Jill Kerby

 

WILL EVENTS OVERTAKE THE TECHNOCRATS IN 2012?

Phew!  Thank goodness 2011 is over. 

It was surely one of the toughest years financially since the bad old recession days of the 1980s and has taken its toll on incomes and personal wealth, especially the paper wealth so many of us believed we had tied up in our homes and pensions, and in our confidence in the future.

The austerity measures imposed by our new pay masters in Europe and at the Washington-based International Monetary Fund have been difficult to adjust to, with estimates of the monthly loss of spending power being put as high as €1,200 since 2008 when the economy first collapsed.  This coming year, it has been estimated that the new taxes (like Vat, excise, carbon and property), higher costs (for example, health insurance, public transport) and cutbacks in social welfare payments will reduce average family monthly incomes by a further €60-€100.

Will we look back on 2011 as the last year when the Irish people – were, for the most part, able to stoically suck up the austerity (compared to the frequent, public, noisy demonstrations and protests in Greece, Italy and Spain) or will we see these past 12 months as a turning point?  Will next year’s austerity measures be angrily resisted as the cost of living rises and public services fall, along with employment numbers, house prices and wages?

Much will probably depend on whether or not the Croke Park Agreement survives or not. As the only heavily unionised group of workers left in the country, the cutting back of civil and public sector workers’ pay and pensions - if it happens  (the CPA is not due to expire until 2014) - will undoubtedly rally the union bosses to organise widespread labour stoppages and strikes.  Such action will no doubt attract support from anti-government protestors, such as community groups whose budgets have been cut, third level students, groups opposing the introduction of the property tax, the political parties defending social welfare entitlements who also favour of the introduction of wealth taxes.  2012 could be a volatile year indeed.

Immigration is the great pressure valve that has also helped the government push through the EU/IMF dictat for higher taxes and lower spending here:  without it 75,000 young people would not only be adding to the still growing social welfare bill of over €21 billion, but joining the burgeoning protest groups.

Their access to jobs in other countries is unlikely to end in 2012, though as the world economy slows, there may be fewer opportunities for them to leave Ireland in the future. The greatest irony of our situation in 2011 is that many high tech companies had to offer jobs to emigrants, as home-born skilled workers decided to take their chances in finding similar jobs with better long term earning prospects in countries where taxes are not rocketing and the standard of living is not falling.

For most of us, 2011 was the year in which we self-imposed levels of austerity that economists say fits the classic ‘paradox of thrift’ – where consumer demand falls, weakening the economy further, even as people accumulate more savings because they are worried that they won’t have enough savings to meet their future needs.

The average savings rate here is now at approximately 12% of disposable income, one of the highest rates in the western world, though obviously not spread evenly amongst the population. (The largest group of savers are middle and older people.) 

Instead of more discretionary spending, there has been less as we cut back on holidays, entertainment, club memberships, second car ownership and even, unfortunately, charitable giving.

The majority of the ordinary people of Ireland did a prodigious job of reducing their personal debts and borrowings and adjusted their budgets to ensure that food is on the table, that the rent/mortgage is paid (even at adjusted rates), that there is heat and light in their homes, petrol in the car or money for bus fares for the children.  High unemployment and the growing cost of healthcare and health insurance in 2011 however, meant that another c70,000 people are expected to have dropped their private cover this year – 70,000 more people who will be dependent on the private health service in 2012.

However, 2011 was also the year that the volume of savings held in financial institutions dropped dramatically to c€86 billion (from over €100 billion two years earlier) as many more savers drew down money to meet their day to day costs, to shift into other assets that they regard as safer than paper and ink euro, or moved out of the country altogether to avoid what they believe could be the end of the use of the euro here.

This fear only grew as the year progressed and the wider troika of technocrats, central bankers and politicians continue failed to agree credible policies to save the euro – and pay off the trillions in sovereign debt.

 So will 2012 be the ‘make or break’ year for Ireland and the eurozone?  Let’s hope so.

What everyone seems to want is certainty and clarity, no matter how difficult the repercussions. As events overtake the inept, 2012 may be a very good and Happy New Year indeed.

 

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CONSUMERS TO GET MORE PROTECTION – BETTER LATE THAN NEVER

 

In the same week that the unfortunate owner-occupiers and tenants of the North Dublin apartment block, Priory Hall discovered that building standards had been competed flouted and their homes would have to be temporarily abandoned, the Central Bank announced that the standards by which financial products are bought and sold were to be strengthened with revised Consumer Protection Codes.

