can do, until it comes, is remain functional. And calm. There is nothing to be gained by looking for scapegoats or embracing irrational explanations.

Banking bloodbath

2009-03-07T04:23:00.000-08:00

The banks seem to be getting a real hammering on the stock exchanges. The carnage is wide and deep. No prisoners are being taken and the rot seems to have spread to companies that are not actually banks but, nevertheless, perceived to be part of the financial establishment. Such a one is the insurance giant Aviva, or Hibernian Aviva as it will henceforth be known here in Ireland, according to an expensive looking advertising campaign that is currently under way.

Ironies abound. On 26 February Citigroup downgraded Allied Irish Bank from a “hold” to a “sell”, with a target price of €0.30. Bank of Ireland was similarly treated, with a target of €0.15. The downgrade comes from an institution whose share price has fallen to such an extent that it is now in danger of being de-listed from the New York Stock Exchange (NYSE). In the meantime AIB possesses, after the government recapitalisation, one of the highest capital ratios of any bank, worldwide. In his or her comment, the Citi analyst seems to be comparing Ireland with Japan in the 1990s. Hello – Ireland is a fully fledged member of the European Union and will remain so, no matter how many red herrings are dragged across the path of the next Lisbon treaty referendum by disparate groupings that, whatever their agendas, certainly have nothing to offer on the question of economic stability.

That the Citi “target” share price was reached for by both AIB and BoI one week after the downgrade occurred speaks volumes for the crazy state of the markets at present.

Readers must, of course, do their own research before taking action of any sort on the basis of any comments that are made in this blog.

Perpetual Motion

2009-02-25T05:49:00.000-08:00

As someone with a background in Civil Engineering, and a student of Physics, I do not believe that the Laws of Thermodynamics can be broken. I recall I rejected a grant application from someone who put forward a proposal for a perpetual motion machine when I worked with the Industrial Development Agency (IDA Ireland) in the 1980s.

I was therefore interested to hear about Steorn, a Dublin based company that claims to have discovered a technology that, according to its own web site “…provides more energy out than is put in”. This company has gained some recognition. The promoters have been included in television programs, among them Prime Time on RTE television, in a manner that would suggest that the producers give their claims some credence. They’ve been provided with a platform at a number of universities to explain their ideas. Nothing wrong with that, that’s what universities do – but its also important that the same institutions ensure that it's pointed out to the audience, at the same time, that the claims represent a violation of some very fundamental and well established laws of physics.

Several discussion fora have been set up on the Internet to do with the company. These tend to involve debate about the theory behind the claims of free energy. They also describe a notorious failed attempt at a demonstration of the technology at a London science museum in July 2007.

There is reason to believe that one purported strategy for eventual profit involves Steorn being bought out by “Big Oil”. On the other hand, an Electricity Supply Board (ESB) engineer has been quoted as saying that if there were anything in these particular claims of being able to produce free energy, the ESB “would be all over it” by now. That seems reasonable.

No working prototype has ever been produced, although Steorn has gotten a lot of mileage from its activities. It’s been going since the year 2000, making millions of Euro in losses on minimal sales revenue. Up until recently, it’s all been of academic interest. One wondered idly why they bothered – if the same amount of work and money were put into harnessing the energy radiated by the sun, which, from the relative perspective of an inhabitant of Earth in our time, is bordering on an infinite resource and therefore a provider of perpetual power that does not violate any laws of nature, it would make sense - quite a lot of sense, actually.

Now something has came to attention that makes the whole thing much more serious. A relative of mine has, apparently, been persuaded to invest over €3 million in the venture. That’s bad enough, but it also appears he has paid dearly for his participation. So much so that one promoter of the company, who purchased his shares at a much lower price earlier on, would have to make a profit of nearly €60 million in a trade sale before my relation would break even, according to documentation that I’ve seen.

That, as they say, brings Steorn and its activities closer to home. Watch this space.

Funding for Wind Farm development

2009-02-24T06:54:00.000-08:00

Bank of Ireland is to make €100 million available for Renewable Energy projects, as part of a commitment it has made in return for the €3.5 billion of recapitalisation it received from the government. Judging by the comments of a bank spokesman on national radio after the announcement, for “Renewable Energy” one can read “Wind Farm Development”.

