Sunday, September 26, 2010

Polls Apart

What a difference a few days makes. On Thursday evening TV3 released the results of an opinion poll that it commissioned from Millward-Browne which showed Labour as the best supported party in the state. Then on Saturday evening the regular RedC poll in the Sunday Business Post was released and it showed that FG were back in the driving seat.

Fianna Fáil22242
Fine Gael30311
Sinn Féin4106

Both polls were carried out by phone early in the week and no major incidents had occurred during the polling period. Both polls also had a sample size of around 1000, giving a margin of error of ±3. So what can one read into these figures?

Obviously, the major discussion point is the 12% difference in recorded support for Labour. While I think it is fair to say that nobody actually believed 35% to be the actual figure, certainly a figure of 31% or 32% could have been believed. The last MRBI poll had Labour around there and the previous RedC had 27%. Sinking back to 23%, while still over twice support won in the last general election, will be seen as a bit of a disappointment. Similarly, Sinn Féin's figures seem a bit off. Based on previous polls I would have expected a result around 8%-10% and so again the TV3 figures seem to underestimate their support.

Otherwise the polls track each other fairly closely. FF is somewhere in the low to mid 20s, FG in the low to mid 30s and the Greens are struggling along at the bottom. Perhaps the explanation comes from a fight for left leaning voters with Labour and SF dipping into the same pool of around 35%-40% of the population. In the run up to an election, if the Gilmore for Taoiseach proposition looks like becoming a reality, SF could find itself squeezed as the left collectively jumps on the bandwagon to ensure this outcome. However, if Labour stall in the low 20s and will be the junior partner in an FG/L coalition then SF, and indeed PBP and Socialists, may do well as the vote of choice for angry working class voters. Its all down to momentum.

Tuesday, September 21, 2010

Bond blues

I don't really know a huge amount about the financial markets. I sometimes feel like the guy on the Financial Regulator ad who doesn't know what a tracker mortgage is. Well maybe I'm slightly further along the learning curve than he is but probably not by much.

I have been doing some research into bond yields over the last few days, trying to understand what is currently going on with regard to Irish Government bonds. Today, NTMA issued €1.5B in two sets of bonds - €500M of 4 year bonds at 4.767% and €1B of 8 year bonds at 6.023%. Both of these bonds have a coupon of 4% so plugging the figures into one of many online yield calculators I reckon that only €875M was paid into NTMA's bank account for the longer bond and about €485M for the shorter one.

So while it is correct to say NTMA shipped €1.5B in bonds, we the people only have €1.36B in cash and an annual interest bill of €60M to show for it as well as the requirement to pay back or roll over the €1.5B principal in the future. Of course the spin will be the over subscription to the issue, but you'd be mad not to grab a 6% return that is effectively guaranteed by the EU.

The other question of interest is who is actually buying these bonds. I strongly believe that a large portion of them are being purchased by Irish banks looking to bolster up their balance sheets. This source of this money is the bail out that the banks are getting from the Irish state and ECB at rates far lower than we are paying to borrow it back off them. Somehow it seems wrong that the public are being screwed repeatedly in this process. What is also galling is that part of this borrowing at 6% is being lent to Greece as part of their EU bailout at 5%. Again the Irish taxpayer is being taken for a ride.

Smarter economists are welcome to correct my maths and show me where I am getting this completely wrong.

Monday, September 20, 2010

The cost of money

Ireland is massively in debt - I think we can all agree on that. The state currently spends somewhere around 50% more than it brings in through taxation. That money is raised on the international bond markets by the National Treasury Management Agency (NTMA). Over the last few weeks the cost of Irish Govt bonds on the secondary market has risen substantially, with rates having risen to 6.459% at close of business today. However, that is not the rate that the state is currently paying for its bonds as those rates are fixed when each bond is issued.

You can see from the graph (from Bloomberg), that in the last month Irish bonds have risen to record highs. The previous spike in May coincided with the Greek financial meltdown and the knock-on effects for the rest of the Euro zone. This month's moves are entirely of our own making.

The big test comes tomorrow (21st September) when the NTMA is holding an auction for between €1B and €1.5B of 4 and 8 year bonds. In the past the spin from NTMA and the Minister for Finance has been how over-subscribed each bond issue has been, while ignoring the rate that is being paid. I have no doubt that tomorrow's auction will also be oversubscribed but with many offers being in the 7%+ range. If the issue comes out with an average cost of 5% or thereabouts then we won't have done too badly. Yes that is still a huge amount more than the Germans pay, but it is still 1.5% less than the market currently thinks we should be paying.

Thursday, September 16, 2010

Congestion charges

No, not the central London traffic reduction measure. More the accusation that the Taoiseach was suffering from congestion when giving a radio interview on Morning Ireland on Tuesday. Now I'm all on for having a bit of a session even on a school night. I'm pretty sure there have been times when I've been somewhere between hungover and drunk going to work, probably closer to the latter than the former. But I make sure of three things:
  • I plan my work so as the morning after the night before I do all the easy tasks that I have been putting off for ages like cleaning the office or returning the stack of overdue library books.
  • I am not Taoiseach
  • I do not have an interview with national media

Now obviously the last two are unlikely to crop up in my life, but Brian Cowen could have taken a leaf from my book and arranged his schedule to not do media until Pat Kenny or even Sean O'Rourke at lunchtime. As the great Falstaff said, the better part of valour is discretion and missing one interview would have saved an awful lot of uproar about essentially nothing.

Having made the initial error, FF then went into overdrive trying to spin the story by claiming various medical excuses, blaming Simon Coveney and eventually the Taoiseach apologizing to the public on TV news. All these action have just compounded the problem. Like an itch, they couldn't just leave it alone and their actions, and especially Noel Whelan's performance on Pat Kenny the following day, haven't helped at all.