It will be little consolation to the beleaguered Priory Hall residents that the way mortgages will be sold in the future will be improved – this time with due regard to suitability and affordability – but it might help prevent someone else from paying far more than they can afford for an overpriced, shabbily built apartment or house.

I say ‘might’ because no amount of stricter regulations or codes will prevent outright fraud if an individual builder or lender/broker is determined to rip you off. And just because a stricter building code, or its enforcement, is put in place doesn’t automatically mean that the buyer will bother with their own due governance.

Caveat emptor, indeed. 

But the new rules are, at least, another step by the new Financial Regulator and Central Bank to bring our consumer practices up to at least the standards that other countries seem to mostly achieve.

The codes come into force from next January 1, 2012, and involve both the way in which financial products are sold, and then how arrears and complaints are dealt with by product providers and lenders.

The key areas are

 

   Mortgage lending:  Self certification of declarations of income for the purpose of securing a mortgage will be banned and there will be stricter requirements in place for affordability testing, that is, stress testing of the borrowers ability to pay if interest rates rise/wages fall, etc.

 

 

• Transparency: More balanced and prominent information must be provided to consumers in advertisements including potential product risks as well as benefits. The Code also sets out the key information that has to given to consumers “before, during and after the sales process, including information on charges, commission and remuneration arrangements”.

 

 

• Arrears handling:  The new rules deal with how regulated entities must deal with and treat consumers who are in arrears on a range of loans (including credit cards, personal loans and buy to let mortgages) introducing protections for these loans similar to those for mortgage arrears which are already covered by the Code of Conduct on Mortgage Arrears. The number of unsolicited communications with consumers is limited to just three in each calendar month.

 

• Product Mis-selling: High pressure, unsolicited, doorstep selling of financial products to consumers are banned. (So no more cold calls from insurance salesmen.)  Strict new rules for setting up personal visits. Also, product sellers will have to undertake a more vigourous fact find to determine the “suitability” of the product based on the consumer’s financial position. Also, the seller’s remuneration must not influence the sale of product.

 

• Vulnerable consumers: The Code is also putting the onus on the seller/product provider to consider the vulnerability of the consumer – “for example, a vision or hearing impairment or a lack of knowledge, experience or financial capability, and must provide those identified as vulnerable consumers with the necessary arrangements or assistance to facilitate their dealings with the regulated entity.” 

 

• Errors and complaints resolution:  A much stricter process will have to be undertaken with regard to resolving errors affecting consumers, with detailed records and regular analysis of the complaint process having to be maintained.  

 

If I have any immediate quibble with the new Code, it is that the Regulator has missed a chance to give notice to the financial industry that the days of commission remuneration to their brokers, distributors and other intermediaries are numbered and that within, say, a two or year period, all commission will be banned.

Exactly this new ‘code’ is being introduced in the UK from January 2013. And while it has been energetically lobbied against by insurers, banks and other investments companies shifting the reward for selling a savings policy or pension fund away from the product manufacturer to the consumer will confirm what this column has stated for many years:  if you pay an experienced, qualified, licensed (by the Regulator) investment advisor or intermediary a fair fee for their time and expertise, they are less likely to try to sell you an unsuitable but high commission paying product .

The best advisors – independent of any remuneration from the manufacturer – do their best to find a product, fund or asset that will suit the age, risk profile, and goals of their client.  Sometimes, that means suggesting they leave their money in the credit union; at other times, in a sophisticated fund of international stocks and shares.  

How much they will be rewarded becomes a matter only for themselves and the person sitting in front of them who they hope to have a life-time’s relationship.  You don’t get that selling shabbily built apartments to someone, or an expensive, badly constructed pension fund.

You can review or download a PDF of the new Codes of Conduct (2012) at www.centralbank.ie

PS – The National Consumer Agency has revamped its financial product cost comparison website, and will for the first time include mortgage offers.  Check it out here: http://compare.itsyourmoney.ie/Default.aspx

 

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GOVERNMENT HATCHES A MORTGAGE ARREARS PLAN – JUST ABOUT

 

A mortgage-to-rent pilot scheme, just one of the several proposals from the latest expert group on mortgage arrears and negative equity, is expected to get underway very shortly, but anyone thinking that this might be the solution to all their homeloan debt problems should probably think again.

