Ok, so the news is coming on stream like a new Lego set, day by day adding more new blocks of various complexity as you go up the age level, Iâ€™d say we are at the Lego technics stage of the game â€“ its building a very convincing wall of reality that soon the market is going to hit.
I believe there will a very obvious Event that crystallizes the issue and will be seen as the tipping point event, the peak or that moment everyone went â€œah crap!â€
My money is on a sales or profit warning from one of the Irish mortgage lenders. To date the main (quoted) Irish mortgage lenders have all noted a slowdown in mortgage growth and analyst estimates have come down accordingly. Given that these companies all have a duty to keep the market abrest of trading conditions they would be obliged to inform if trading was in the process of deviating from (market) forecasts. If such an event were to occur I could see it happening during the autumn.
If there is a tipping point I think it will be unemployment, it may just continue in this drip, drip fashion until it slowly becomes clear to everyone what is going on, I think the slow painful one is the most likely.
i thought of that too but that is most likely to consist of a drawn out series of events. unless there was a single large-scale layoff by one of the trophy employers then unemployment would not, IMHO, be the jarring catlayst that UG is looking for.
Local event: Chicken farmer on the Innishowen Peninsula wakes up one morning to find half his flock have mysteriously died.
Global event: Late one night, a South Korean airliner goes missing over the Pacific.
Oddly enough, the “tipping point” events never seem obvious until afterwards and the predictions game, while fun, is usually futile. It could be bird flu, foot and mouth, BSE, or an act of terrorism, a political power shift … the lessons from history, we won’t see it coming.
(apoliogies to all Chicken farmerns and South Koreans everywhere, especially South Korean Chicken Farmers with property investments in Ireland)
The unemployment rate is going to be very interesting to track from here on. 4.1% last autumn to 4.6% now to what I expect will be 5% very soon. If the increase in building lay-offs are as severe as some posters are implying then it will start of a vicious cycle. 2007 will probably see something in the order of a 5% fall in nominal prices and a 10% fall in real prices (reasonable enough projections based on the ESRI data to date). This is the TURNING POINT. I expect 2008 to be the year that the dramatic stuff really happens.
I’d guess the most likely ‘national’ event would a ISEQ quoted property developer profit-warning or maybe a significant non-quoted developer closing up shop.
Any kind of global event which hits energy supplies, be it related to the middle east, south america, or russia could cause a serious recession, and the heavily borrowed paddies commuting long distances in their SUVs (also borrowed for) would be among the hardest hit.
I can’t see the ECB abandoning their inflation targets even in the face of an energy crisis.
Collapse of Gov due to a Mahon Tribunal Revelations - Greens Walk, Ahearn is put to the plank by vote of no confidence in Dail. Gov could survive but might not or these events could be the even that undermines confidence now the Kingpin of the Construction, the man who “built up the builders” according to himself (listening to Matt Cooper now is a political Dodo. End of an Era.
My money is on some sort of serious blow-out from all of this ABS/CDO malarkey.
While my understanding of the intricacies of this area is limited to ragingbear’s excellent descriptions in the Bear Stearns thread (best description I’ve come across on the net), I sometimes feel that a layman sees the wood for the trees better than those in the thick of it, like the banks, the brokers, the business journalists, etc.
So my take on it is simple - risk is like energy - how can you destroy it? No matter what you do with ABS’s, CDO’s, CDO’s squared, cubed, the risk remains the same no matter how many risk-free products you try to cram it into. And all the time you’re cramming more and more risk into smaller and smaller “magma chambers”, until eventually the pressure becomes too great and the whole volcano erupts.
Of course, Joe Public in Ireland will switch over to Ememrdale when the doom-monger George Lee comes on Six-One to explain this cataclysmic event to the nation, and will then be utterly shocked to hear the following week down the pub that Mick, the barman/property-investor, has been called in to see his friendly bank manager about the mortgage on that investment property he owns (but hasn’t been able to rent out for a few months now).
Global Event - Unsure but hopefully such a global event will not occur and allow the local culprits a place to deflect their portion of the blame
Local - As somebody else suggested, a collapsed government in the midst of economic uncertainty could be seen as the catalyst by many commentators but hopefully the current crop will be offered no such exit option. Im banking on unemployment reaching critical levels or possibly the return of mass departures from our airports as being signals of the day the music died. Cue reeling in the years special editions and nostalgia for the boom times - Irish emigrants in London singing nostalgically about the day they left Mullingar in that traditional Irish mode of transport, the 06 SUV, while consuming line after line of that most traditional of Irish substances, the old West Cork marching powder…sorry couldnt resist
The CDS blowout is a bit abstract for the ordinary punter. It will blow up to a degree and the banks will not be able to lend â‚¬40bn like they did last year. It may be selective .
A lot of that â‚¬40bn got spent on expensive BMW X5 import frippery of no economic advantage and also on Bulgarian so called investment properties , mafia controlled shoeboxes . It is lost . Both will depreciate to nothing in time of course.
It will only get really hairy if the international bankers find out that a lot of our loans which are packaged as prime are ACTUALLY sub prime.
Our banks have knowingly lent at income multiples of 10x . This is sub prime lending of course. These people cannot pay these loans off over a 35 year lifetime .
The US knowingly lent sub prime at 4x max. The problem was that they did not check the income properly and it was really lower than they lent a multiple of .
Liar Loan meant you lied about your income but the bank only lent you 4x that lie.
If certain of our banks ( I shall not name the top 4 suspects) are found out there could be a run on their bonds and cdos . They shall be in time.
Nothing as creative as above just a good old fashioned profit warning from the banks or perhaps a downgrading of their debt internationally. That will exacerbate the squeez on mortgage holders through higher rates.
US housing market getting worse and getting a lot of media play. perhaps more CDO fallout here. As we have our own special bubble here I don’t think a catalyst is necessary.
National event - when the bank manager threatens the builder with a twice daily wedgy until he sells some of his crap and begins to repay his loan. In fact it’s already happening and it just needs to become a little more widespread
Local/Global event: Terrorist attack on Sellafield releasing tonnes of radioactive gases, drifts West and South all along the East coast. Bye bye all available housing in Louth/Meath/Dublin/Wicklow for the next 10000 years. Bray/Dalkey/Malahide don’t look too nice now, do they!?