Finally a special award to Batt O'Keefe in the "that doesn't necessarily mean what you think it does" category. Fulsome has several negative connotations with definitions like "offensive to good taste" and "insincerely lavish". Now I'm sure the Deputy didn't mean to stick the knife in, but sometimes you have to wonder.

Tuesday, September 14, 2010

Ireland v Darwin

First up it was the Minister for Education giving credit to Albert Einstein for coming up with the Theory of Evolution. Now it is the (Junior) Minister for Science launching a book that calls evolution a hoax. What is it with this country and poor old Charles Darwin?

Science is based on discussion and debate and so I would whole heartedly welcome a rational, fact based discussion on the merits of evolution. However, the huge preponderance of evidence points to the fact that evolution through crossover and mutation is the method by which order has been created from disorder in the natural world. The Minister for Science should not be seen lending his support to a polemic against a theory that has withstood the challenges of the scientific method. Having attended events where John May, the author, spoke (ranted would be a more accurate description) against the evils of teaching evolution I am certain that his book will add nothing to the debate on the origins of life.

Fortunately, following substantial pressure yesterday, the Minister has withdrawn from the event.

Monday, September 13, 2010

PLP's 1st Birthday

Today Pass Level Politics turns one. So what have I spent the last year blathering about? Well according to the tagging
  • 20 - Elections made up of future predictions, by elections and UK general
  • 16 - Comments about proceedings in the Dail
  • 11 - Thoughts on all modes of transport
  • 9 - The general catch all of politics
  • 8 - NAMA, Dublin City Council and Public Sector vs Private Sector

In the next 12 months there will be a lot more about elections with by elections, Dublin Mayor and the start of the presidential campaign. There is also the possibility of a general looming. I will also try and understand more about finance and economics and so there will hopefully be more on that too - Deeter, Kinsella and Gurdgiev watch out! Finally with the Dáil coming back into session there will be more regular updates as stupid people say stupid things on the record.

Thursday, September 9, 2010

Dividing Anglo

I was always under the impression1 that all the toxic bad debt in the Irish banks was being sucked into NAMA and that once completed the banks would be hale and hearty. There would be credit flowing, share prices would rise and dividends would be paid out to deserving pensioners.
Therefore Richard Bruton's good bank/bad bank suggestion was deemed completely unnecessary and the proposal was mocked and jeered by the government, Alan Dukes in Anglo Irish and the commentariat in the main stream media.

So how is it that 12 months on this is almost exactly the solution now being proposed for Anglo? Surely having had the poison sucked out into NAMA they should only have performing loans left in the bank? What is left to put into the Bad Bank? How many of the sub €5M loans still on their books are now classified as impaired? If it is a lot, then why are we continuing to bank roll this basketcase? If it isn't very many, then why do we need an extra entity to handle them? Won't this just create another expensive set of directors and senior management to run the hulk?

  1. Not really but this has been the official position.

Monday, September 6, 2010

Thoughts on Denmark

I spent the week before last in Copenhagen seeing the sights while my better half was attending a conference. Before going the only things I knew about Denmark were 1) King Canute came from there, 2) in the past they owned Greenland, 3) they make Carlsberg, 4) it is easy to play in Medieval Total War and 5) it is really hard to play in Hearts of Iron. Obviously I had a lot to learn.

Firstly it turns out that Denmark is still a constitutional monarchy, with Queen Margaret II on the throne for almost the last 40 years. They have a terrible tradition that male heirs are either called Frederik or Christian so you would have thought being the first queen in almost 600 years she would have taken the opportunity to change that. However, her first son was named Frederik and his son is called Christian so normal service will be resumed whenever she dies. The tour of the Amalienborg palace where her majesty lives is more a retrospective on her life and could be skipped. However the Rosenborg castle up the road where her ancestors lived is well worth a visit.

When walking around Copenhagen the two things I noticed most was the general cleanliness of the place and the complete lack of homeless people and beggars compared to Dublin. During the course of the week I saw precisely one person begging at about 1:30AM on Friday night. It appears as though there is a much higher level of social cohesion in Denmark and that those less well off are taken care of. Alternatively, it could just be that central Copenhagen is taken well managed to keep tourists happy and that in the suburbs and other cities things are far more like at home. That seems like a rather large conspiracy theory so I'm going to go with the previous theory that the welfare state in Denmark just works.

In terms of transport, Copenhagen is well served by commuter trains and a new metro system that opened in 2002 and was extended to the airport recently. Once you discover that the automatic ticket machines have an English language option, buying a 10 journey ticket is quite simple and set me back about €18 which covered the downtown area and out to the convention centre. Actually the whole zone system for public transport seems quite convoluted and you would want to have your wits about you to avoid purchasing the wrong ticket. It was also quite cheap to get over to Malmö for a day trip over the Oresund Bridge on the train. With a group ticket it ended up costing less than €20 a head return and Malmö was well worth a visit.

The other transport item of note is the huge number of cyclists in Copenhagen. The city is pretty much flat as a pancake and so lends itself nicely to cycling. Most major roads have separated cycle lanes in each direction and the users obey traffic lights and give proper hand signals at junctions, quite a shock to the system! This does mean that you need to be extra careful when crossing the road at junctions as a silent but deadly bike may be about to run you over when you start jay-walking.

My only complaint about Copenhagen was the cost of food and drink. Meals out were expensive even compared to Dublin prices and in most bars a 500ml beer cost over &euro6;. I guess the government has to raise taxes to pay for the high standard of living and alcohol is always a good place to start. Luckily the conference had arranged its own special beer that was distributed free each evening thanks to generous sponsors. After a few bottles of Awesome Sauce everything about Copenhagen became Awesome!