New car sales figures and other stats

New figures were released today, and they are not pretty. I’ve tabulated all new car sales on file from the CSO, that is since 1965: (The data was gleaned from here)

newcarsales

Here is the large version of that image.

New car sales are now hovering around what they were at least 15 years ago. I’ve put the data into a public spreadsheet.

Another illustrative chart is house completions since 1975. We have returned to levels last seen in 1992. (The data was gleaned from here)

housecomple

Full size pic here.

Another very illustrative chart, especially in the context of NAMA is this graph. It shows average house prices since 1975.

houseprices

Where do you reckon prices are going naturally? If you draw a line from 1975 along the average until the bubble started around 1996/1997 and keep going… prices would be headed back to around 4 times average salary, circa €120,000. (The data was taken from here)

Full size chart here.

$1 trillion for the IMF

A nice round figure. But where will the money come from? Gold perhaps?

Discussion at a summit of G20 world leaders about selling International Monetary Fund gold to raise extra funds refers to sales over and above existing plans, a minister said on Thursday.

“What’s referred to here is in addition to what has been previously,” Treasury minister Stephen Timms told reporters at the summit.

A G20 source said earlier there was a reference in the summit communique to IMF gold sales but “the language had not been firmed up” and it was unclear whether it would be separate from the 400 tonnes of gold the IMF committed to sell last year as part of a broader restructuring of its income.

So it has already been agreed that 400 tonnes of gold will be sold, but they might need to sell more. That’s of the nearly 3000 tonnes the IMF holds. If more gold needs to be sold to fund fiscal measures, the price of gold, currently hovering at about $905 an ounce, could fall.

It is an interesting dilemma for people who want to move to gold as a hedge against expected inflation coming next year, on foot of all the money being printed for stimulus packages worldwide.

Manning the barricades

Courtesy of the Economist Intelligence Unit, an attempt to gauge the instability of countries around the world as the economic recession deepens.

The report is available in PDF.

Ireland is ranked joint 132nd with the UK on the social unrest index (being the 132nd most unstable), between Singapore and Tunisia. Of course that situation may change. Norway is rated the most table at 165, while Zimbabwe is at Number 1.

It warns of coming inflation problems and problems with the dollar.

First, the high demand for liquidity that prompted the cash injections is not the result of higher demand for goods and services. Banks will be using the money to shore up their own balance sheets rather than reinjecting it into the real economy. And quantitative easing is designed not to send the money supply into orbit but to stop it from crashing—in other words, to ward off deflation.

Second, policymakers are still going to be on their guard against renewed inflationary pressures (at least in developed economies). Hyperinflation occurs when deliberate attempts to stimulate inflation get out of hand. In Weimar Germany, the major concern for the government and the big industrial combines was unemployment, which they feared could lead to a Communist takeover. A cheaper currency was seen as useful to boost exports and keep people in work.

The costs of excessive inflation are now more clearly understood. Indeed, there is a widespread feeling that loose monetary policy earlier this decade was an important cause of the financial bubble that has now burst.

The greater risk, rather than a renewed surge in inflation as a result of the current massive monetary stimulus, is that the first signs of an upturn prompt an unduly rapid tightening of monetary policy that chokes off the nascent recovery.

I bumped into a friend of the US Treasury Secretary Tim Geithner in Washington in January, and his opinion was this: The US will err on the side of higher inflation because it is easier to control with tools such as interest rate increases. Deflation is almost impossible to control.

Silver and gold rose rapidly this week too and this looks set to continue.

Anglo Irish Bank nationalised

The Government has finally seen sense and nationalised Anglo Irish Bank. We will have to see how good a job they do of it.

The Government has today decided, having consulted with the Board of Anglo Irish Bank Corporation plc (“Anglo”), to take steps that will enable the Bank to be taken into public ownership.

This decision has been taken after consultation with the Central Bank and the Financial Regulator which has confirmed that Anglo Irish Bank remains solvent.

Anglo Irish Bank is a major financial institution whose viability is of systemic importance to Ireland. Anglo has a balance sheet of some €100bn with a substantial deposit base which the State is determined to safeguard. The Government has made clear that it will ensure its continued viability. Anglo Irish Bank will continue to trade normally as a going concern, with appropriate Government support as necessary. All Anglo employees remain employed by the company.