While the Keane Report throws out some lifelines to the nearly 100,000 people who already cannot pay their full mortgages, it is not a panacea for the delivery from debt that many might have hoped it would be.

The authors clearly state that anyone who is making their repayment, no matter how difficult or how large their negative equity, is just going to have to keep doing so.  The idea – going around for some weeks – that somehow the government would come up with a clever scheme to allow people to pay a mortgage commensurate with today’s market price of their home, or even 110% of the market price, was never a runner:  the Irish banks may be just about properly capitalised now, but billions in interest repayments alone for the cost of the €60 billion plus bailout means that there isn’t really any spare money around to give anyone debt forgiveness if they still have to capacity to make their monthly payments.

Instead, these proposals will offer a chance for very particular groups of indebted mortgage holders a few options:

 -       Those who are unlikely to ever be in a position to clear their debts or pay off their homeloans and whose property qualifies, might be offered a tenancy in exchange for the voluntary giving up of their deeds to their lender who will offload the property, in the form of a lease to housing association or the house might be sold to a local authority for the market rate with the lender possibly writing off the balance on a case by case basis or, more likely the shortfall being dealt with as part of new insolvency proceedings.

         People who are in negative equity and fulfil income and security of employment conditions might qualify for a negative equity loan if they trade downwards or they may be able to reach an agreement with their lender to park or ‘warehouse’ a portion of the loan for a few years that would need to be addressed again if their personal circumstances improved or if the market does.

The pilot scheme is welcome – we have to start somewhere in at least allowing some flexibility for people who need to move on (say to take a job somewhere else) but cannot because of negative equity and no market per se.

But as several commentators have noted in that past week, the main recommendations of this report, which will allow for the hopelessly indebted to shift to a tenancy arrangement can’t work (and avoid the real risk of moral hazard) if the insolvency and bankruptcy reforms are not in place.

The legislation is expected by the spring of 2012 as part of our fiscal bail out conditions with the EU/ECB and IMF. In the meantime, the government must also decide whether to set up an entirely new mortgage debt management agency, which it has been proposed will use private consultants to possibly both advise and judge whether applicants qualify for the terms and conditions for these new forbearance measures or whether MABS, the existing non-government agency should continue in its existing representative role, or be expanded to become the new agency.

Since considerably more money – it is reckoned about €30 million will be needed – it is also essential that costs are not duplicated, and more importantly that any new agency not be hijacked by ex-mortgage brokers, out of work solicitors and estate agents (as many critics of NAMA suggest has happened with it) whose main interest will be the size of the fees they can command from the banks/taxpayer in the case of the Irish lenders, who are expected to be foot the cost of the debt management process.

If and when these recommendations are adopted, the insolvency reforms are completed and the debt management process is put in place, some people will hopefully be relieved of both unpayable debt and huge stress.

In the meantime – and Brendan Burgess of the consumer website askaboutmoney.com thinks this could take up to two years – anyone experiencing mortgage debt arrears should contact MABS and their lender and seek the protection of the revised Code of Conduct. 

As the recent report that MABS commissioned into the debt problems their own clients have experienced found, the lenders are now engaging in a much more positive way as a result of the introduction of the Code and the Financial Regulator is also introduction codes of conduct for non-mortgage debt like credit cards and personal loans which should end the worst excesses of those lenders (like endless calls to people’s homes or workplaces) as they try to recover their money.

 

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SOME MONEYBAG TREASURES TO SHARE

 

Every week my email inbox fills with press releases and statements and most of them are not of huge interest to me or you.

 

Then occasionally, a little flurry of useful or unusual notices arrive that I can turn into what I hope will be an interesting column that alerts you to something that could make a difference in how you spend your money…or better still, how you can save some money.

 

Last week was one such week:

 

Swings & roundabouts

The Danish owned National Irish Bank has just announced a new fixed term deposit account with an interest rate of 3.20%.  NIB, like the Dutch on-line bank RaboDirect and UlsterBank have been noted for not offering the highest interest rates to savers since the collapse of the Irish banks – for that very reason.  The inordinately high demand and fixed rate interest that from the Irish state owned banks is a reflection of the insolvency and re-capitalisation and merging of these banks in the last three years and their fear of withdrawals if they didn’t offer such generous, but not sustainable (without ECB backstopping) rates.

