Thursday, June 26, 2008

The Pernicious Ramblings of Comical Austin

Austin Hughes is a man who lives in a two dimensional world where house prices only ever go up and interest rates only ever come down.

Austin’s livelihood depends on people borrowing money from his employer to buy houses. So if people can be made to believe that interest rates are coming down (reducing the cost of borrowing) and that house prices are going up (earning them a capital gain), then they are more likely to borrow money to buy houses.

For these reasons, Austin is a classic example of what is known as a Vested Interest (VI).

The predictions of a VI need to be reviewed critically in the context of the underlying motivation for the prediction, but unfortunately for Irish consumers, the Irish media has neglected to provide this context, preferring instead to slavishly relay the predictions from the various VIs mindlessly and without qualification. The mass media have colluded for years with the Banks, the Estate Agents, the Government and the Developers to rob ordinary Irish people blind for overpriced property.

The motivations of the mass media for being complicit in this swindle can only be guessed at, although the more cynical might point to glossy full colour property advertising supplements and property sales websites owned by national newspapers as a possible explanation.

The facts of the matter are as follows

- The last time interest rates decreased in Ireland was in June 2003. Since then they have been raised 8 times by the ECB. More recently they have been raised further independently of the ECB by banks and building societies who are facing higher wholesale funding costs. The prospect of a further series of ECB rate rises is imminent at time of writing.
- The Irish property bubble collapsed under it’s own weight in mid 2006 and property prices in Ireland have been declining ever since.

So the questions are

- How long can a man keep forecasting that interest rates are coming down, when they are in fact moving in the opposite direction?
- How long can a man keep forecasting that house prices will go up, when they are in fact moving in the opposite direction?
- How many times can you be repeatedly and demonstrably wrong in public before somebody calls you on it?

Ladies and gentlemen of the Internet, for your viewing pleasure - the collected predictions of Comical Austin.

In recent months an acceleration in Irish house price inflation has raised concerns that the property market might be developing in a way that threatens not only the stability of that market but also the health of the broader Irish economy. I think these fears are exaggerated.

The recent step up in Irish property price inflation is easily explained by two exceptionally powerful influences: (1) a further acceleration in population growth fuelled by even faster inward migration of late and (2) the shortening timeframe to the maturity of SSIA’s.

I think it is only slightly provocative to suggest that a more pertinent question is to ask why Irish house prices are rising so slowly.
12/05/06 http://www.finfacts.com/irelandbusinessnews/publish/article_10005814.shtml
ECB Rate 2.5%

IIB Bank economist Austin Hughes, said the rise in house prices would continue to accelerate this year and in 2007. Speaking at the annual general meeting of the Irish Homebuilders Association in Waterford, Mr Hughes argued that while Irish house prices had risen significantly in recent years, the increase was far from exceptional by international standards.
"Indeed, when Ireland's rapid economic growth and supportive age profile are taken into account, Irish house prices seem to have risen relatively modestly," he said.
13/05/06 http://www.independent.ie/national-news/west-of-ireland-knocks-dublin-off-the-most-expensive-houses-table-97770.html
ECB Rate 2.5%

"While Hooke and MacDonald forecasts 9% (house price inflation) for 2007, IIB's Austin Hughes has topped them with a 10% forecast."
26/05/06 http://www.independent.ie/unsorted/property/roller-coaster-ride-for-buyers-99778.html
ECB Rate 2.5%

Last night IIB economist Austin Hughes told the Irish Independent: "The ECB simply doesn't have to raise rates any further." He said the current 3.5pc bank rate is sufficient.