The funding position of the bank has weakened and unacceptable practices that took place within it have caused serious reputational damage to the bank at a time when overall market sentiment towards it was negative. Accordingly the Government believes that the recapitalisation is not now the appropriate and effective means to secure its continued viability. Therefore the Government must move to the final and decisive step of public ownership.

The Government believes that the prospects for the institution are solidly underpinned in the new structure, with the benefit of state ownership and a renewed management and Board. In the current circumstances the State is the only available potential owner.

The recently appointed Chairman of the Board, Mr. Donal O’Connor, will stay on as Chairman. Anglo will be managed on an arms length basis as a commercial entity. A new Board will be appointed having regard to the need for appropriate continuity.

Shareholder rights will be respected in this process. The relevant legislation outlines a process for determining compensation as appropriate.

All customers of Anglo Irish Bank can be assured that the full amount of their deposits and savings are further safeguarded by this action. They can also be assured that they can and should continue transacting with Anglo as normal and there is no need for customers to take any steps as a result of this announcement. Anglo Irish Bank will communicate directly with all customers in the coming days.

Information will be available on the websites of Anglo Irish Bank, the Central Bank, the Financial Regulator, and the Department of Finance. Customers with particular queries may also phone Anglo Irish Bank or the Financial Regulator.

Creditors (including bondholders) of Anglo Irish Bank can be assured that it will continue to service its obligations and will repay its debts at maturity.

The Government has prepared legislation to put this decision into effect. This will be presented to the Houses of the Oireachtas on Tuesday.

Tomorrow before the markets open, it is expected that the Irish Stock Exchange and the UK Listing Authority will announce that Anglo shares will be suspended from listing on the Stock Exchanges.

The Minister said “I would again stress that this Government decision safeguards the interest of the depositors of Anglo, and the stability of the economy, given the significance of Anglo in this regard, as already recognised by the European Commission. The bank will continue to operate as normal and depositors and creditors should continue to transact as normal.”

Customers of all financial institutions can have confidence that the wider financial system in Ireland remains well capitalised and liquid and that the Irish authorities will be proactive to ensure that their interests are protected and their deposits and debts are secure.

The Government will ensure the continued viability of all systemic financial institutions.

The Government remains fully committed to the recapitalisation proposal already announced in relation to AIB and Bank of Ireland. These plans include injection of core tier 1 capital in the form of preference shares and underwriting of further core tier 1 capital issuance.

Buying poppies from Afghanis

Interesting to see that the idea is not being entirely discounted. I posted on it a few months back.

Vague said analysts had suggested that the United States buy Afghanistan’s illicit drug crops as a way of easing tensions. He says that’s no crazier than the way the United States paid tens of thousands of insurgents – “our former Sunni antagonists” – to stop shootings in Iraq.

“This all seems absurd in the context of our current economic crisis,” Vague added. He hopes spring reinforcements will be the last troops we’ll need to send.

Lenihan: We didn't notice the downturn

So said that Sunday Independent yesterday. It went on:

Mr Lenihan effectively admitted that the Government only became aware of the “decline” two months after he had been appointed Finance Minister. He said: “When we first saw the sign of decline in July …”

While I think the headline does not entirely warrant the content, it does say something about the Government’s inability to see what was coming down the line. Indeed their actions thus far point to a make-it-up-as-you-go-along strategy. But in fairness, they were not the only ones.

July was the month that the ESRI declared we were facing a recssion, which perhaps crystalised the minds of some politicians and commentators. The ESRI estimates looked low-ball to me at the time – and I said as much. I added:

As for the recent rise in unemployment, things are going to get much worse I fear. Unemployment hit 5.7% according to CSO figures released last week. That means 217,400 people out of work.

Now double it. 10% in 2009, or half a million people out of work. How bad would that be for the economy? Fundamentals are sound my ass.

That was July 6. Glass half full left a comment completely disagreeing with my forecast (which I based on what I was hearing anecdotally, and on what I would call a common sense view of the construction sector, the unwinding property bubble, banks that had overextended themselves, and the estimated 6 months that is given for the collapse of Bear Stearns to filter through the international monetary system). Some of the commentators over on Property Pin helped to crystalise my own views. Glass half full said:

I fear the litany of media reports about recession may have got to you. I don’t agree with your 10% unemployment forecast for next year. It is my view, and it’s only a hunch of course, that unemployment could reach 6% next year but no higher than that. As for the cycle we are in now, well yes troughs happen every so often and we are entering one now.