 

NIB has adjusted other interest rates as well – upward on some mortgage products – as part of the savings account changes, but savers are being rewarded, and as the ECB comes under more pressure to cut their base rate, fixing your lump sum at a decent rate in a solvent bank, regulated outside the eurozone, is no small achievement.

 

NIB savers who want to explore other non-euro deposit options – should the worse happen and Ireland leaves the euro – should speak to the manager in their branch.

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Parents offered free life cover

 

The country is awash with special offers these days and Irish Life has joined in:  they are giving away €10,000 worth of free life assurance to up to 20,000 parent of young families on condition they are under age 55, have no existing medical conditions or nights in hospital in the past year except to have a baby. Your children must be under age 13.

 

There’s no catch that I can see to secure the 12 months worth or cover, though no doubt Irish Life will be in touch next October in the hope that you’ll be happy to sign up for much more cover for many more years. (Keep in mind that term cover is very competitive amongst all the providers.)

 

Since straightforward term life insurance is something every parent should have – and should be one of the last things you give up entirely if you’re having financial difficulties -  and this campaign is a good way to highlight how important such cover is.  The take-up is on a first come, first serve basis so contact www.irishlife.ie or your broker asap

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Sense of money

Personal finance colleague Sinead Ryan, officially launched her terrific new book for young people, ‘Cents & Sensibility - A Financial Guide for Young Adults’, that takes them through the labyrinth of money and financial issues they need to know in order to survive (better than their parents may have ) in the real world of money and credit. Available from all good bookshops or from her website www.centsense.ie

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Smartcard spenders

Credit cards can be lethal in the wrong spender’s hands.  The interest alone can crucify even the most diligent bill payer if they suddenly find themselves unable to keep making their minimum repayments.

Phone company O2 last week announced they’ve added a Money Smartphone app for people to check the balances on their popular Money card, which they launched last February.

Prepaid money cards like this one are loaded with cash in advance but only let you spend what is on the card and therefore budget more easily. The Money card can be used for on-line or shop purchases; you can also transfer money to card holder friends and family even when they’re abroad. You download the app and can buy the cards in O2 shops or online: http://www.o2.ie/o2money

Meanwhile,  third level students are being offered an online loyalty scheme with Bus Éireann. The loyalty béClub member will enjoy deals and discounts on food, clothing, accommodation, games, days out and travel or use accumulated points to get free bus travel.   Check out www.buseireann.ie.

 

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Irish TV online…

Do your teens – who have laptop access - watch conventional television?  No, mine doesn’t either. He watches TV on his computer.

 

Anybody with an internet connection and either a computer, smartphone or tablet can now enjoy access to free Irish TV services without the need for a set-top box, satellite dish, cable, or even a TV set. Eleven free channels are available including RTÉ One and Two, TV3, TG4 and 3e as well as, RTÉ One + 1, RTÉ News Now, RTÉ jr, France 24, Russia Today and Dáil Éireann. Aertv.ie also has an integrated Twitter and Facebook facility, so you can share your favourite live events and TV shows as they air.
 

Meanwhile, Our increasing access to on-line TV viewing is, of course, one of the reasons why the proposed new ‘household’ tax is expected to integrate the current RTE television license fee.

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Four ways to wealth…

I subscribe to a number of very good financial and investment newsletters. One of my favourite’s is Steve Sjuggerud’s Daily Wealth. It’s aimed at traders, but includes some of the best investing advice you’ll find anywhere.

 

Last week, this article arrived: http://www.dailywealth.com/1856/How-to-Become-Financially-Independent-in-Seven-Years-or-Less by guest author Mark Ford. He gives four succinct pieces of advice to the middle-aged on how to become financially independent in seven years:

-       “Accept that you are solely and completely responsible for your current financial situation

-       “Set realistic expectations (15%-20% annual performance growth is not necessarily realistic).

-       “Thoroughly understand the difference between spending, saving and investing.

-       “Know that your net investible income (the amount of cash you have after spending and saving) is the single most important factor in determining how quickly you will become wealthy.”

 

There’s no easy way to get wealthy. You need to earn more, spend less time doing unproductive things like watching TV and instead spend those hours building your wealth.

 

Simple? Hmm…

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You must ensure against forgetting an insurance claim

Have you ever forgotten to mention a minor insurance claim that you made, say, five years ago, when applying for a house or car policy with a new provider?

That simple slip of the mind could turn into a financial disaster, I was told last week.