"We've been guaranteed another one (0.25% rise) in December but that will be it, done and dusted," he said.
7/11/06 http://www.independent.ie/national-news/boost-for-borrowers-as-interest-hikes-to-end-67530.html
ECB Rate 3.25%

But he dismissed suggestions the market was due to collapse, insisting instead that property prices were experiencing a correction. House price expectations had become unrealistic and now reality was returning to the market, he added. By the second half of this year prices will rise moderately, with an overall rise of 5pc for the year likely, Mr Hughes said. Some economists maintain that every house price boom was followed by a burst, but this was incorrect, he added.
23/01/07 http://www.independent.ie/business/irish/house-prices-could-fall-this-year-60819.html
ECB Rate 3.5%

The European Central Bank is now likely to cut interest rates, rather than raising them, over the next few months, a leading economist claimed yesterday.
Mr Hughes dismissed fears of more rate rises.
"A further rate rise is most unlikely because economic growth in the Eurozone is softening. And fears about inflation in the eurozone are overdone. You can't entirely rule out a rise, but I don't think it is going to happen. The bad news on borrowing costs is coming to an end."
Mr Hughes argued that low levels of confidence in the housing market were misplaced. This was because interest rates rises were coming to an end, while house completions have fallen dramatically.
"House prices won't collapse as house completions have fallen right back. This means you are more likely to see low levels of construction activity than low levels of house prices."
11/9/07 http://www.independent.ie/business/european/ecb-will-slash-not-raise-interest-rates-claims-economist-1075766.html
ECB Rate 4.0%

Research by IIB Bank predicts that house prices will fall by up to 2.5 per cent this year but it forecasts prices could rise next year. They believe the global interest rate cycle is reaching a peak and the cost of borrowing could begin to ease in 2008.

Tom Foley, who heads up the mortgage and home loans division of IIB, suggests that although higher rates have been the key driver of a slowdown, a loss of confidence is now a considerable threat to the Irish housing market. He is convinced that we have reached a critical point and that with some "sensible" policies and less pessimism, the Irish housing market should experience a bounce back.

IIB's chief economist Austin Hughes says the sharp rise in borrowing costs are now coming to an end
16/09/07 http://www.independent.ie/national-news/money-men-are-flipflopping-again-1081442.html
ECB Rate 4.0%

Nevertheless, Austin Hughes of IIB Bank in Dublin was "reading between the lines" and concluding that the ECB is playing a game of bluff, which it may carry on until it is "forced to cut." Hughes concluded that if US economic data continue to point towards greater downside risks for global growth, "market expectations of an ECB rate cut in the early months of 2008 will increase markedly."
5/10/07 http://www.finfacts.com/irelandbusinessnews/publish/article_1011387.shtml
ECB Rate 4.0%

“However, we feel the emerging economic evidence is beginning to point instead towards the prospect of lower interest rates as early as next spring,” he said. Mr Hughes argued that yesterday’s weaker than expected Eurozone production data, and an “awful” German investor sentiment reading, strengthens his conviction that the ECB is likely to cut interest rates to 3.5% by the middle of 2008.

Mr Hughes thinks that pressure on borrowers will ease with two rates cuts of ¼% in the first half of 2008 bringing rates down from 4% to 3.5%.
14/11/07 http://archives.tcm.ie/irishexaminer/2007/11/14/story47841.asp
ECB Rate 4.0%

"We still think consumer spending will grow a solid 4pc next year (2008), with a less threatening interest rate outlook and a gradual recovery in consumer confidence," said Austin Hughes, economist at IIB Bank
21/12/07 http://www.independent.ie/business/irish/economy-at-standstill-for-six-months-cso-reveals-1252279.html
ECB Rate 4.0%


"The ECB will have to recognise global events. It is my gut feeling that there will be a cut in the spring." Mr Hughes said eurozone rates could fall by as much as 1pc by the end of the year.
23/01/08 http://www.independent.ie/national-news/austin-hughes-iib-homeloans-1271820.html
ECB Rate 4.0%

But the property market could start to pick up by the end of the year, spurred on by two, possibly three, cuts in European Central Bank (ECB) rates.
IIB Homeloans economist Austin Hughes said that the ECB was talking tough but it would be forced to start cutting rates by the summer.
29/01/08 http://www.independent.ie/national-news/house-prices-to-fall-by-5pc-but-pickup-on-the-horizon-1276376.html
ECB Rate 4.0%