The rule of thumb for the cost of wind farms is around €1.4 million per Megawatt (MW), so this commitment, assuming a loan to equity ratio of 80%, equates to the provision of about 90 MW, or around 10 small windfarms (those with an average of 5 turbines). This is a decent allocation for one bank, especially considering the long lead time for the presentation of the project to the institution.

The economics of wind power in Ireland are good, of course, and this accounts for the fact that the Commission for Energy Regulation (CER) has no difficulty in persuading developers to come forward. So brisk has the business been that there is some expectation now that Ireland will meet or surpass its requirement, under the Kyoto Protocol, to have 20% of its energy provided by renewables by 2020. And the payback is, if anything, better now as a result of the economic downturn because there is evidence that the cost of turbines has fallen somewhat, while the rate at which electricity is purchased by the utility companies has been fixed. This new funding provision by Bank of Ireland should allow promoters who qualify to take advantage of this situation.

There are other sources of finance for windfarms. Interested parties should contact us here at Solarwave (http://www.solarwave.ie/ ) .We can also advise on site suitability, prepare planning permission applications and submit for grid connection and electricity purchase agreements, all of which are essential elements for success.

"Lichtenstein on the Liffey"

2009-02-21T09:39:00.000-08:00

In these strange and straitened times it behoves all businesses and indeed countries to be on their best behaviour. An article in the Guardian on Tuesday 10th February 09 complains that a number of UK based companies are transferring their operations to Ireland in order to avoid having to pay certain taxes in their home country.

The article is balanced, as might be expected from the Guardian. It explains that the UK Revenue and Customs service is aware of the practice and has stated that it would examine carefully any company that it suspects of having broken the rules regarding their taxation provisions. The article also suggests that the main benefit to be derived from a move to Ireland lies with those companies that have patents or brands, or intellectual property rights such as might be present in the ownership of computer software, and can therefore take advantage of Ireland’s favourable treatment of such assets. This is a long standing provision, designed by the Irish government quite some time ago to encourage innovation, and lauded at the time as imaginative and progressive.

So what’s the problem?

The problem is that the Irish Republic is suffering at present from a perception across the globe that it has something of a cowboy status in relation to financial regulation, or the lack of it, mainly because of recent worldwide publicity of our banking industry. The idea that UK companies are treating Dublin as some sort of tax haven and the designation of the Irish capital as a “Lichtenstein on the Liffey” by a Liberal Democrat party spokesman, represents just another brick in that particular wall. For this reason it might be desirable that the government and responsible agencies make it very well known publicly that we will operate the rules regarding the relocation of businesses here for tax purposes very strictly indeed.

Then we will not need to apologise to anyone for having well structured fiscal policies that are appropriate to our needs.

2009-02-01T03:08:00.000-08:00

A national hysteria? (A version of this article has appeared in the Irish Examiner newspaper)

The God of Wealth was therefore made
Sole patron of the building trade;
Leaving to wits the spacious air,
With license to build castles there.

Jonathan Swift

Swift wrote those lines in 1703, so it would seem that builders have long enjoyed their reputation.

The Dean had less to say about economists, probably because Adam Smith had not yet invented that particular branch of study. Certain economic commentators in Ireland are, however, at present enjoying an ascendency. These are the ones who have found many and varied ways of saying “I told you so”. One in particular, whose most notable contribution prior to the economic downturn was the coining of such terms as “Breakfast-roll Man” and “Decklander” has managed somehow to have this banal glibness perceived as evidence of wisdom and prescience. Another one, Mr. George Lee of RTE, has become known to many otherwise disinterested viewers as “The mother of sorrows”.

There’s an hysteria out there. It’s hard to say whether it’s driven by the media or reflected by them. The truth is probably in the middle – the media feeds public perception which in turn is reported as more fear. One way or another it’s irrational and, in this writer’s humble opinion, ultimately unhealthy.