According to a general insurance broker I know, home and motor insurers are now taking a zero tolerance approach to claims assessment.  If they find out that you failed to disclose any claim in the past five years, they are likely to reject the current claim and nullify the contract. “You’ll be lucky to get an affordable policy from any other insurer, but more importantly, you could have a huge damages or repair bill to pay yourself.”

 For example, you have a smart phone, worth, say €400, that is stolen soon after you renew your house insurance policy. You make a claim and after the inevitable excess is deducted, you get a cheque from the insurer for, €250.

 You keep renewing the annual contract, but at the end of year three you decide to move your business to another company. Your spouse fills in the new proposal form this time and forgets to mention the claim for your stolen phone.

For two years you happily stay with the new insurer, but that winter, pipes burst in the attic and cause €30,000 worth of damage to the house. To your horror your claim is rejected because the insurance company has checked with InsureLink, the claims data service for the industry that lists all insurance claims and they discover you didn’t disclose the €250 you got for your stolen phone.

 This draconian response, the broker told me, is because of their huge weather claim losses of recent years but also because during a recession, the number and value of claims go up.

 “Non-disclosure could be more of a disaster than the claim event” he warns.

 

Count the costs

This is a question that has certainly made the rounds: How far should the government go to support people with serious mortgage arrears?

 We may get the answer shortly if, as expected this month, the government announces its response to the final report from accountant Declan Keane and his expert group.

 Top of the list of the recommendations is expected to be broad personal and corporate bankruptcy reform, including non-judicial version for people with mortgage arrears and other personal debts. The report will also suggest that bankruptcy discharge is also be reduced from as much as 20 years at present, to just three.

It is also expected to recommend that the banks be forced to write off mortgage debt in some circumstances; that homeowners be given a chance to become tenants of their property as ownership reverts to the lender; and that potentially thousands of repossessed homes be leased to local authorities and housing associations.

The report commissioned by the Waterford MABS office and the Citizens Information Board, which was presented to the the Minister for Social Protection Joan Burton on September 29 came up with similar recommendations. 

It summarised the problem very well and the various responses, including the crucial role that MABS has played. By interviewing the people in arrears and including their stories, it also put a human face on the distress and anxiety that MABS clients experience.

Where the Keane report will fall down, is if, like the MABS one, it doesn’t properly cost all its recommendations.

“Doing nothing will be expensive,”  suggest the UCD academics Michelle Norris and Simon Brooke who authored the MABS report, especially if homes are repossessed and the state has directly house, or subsidise the rents of the ex-mortgage holders.

I think whatever the state decides to do, it’s going to be expensive. It always is.

Overhauling archaic bankruptcy laws isn’t going to come cheap once the billing hours or the bureaucrats, lawyers and accountants are totted up, but extending mortgage subsidies from two to seven years, forcing banks to forgo interest payments for that long and shifting loss making mortgages and properties from the banks to already cash strapped local authorities or housing agencies smacks of just more deckchairs being arranged on a sinking ship.

Bankruptcy reform has to be prioritised, but the authorities also have to work out the cost of so many losing homes to the banks and to the taxpayer, rather than automatically assuming that the subsidies must continue to pay, regardless of the effect on market prices.

 It sounds logical to me to work out the immediate and longer term costs first, but this is country where we never miss an opportunity to break the ‘law of unintended consequences.’

 

 

Pension Problems

 I’m not a fan of wild rollercoaster rides, which is what the average Irish managed pension fund has become since 2008.

The latest performance statistics show how far returns have plunged this year to date – over 9% - but some advisors say now is the time to steel your nerve and opt to get back into stocks and shares which haven’t been so cheap for three years.

That’s easier said than done.

Timing the markets may be a mugs game, but the importance of matching your age, years to retirement and income expectations hasn’t changed.

Find a good advisor who understands this. 

Time is running out if you’re still planning to make a pension contribution by the pay and file deadlines of October 31 and November 16 for ROS, the Revenue Online Service, users.

 

 

 

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ARE FALLING STOCK MARKETS PROVIDING BUYING OPPORTUNITIES?

 

Whenever I mention the expression ‘world dominator shares’ in a column it generates some extra e-mails and letters from readers who already directly own shares, or would like to buy some, but are unsure what to buy. (They may not know it, but chances are their company pension funds include such shares already.)

 

‘World dominator’ is a just another way to describe some of the best, highest quality public companies in the world. They may be more familiar with the expression, “blue chip” shares, which refers to the highest value blue chips used by poker players.

