Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 1/5/11

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A busy few days since my last update, with the highs of the Royal Wedding and the lows of deteriorating economic indicators providing much to chew over.

The Royal Wedding provided a few interesting economic pointers – Burger King ordered 250,000 additional paper “crowns” to cater for Royal Wedding related demand, while it also affected the demand for electricity in Ireland.

The chap who made the excellent “Quantitative Easing Explained” video I linked in my last blogpost, has released “Inflation Explained“, which is also well worth downloading.

I was delighted to learn of Professor Sean Barrett’s election to the Seanad (Senate) in Ireland. He has been a strong advocate for free market policies (and by extension an opponent of the bail-outs that have cost the State much of its sovereignty) for many years, as these endorsements show.

From a corporate perspective, insurer FBD maintained its full-year guidance – barring exceptional weather related claims events – at its AGM in Dublin. I’m a long-term admirer of the company and its management team, which is led by Andrew Langford (CEO) and Cathal O’Caoimh (FD).

Staying within the financial space, the Irish central bank released money and banking statistics that revealed some stark results. In the past 12 months, deposits in Irish banks from non-residents, largely caused by credit ratings downgrades, have fallen by 51%. Irish deposits are also dropping. Non-financial corporate deposits were -10.7% yoy in March, while household deposits overall were -5.4% yoy. Elsewhere, Irish banks’ deleveraging continues at a slow pace. In March household credit was -5% yoy (consumer loans -15%/mortgages -2.6%), while NFC loans were -1.4%. The glacial pace that loan books are shrinking at is concerning.

In a disgracefully cynical move, the Irish government downgraded its growth forecasts on Friday evening, just as the Bank Holiday weekend was kicking off and most Irish people were distracted by the events in London. The government now sees growth of just 0.75% this year, from 1.75% previously, while for 2012 the growth target of 2.5% has been pared from the previous 3.25%. The  government now sees 2011 deficit at 10% of GDP, from 9.4% previously, with the 2012 deficit seen at 8.6% versus the previous 7.3%. These larger deficit projections surely now put the final nail in the Croke Park Deal’s coffin.

(Disclaimer: I am a shareholder in Ryanair plc). Finally, The Mail on Sunday is today reporting that Ryanair may bid for Aer Lingus again. I’m not sure about this one – hard to see a deal ever securing regulatory approval given that RYA and AERL operate an effective duopoly on the London-Dublin route, while AERL’s long-haul business and cost structures don’t fit with RYA’s model.

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Written by Philip O'Sullivan

May 1, 2011 at 12:12 pm

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