Irish Property Market chat II - *read mod note post #1 before posting*

That’s rubbish and there is no evidence to back up your claim.

All the banks implemented new regulations that made the banks safer and more robust.

It's bigger than the workers in law and accounting firms in Dublin and the other service providers involved in the area. A large asset manager runs a fund in Ireland into which many different types of investors invest including European pension funds and the Irish fund invests in a variety of investments including many "bonds" issued by Irish SPVs, by way of example. The bond is issued by an SPV and the performance and coupon is based on the performance of something underlying from which the investor is directly removed. The bond is given a listing and a promise to be repaid; for all intents and purposes it is a legitimate product with good liquidity. The investor receives a coupon from the bond and the proceeds from the issuing of the bond are then funnelled through to the underlying referenced thing whatever that may be. The key however and the gap in the regulator's oversight is that it could reference anything, there is no way of knowing what exactly it is from just looking at the bond, but one thing that is likely to be the case is that these bonds are connected to corporate debt which means that the corporate entity to which the debt relates can refinance its debt obligations quite easily in the current climate and trickle along, regardless of its fundamentals. From the perspective of the corporate entity, it is not really known who is buying its debt as there is a chain going all the way back up to the investors in the Irish fund or elsewhere that have contributed to its ability to refinance its debt. So on the investing and receiving sides there is little regulator oversight on how deep the rabbit hole goes.

A whole load of zombie corporations are hooked on this cheap debt restructuring facilitated via the shadow banking industry which is fuelled by yield hungry investors. Liquidity is just an illusion in this world. Raising interests rates could result in the yield hungry investors pulling back to traditional bonds which could collapse the corporates hooked on cheap debt. However, more importantly there could be a systemic risk posed by what is happening in the shadow banking world and how it might affect the Irish economy is of course hard to predict, but the regulator seems to finally be starting to take notice.

What might happen to the Irish economy; Perhaps the corporates in Ireland who employee a lot of people reduce headcount or go under as it turns out their debt was unsustainable. Maybe interest rates rise to cool what is happening in the shadow banking industry which then impacts house prices. Irish pension funds could be exposed as they too sought higher yielding investments. Alternatively, the eurozone struggles as its corporates struggle and interest rates stay low which fuels further hosue price increases. All part of the everything bubble.

Are you talking about CLO’s and the risks that are attached to them?

The reason I ask is because it is not the job of the regulator to say that the underlying assets are liquid and safe. That is the job for the rating agencies.

The only concern of regulators is if there was systematic risk. If a fund or pension fund makes a bad investment it’s not the job of the regulator to ensure that what they are buying is quality.

The use of CLO’s is normally where a corporate couldn’t get a loan from a bank or were not strong enough to issue its own debt which are much cheaper sources of capital and are not used much by irish trading companies for this reason.

They are called high yield bonds for a reason because they need to pay higher rates to attract investors because of the higher risk of default. The yield on investment grade bonds is lower because of the lower risk and the demand (lower yield, higher Bond price)

Due to QE and low interest rate environment investors have been chasing yield and as a result have taken on more risk. This is well documented.

The fact that the a lot of this activity is undertaken in the IFSC does not mean that it has a direct link with Irish Non Financial Corporations. The majority of investors are overseas and the majority of issuer's are UK & US even if there was a big crash it is unlikely to directly impact the real Irish economy with the exception of people employed in asset management and funds furthermore the main trigger for a crash in this sector would be the downgrading of multiple companies at the same time who have issued the bonds. This was a risk back in 2020 and is becoming less of a risk now as the economy opens up. The biggest risk I see in relation to this is for a badly run fund not to manage the risk of rising rates. A well run fund should be able to make money in a rising rates environment and the ECB, the FED and BOE have all been very vocal on forward guidance so there should be no surprises.

I understand you concerns about transparency and funds, fund of funds etc don't help. But at the end of the day the BOND is a traded security and the onus is on the investor to know what he is getting into. It's no different to someone buying a shares.... If they have done there homework and understand the market and risks they should make money... If they are just jumping in and buying shares because everyone else is and are believing twitter or Reddit as people pump the shares then they will loose big time.

I can see a link with financial stability and house prices.... And the market has taken on more risk but at the end of the day these are traded securities that have their risks assessed and monitored by the rating agencies. If a investor gets burned because they have been sold a lemon then that is their fault but the chances of all of these Bonds defaulting at the same time is very remote and is monitored by the ERSB. (have a look at the most recent ERSB dashboard). Finally if there was a crash the Irish government would not need to bail out any of these funds so no increases in tax and cut's in expenditure like in '08. As I have said before if there was a crash the most likely thing to happen would be more QE which would push asset prices (including Irish Property) higher.

Ftb priced out of new homes

40% of new build mortgages were for self build

FTB getting older

Don't think they are priced out of new homes except maybe in Dublin or swanky parts of the main cities but they definitely can't compete with investment funds and social housing bodies buying up chunks if not all of new developments.