Some facts: (1) The Irish 2006 census, which measured both the population and the housing stock, showed clearly that all the dwelling units that were built in the years of above trend growth were needed in order to bring the average number of persons per dwelling up to the same ratio as existed in England and Wales when they had their most recent census, in 2002. In mid 2006 the average price of a house in Ireland was €292,979. In the UK it was £199,186 which, at the exchange rate in force at the time, translated into €291,890.

(2) Government inspectors, both directly employed and contracted in, have been all over the banking industry in Ireland in the past six months or so. Notwithstanding this, no other banking director or manager has had any charge of wrongdoing made against him or her. This means that the actions of the former chairman of Anglo Irish Bank, in hiding loans made to himself and another director by their own bank, is an aberration.

(3) Every other country in the developed world is in financial trouble. Many foreign banks, which were formerly synonyms for financial security, have seen their shares lose just as much value as the Irish banks. It has now been reported that the US economy has shrunk by 3.8% in just one quarter – the largest drop in 27 years. It is to be hoped that our commentators will keep this in mind when next they talk of historical or comparative negative records for this country.

Sean Quinn has admitted that he made mistakes (the person who never made a mistake, never made anything) but at the same time, in his recent interview with Tommie Gorman, he has clearly demonstrated the good that has been done by people like himself, his associates and employees for business development here. This interview has not, at least as yet, received anything like the airtime it deserves but it can be seen on the RTE website, at http://www.rte.ie/news/2009/0130/newsspecial.html . In the same interview, Quinn alluded to the media frenzy that has been focused on him and his enterprises. What he described looks like an example of the truth of an adage that I, for one, had hoped was no longer valid: James Joyce’s comment that Ireland was the "the sow that ate her own farrow". This was said in the context of the arts, which certainly do not now exist in anything like the atmosphere of dread and condemnation that prompted the remark. But are we still, as a nation, so insecure that we have to find another scapegoat, this time the business community, when we’re faced with a challenge that has come about for no reason other than that we represent a small, open part of a globalised economy and have therefore been vulnerable to the worst effects of the toxic debt instruments that were developed in the USA and then spread all over the world?

Did we have a housing bubble?

2009-01-28T00:40:00.000-08:00

When is a housing bubble not a housing bubble? When the country that experiences it has half the mean population density of the Euro-15 states (excepting Finland and Sweden, each of which has a significant part of its land mass within the Arctic Circle), consequently room for the largest population growth rate in Europe, and when it also has the highest average household size (numbers living in the same residential unit) of its peer nations but with the appetite and means for the reduction of same.

The foregoing was the context for the home building that took place in the Republic of Ireland between 1997 and 2007.

These are the facts that are ignored by commentators. None of the people who seem to be congratulating themselves now for their foresight ever predicted that merchant bankers in the USA would, on a massive scale, package up sub-prime mortgages into exotic, multi-layered derivatives that eventually could not be valued, and distribute them as toxic debt around the world. Our small, open economy, which we have always had and which cannot be laid at the door of developers, bankers or politicians, did the rest and ensured that the finance tap that is essential for the maintenance of our aggressive economic activity, was turned off.

Of course costs rose in such an active economy, just as in nature populations rise when food is plentiful. The good news is that the current environment is ensuring that those same costs are, even as we speak, rapidly diminishing. The other element that is essential for growth, a rebound in economic activity abroad, is outside of our power to influence. What we can do is recognise the reality as outlined above, work through the difficult time and take sensible steps to ensure that we are best placed to exploit the upturn when it comes, as it surely will.

Go to http://www.windsolair.com/ to get the full low-down

This is a problem for planet earth

2008-04-13T05:19:00.000-07:00

Of all the animal species that have evolved on planet Earth, only one has developed the capability to remove the reserves of fuel that were laid down over many millions of years. Because of the time scales involved these reserves are not capable of being renewed in any practical sense.

Unfortunately, having found the means of exploiting this resource, Homo sapiens has also decided to use it all up in a very short time indeed. To make matters worse, it has been discovered that consuming these fossil fuels is damaging the earth's atmosphere.

Now, a new danger has arisen: The human population has reached a point of explosive growth. One billion people are added to the global number every eleven years. At the current rate we will go from 6.5 billion to 13 billion in the next 60 years or so. All of these newcomers will add to the existing demand for energy usage and all will have a carbon footprint.