Yes, shoot the messenger. Could reach 6%? We’ve passed that already. However only this weekend, 6 months later, does Mr Lenihan come round to the more pessimistic view:

Unemployment is likely to rise to 10 per cent of the workforce next year, Brian Lenihan, the Minister for Finance, has warned, meaning it will have doubled in the space of a year.

I am no economic genius. Nor am I a fortune teller. But it was clear a very long time ago that the economy, and specifically employment, were in very serious trouble. Just the number of workers involved in the construction sector was reason enough to predict 10% unemployment in 2009. And Lenihan, it appears, struggled to see that coming.

Update:
South reminded my of the Economist’s own forecasts about the Irish economy, published back in November 2007.

* The fiscal position is deteriorating, and this will place constraints on government expenditure. A deficit is expected by 2009.
* GDP growth is expected to slow sharply in 2008, mainly because of the ongoing slowdown in the previously overheated property sector. However, there is a real risk of recession.
* Unemployment is expected to rise over the outlook period, as the construction sector shrinks,

€10 billion Irish bank recapitalisation

Why does it feel like Ireland will be seeking IMF assistance within 12 months? This strikes me as a very cack-handed response…

The Government have just put a statement up on the Department of Finance website. Serious stuff.

The Government has today decided on an approach to the recapitalisation of credit institutions. The Government’s objective is to ensure the long-term sustainability of the banking sector in Ireland and to underpin its contribution through the availability of credit to individuals and businesses in the real economy. This initiative will help to foster and encourage the flow of funds to the economy, and limit the impact of financial market difficulties on businesses and individuals.

The Government noted that recapitalisation is recognised by the European Commission as one of the key measures that may be used by Member States to preserve stability and proper functioning of financial markets, and that it believes that in current market conditions even fundamentally sound banks may require additional capital to respond to widespread market perception that higher capital ratios are appropriate for the sector internationally.

The Government decision followed the Minister for Finance’s statement of 28 November 2008 which confirmed the State’s willingness to supplement and encourage private investment in the recapitalisation of credit institutions in Ireland with State participation.

In that context, the Government has decided either through the National Pensions Reserve Fund or otherwise and subject to terms and conditions, to support, alongside existing shareholders and private investors, a recapitalisation programme for credit institutions in Ireland of up to €10 billion.

The State’s investment may take the form of preference shares and/or ordinary shares and the State may where appropriate participate on an underwriting basis. In principle existing shareholders will be expected to have the right to subscribe for new capital on the same terms as the Government.

A key principle in the operation of such a fund will be to secure the interests of the taxpayers through an appropriate return on, and appropriate terms for, the investment.

The next step in this process will be for the Minister for Finance to initiate detailed engagement with the credit institutions themselves in respect of specific proposals.

In order to safeguard fully the interests of the taxpayer, State investment will be assessed on a case-by-case basis in an objective and non-discriminatory manner, having regard to the systemic importance of the institution, the importance of maintaining the stability of the financial system in the State, and the most effective and economical use of resources available to the State and each credit institution’s particular requirement for capital. Any State investment will be undertaken in line with best practice in the EU and elsewhere and consistent with EU State aid rules and in particular the recent European Commission communication on recapitalisation.

Recapitalised institutions may be required to comply with such requirements as to transparency and commercial conduct as the Minister sees fit.

The National Pensions Reserve Fund Act, 2000 will be amended, as necessary.

Discussions with the relevant credit institutions are ongoing, and the institutions continue to progress proposals for private investment. Institutions are being asked to submit their proposals by early January.

The Government guarantee Scheme remains in place.

You really have to wonder what on earth the people in the Department of Finance are thinking. This strikes me as extremely poorly thought out, and smacks of interference from the banks themselves. Brian Lenihan should resign. (I call for these things an awful lot, don’t I?) And does anyone remember the only recent announcements that Irish banks were well capitalised? Or that PwC report that said they were well capitalised?

RTE link.