McWilliams is just like the rest of us he talks a good game but ultimately he is guessing he was predicting a bubble pre 2017 and was convinced it was going to burst in 2017 he got lucky with 2008 when he called it right but got it wrong with his prediction on prices post 2017. I would be careful listening to any of these lads you only have to look at his so called show where he has jazz singers and forms of entertainment like impersonators he was trying to go into mainstream as an entertainer and had moved miles away from being an economist.

yes, its important to realise, our whole financial sector has become highly predatory and parasitic, it no longer truly provides society with its needs, it no longer behaves as it was initially designed for, its truly just feeding itself now, creating money via credit creation, in order to push up the value of pre-existing assets. the financial sector was created to provide us with the finances to create what we need, it now no longer truly does this, you can clearly see that this is the case, with the severe lack of building and other financialised activities such as share buy backs etc etc, bailing the financial sectors out has ultimately failed. the measures implemented, as you mentioned, are in fact no guarantee that we are protected from future financial crisis, some in fact believe for example, that if bank bail ins are enacted in future crisis, that depositors will in fact be on the hook, i.e. some deposits maybe bailed into the system, in order to protect the banks, we ve no clue if this is the case, we ll only find out if and when this occurs.

there was a major push to reenact the glass steagall act post 08, but this was heavily lobbed against by the financial sector, you d have to wonder why! the protective measures implemented, clearly didnt go far enough, theres clearly all sorts of highly questionable activities still occurring within the sector

again, id pay far more attention to the opinion and experiences of commentators such as black over such matters, nothing has truly changed within the global financial sectors, including our own, and the fact our economy is now perfectly primed for another credit fueled building boom, so watch this space!

i agree that in the USA and Europe reform didn’t go far enough and they should have separated retail banks from investment banks but in the UK they did this with the ring fencing legislation (which is the equivalent of glass steal all act). If the USA and Europe did implement the equivalent it would have been a belt and braces approach to banking stability. But even without this the regulation that they have implemented has made the banks 1000 times more safer and as I said before if the exact same scenario as '08 played out the banks would not need to be bailed out by the governments.

I disagree with your point that depositors will be on the hook if a bank collapsed because every systematic bank is required under the new legislation to have a resolution plan in the event of a collapse to prove that retail depositors would not be impacted in the winding up of the bank. In order to ensure that this banks have sufficient funds to repay retail depositors they are required to issue bail in bonds that convert to equity in the event of the bank entering resolution thereby ensuring that there is enough cash to repay retail depositors. All this has been implemented sine '08 so to say that 'virtual noting' has been done is false.

I would also disagree with you on the fact that our economy is now perfectly primed for another credit fueled building boom because believe it or not the banks can't find enough customers that they are allowed lend to due to regulation implemented since '08. The banks are awash with liquidity and would love to lend as this excess liquidity is a real drag on their profits.

Most of the money creation that has taken part in the past 10 years has been off the back of QE and it has predominately stayed within the finance sector because their was no fiscal spending to accompany it. By creating the money and leaving it in the financial sector of course it is going to lead to asset inflation and not generate inflation in the wider economy because the cash never gets out there.

yes private debt has in fact been falling in ireland over the last few years, for various different reasons, but again, ireland is now a far more open economy than in the past, we are now far more vulnerable to external shocks, as stiglitz would say, 'markets dont exist in a vacuum', and the same goes for the irish economy.

yes money is also of course created in the public domain, and a significant amount of it has indeed been so over the last few years, qe etc, but again, this has just moved towards inflating existing asset markets, including the value existing properties, it has become far more profitable to do so, when the reality is, we actually need to create new assets with this newly created money, but thats not currently happening, in sufficient quantities, i.e. the whole fire sectors have become effectively defunct, no longer doing what they were originally designed for, the whole model of 'maximizing share holder value' is failing, in fact, i suspect its actually starting to collapse.

the only tool central banks truly have is rate adjustment, but this too has very limited abilities in fulfilling it objectives, i.e. controlling inflation etc, particularly when you have other major sectors such as the fire sectors playing critical roles in helping cause the inflation in the first place. the availability of credit plays a far bigger role in regards inflation, particularly in relation to assets such as property, as we experienced in the previous boom, and the fact, not a whole lot has truly changed in these sectors since the previous boom bust cycle, it wouldnt give you much confidence in the whole process, we simply have no clue whats going to happen next, but history doesnt show a pretty picture....

the pressure to get building now is immense, there will be incredible pressure placed upon the central bank and other entities in society to help do so, so....

again, we ve no real clue whats going to happen next, but if there was a major crash in asset markets, nobody knows it this will occur, including myself, you can be damn sure average mary and joe will be negatively impacted, some majorly so, as was the case in 08. there is a huge disconnect between asset markets and the world of the average punter, but history shows, including recent history, when they go bust, the average punter truly takes the hit!

And yet he still got it terribly wrong predicting a crash in 2017 like I say he is guessing just like the rest of us. His pre-2017 opinion if it had come true would mean we would be back at 2010 prices.

i cant remember him saying such a thing, hes well aware, nobody can accurately predict such a thing

...of course it doesnt, as its not trying to buy! but every man and his dog can see that wage inflation has completely decoupled from property price inflation, over the last couple of decades

Would those types of corrections not trigger a recession? I would have thought big companies would start letting staff go, consumers would get panicky and stop spending, pensions would be hit which would also impact spending etc etc?