 

All investing involves risk, but buying global dominator shares for the right reason isn’t a poker game: these are companies that are considered to be the strongest in their sector or industry, dominated all the others because the tick all the right boxes in terms of the products they make, the percentage of market share they have, size of profits, capital, money in the bank, ability to control costs, develop new markets, depth of management, etc. 

 

Above all, nearly every share you see listed as a world dominator share (WDS) is (nearly) a household name, including the following: Abbot Laboratories, Apple, Coca Cola, Colgate Palmolive, Exxon, GlaxoSmithKline, Intel, Johnson & Johnson, Kraft, Mattel, McDonalds, Microsoft, Unilever, Walmart.

 

Key in ‘world dominator shares’ into Google – another WDS, by the way – and many lists come up. Today, the caveat against all of them is that since the stock markets have fallen again, they are all cheaper than they have been since the first big collapse of this recession in late 2008 and nearly all of them are both paying higher dividends (because of their lower share and price/earnings ratio) and because most of them have always rewarded their faithful shareholders with dividend increases (as profits remain steady or increase.)

 

There are other reasons why people buy world dominator shares – in good and bad times. First, they want to diversify their savings and wealth.  We’ve plenty of negative experience in this country of putting all our eggs in one basket:  property, bank shares come to mind immediately.

 

Savers are beginning to realise that paper money carries its own risk – as anyone who held Swiss franc discovered three weeks ago when its central bank devalued the currency by 9% overnight and pegged it to the desperately compromised euro to ‘support’ exporters. (The Swiss franc had been considered a ‘safehaven’ currency because 17% of the paper money supply had been backed by actual gold reserves.)

 

The current, nine year old euro itself could disappear and be replaced some day, but while the share value of world dominators can fall (and have), their dividends are still being paid and the chance that they will disappear is far, far less than some debt-engorged paper currency.

 

There is increasingly interest in world dominator shares because their price and p/e ratio is more attractive right now. (When p/e is under 10, investors usually consider the share to be within ‘fair’ value and you can expect to get the money you paid back in at 10 years from the annual dividend payout.)

 

It’s certainly worth looking at what’s happened to say, Intel’s share price and dividend (a great Irish company too): As I write, it’s price is $22.80, its p/e is 10.19 and annual dividend is 3.80%. In mid-August the share price hit a low of about $19.20. In December 2007 this great share was nearly $28, yet Intel keeps raising its dividend, expanding its business.

 

The best commentators I read - Porter Stansberry and his team at S&A Digest; the Agora Financial stable of authors; Brian Durrant at The Fleet Street Letter; James Ferguson and others at MoneyWeek magazine, all acknowledge that the stock market is a scary place right now and is hugely volatile. It is not for the fainthearted or for people who cannot bear price falls. Some suggest the market is heading steadily downwards to average p/e's of 5.

 

So before you consider buying any individual shares or funds you need to be informed, to understand about risk and reward and to appreciate that defensive investing is a skill worth learning.

 

Yet I still kick myself for not taking €1,000 of the €2,000 that was left to my son by his late grandmother six years ago to buy Apple shares. 

 

Like the rest of our family, the Child (even at 12) is also a big fan of Apple products (especially iTunes). We have used only Apple computers since 1999.I can still remember him asking at the dinner table one night if it made sense for him “use some of Granny’s money to buy Apple shares. Had I taken him seriously, that €1,000 would be worth over €4,000 as the share price rose from about $75 in 2005 to nearly $390 as I write (having been as high as $422, and as low as $277 in the last 12 months alone.)

 

Knowing about these kinds of high value shares is certainly in every pension fund holder’s interest. Ask your company trustee or your own broker/advisor if your pension money is being invested in some. And for people who prefer to spread their risk further, world dominator shares are available as investment funds or ETFs.  Check out the popular Irish life and pensions companies for their versions of these funds and study their costs, charges and past performance. form.

 

You can also learn about such shares by taking an investment course: I recommend Rory Gillen’s www.investRcentre.com 

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Private properties put at disadvantage if Nama plan proceeds

 

“Stop queering the market” said Askaboutmoney.com founder and consumer advocate Brendan Burgess last week to the property price setting mechanism that Nama is proposing:

 

Nama is reported to have up to 8000 residential properties on its books and

it wants to shift them, Burgess pointed out.  Offering a mortgage that

eliminates the risk of negative equity – it adjusts to the market price of

the day – sounds like a winner, but it also puts every privately listed

house at a complete disadvantage.

 

“If there was a Nama house worth €20000 for sale and your house next door on

sale for €200,000, why would anyone buy your house?” Burgess asked.

 

The simple truth – and it is unpalatable for politicians, central bankers

and everyone else who lives in denial about the catastrophic debt crisis

that exists in this country and so many other western, ‘developed’ economies

is that a “Correction is usually equal and opposite to the deception that

preceded it.” 

 

Irish house prices are continuing to fall for the very good reason that we

are entering the end-game of our own debt crisis and Europe’s. The

correction is happening in the price of all assets – incomes, stock market

shares, sovereign debt of defaulting countries and yes, property – because

the law of physics cannot be wished away: what goes up, comes down. No one

can live beyond their means forever, and that includes countries.

 

Back in early 2006, in this column, I wrote that the property bubble was

dangerously close to popping and that if I had my way I would sell my house.

 

By that summer, the price of the exact same terrace houses on my Dublin city

street sold for €1,000,000 or 1,000% up on its price in 1995.

 

Today, asking prices are now in the mid-€400,000 range and there are still

no buyers.  When they fall to between €250,000-€300,000 I reckon we will

have hit the bottom. Why?  Because, as I wrote back in early 2006, rental

income has remained stable at between €1,600-€1,800 a month and that

translates into asking prices of €249,600 - €280,800 or rental yields of

just over 7%.  Throw in Victorian charm, the close proximity to Luas stops

and the largest hospital in the city, and €300,000 might be reasonable

asking price some day.

 

Nama and the government are not doing anyone any favours by ‘queering the

market’ or by believing that they can somehow stop a global correction with

a life of its own.

 

They should be spending their energies preparing contingency plans to ensure

that Ireland has a head start in rebuilding the economy and society when the

depression finally ends.

 

Everything else is just noise.

 

 

Pension justice

 

Two directors of a construction company have been sent to jail for not

passing on their worker’s contributions to the Construction Workers Pension

Scheme.

 

It’s hard to know why this case was any different from all the others – the

pension deductions in question amounted to just €11,781.51 between November

2008 and December 2009, far less than past cases involving some of the

biggest players in the industry, and the loss of benefits to the workers

were presumably no less or more serious.

 

Nevertheless, I suppose it’s better late than never that the state should

start pursuing employers who steal their workers’ deferred earnings, though

this case won’t be much consolation to the hundreds of other construction

workers who have lost their money for good because the law has permitted

their phoenix-like employers, as the Pensions Ombudsman Paul Kenny describes

them, from going bust, then restarting their businesses “under a new guise”

after walking away “leaving a trail of debts”.

 

No reason was given in the Pensions Board press release for why the owners

of the small development company concerned failed to remit their worker’s

contributions to the pension scheme for that year.

 

This doesn’t justify theft, but I know that desperate people sometimes do

desperate things to keep their businesses going and pension fund

contributions, like VAT payments, might be a tempting source of money when

bank overdrafts and finance has dried up.

 

Too bad then that an ad hoc government advisory group on pensions has

recommended against allowing distressed mortgage-holders – and presumably

small business owners - to access their pension savings to reduce their

indebtedness, or use as a source of finance.

Cutting off access to a legitimate fund of pension savings could end up

driving legitimate employers out of business and their unfortunate workers

out of a job.

 

 

Buy on the dips

 

At $1,635 an ounce (as I write) the price of gold is at an eight week low,

down from a brief high of $1,900 back in August, but still $300 an ounce

higher than it was a year ago.

 

Will it reach the $2,000 mark so many goldbugs predicted it would this year,

or will it give up all its price growth, as stocks and shares have in 2011?

 

No one knows for sure, but I stand by my long held view that gold is

reverting to its historic position as a form of sound money in a world of

debased fiat currency. Its 10 year bull run looks set to continue because

the great debt crisis, which accelerated over the decade, is still not over.

 

Perhaps the real question should be, is the price of gold being manipulated?

I’ve seen the Federal Reserve, gold speculators and derivative traders and

even the Chicago Mercantile Exchange, which set higher margin calls for gold

traders last week, being blamed the sharp fall in the gold price.

 

That may be, but so long as central bankers keep printing trillions of

dollars and euro thinking it will contain the consequences of mass

insolvency, gold will shine.

 

Buy on the dips.

 

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