For the second month in a row consumers upgraded their assessment of their own financial situation both for the past 12 months and for the year ahead.
"This may reflect in part a generally positive assessment of the Budget measures introduced by Mr Cowen in December," Mr Hughes argued, adding that it could also reflect the absence of more bad news on borrowing costs and perhaps even tentative signs that good news might emerge later in 2008.
6/2/08 http://www.independent.ie/business/irish/bright-start-to-year-as-bargain-hunting-helps-lift-the-spirits-1282594.html
ECB Rate 4.0%

Austin Hughes, chief economist at IIB Bank said in a year-end comment that he thought Trichet was bluffing about (no interest) rates cut and said that "ultimately, the key question in terms of the outlook for Euro area rates depends on the extent to which global economic activity slows and the degree to which the euro zone economy can withstand this downswing". "We still reckon this shift is likely to occur reasonably early in 2008. As a result, we remain of the view that ECB policy rates will fall to 3.5% by next Summer," Mr Hughes said.
7/3/08 http://www.examiner.ie/story/?jp=OJQLKFMHGB&cat=Business
ECB Rate 4.0%

The survey sheds some light on brokers' assessment of the impact of a range of factors on the Irish mortgage market according to Austin Hughes, Chief Economist, IIB Bank who carried out the research.

"The survey suggests that even the idea of lower interest rates could make a significant difference to the Irish mortgage market," said Mr. Hughes.
10/3/08 http://www.businessworld.ie/livenews.htm?a=2062712;s=rollingnews.htm
ECB Rate 4.0%

IIB Homeloans economist Austin Hughes said it was likely we would now see a modest improvement in the housing market, but a return to sharp house price rises were unlikely.
The financial markets were still expecting European Central Bank (ECB) interest rates to be cut by up to 0.50pc by the end of the year. The first cut could be as early as May, Mr Hughes said.
If we get a cut in interest rates soon, expect a major surge in housing activity, particularly from first-time buyers, who are shying away from the market at the moment.
11/3/08 http://www.independent.ie/opinion/columnists/charlie-weston/tasty-price-cuts-put-housevalue-chat-back-on-menu-1313153.html
ECB Rate 4.0%

Analysts mostly agree that rates will be cut later this year, but disagree on when and by how much.

"We still expect rates to fall by three quarters of a percentage point by year end," said Austin Hughes, chief economist at IIB Bank. "We now expect the first rate cut in June but wouldn't rule out an earlier move if financial conditions deteriorate."7/5/08 http://www.independent.ie/national-news/inflation-too-high-for-ecb-to-consider-interest-cuts-1308884.html
ECB Rate 4.0%

Austin Hughes, Chief Economist of IIB Bank, long the ├╝ber-optimist on the Irish economy is still awaiting the Eurozone economy to crash and says that the ECB will "be forced into a summer cut," i.e in June and will make two further cuts in 2008.

Hughes and his counterpart at Bank of Ireland Dan McLaughlin had forecast two ECB rate cuts in the first half of 2008. Last month, McLaughlin retained the number of cuts prediction but removed the timeline.

Austin Hughes predicts that "a painful slowdown will emerge in coming months,"which will force the ECB to shred its credibility and make an emergency cut.
11/04/08 http://www.finfacts.ie/irishfinancenews/article_1013171.shtml
ECB Rate 4.0%

IIB Homeloans economist Austin Hughes said Trichet's comments about inflation worries and poorer growth meant that if there are any cuts in interest rates they will not happen until the autumn.
But Mr Hughes held out the prospect of a cut of up to 0.50pc in interest rates by December.
9/5/08 http://www.independent.ie/business/european/ecb-inflation-warning-fuels-speculation-rates-will-not-fall-1370289.html
ECB Rate 4.0%

However, IIB chief economist Austin Hughes, said the slowdown in economic growth in Europe would allow the bank to cut rates before the year end. Rates would fall by about 0.5% by the end of the first quarter of 2009, he said.
17/05/08 http://www.examiner.ie/story/Business/gbcwsnidql/rss2/
ECB Rate 4.0%

Like the old saying goes “Fool me once, shame on you. Fool me 20 times...” well, you know the rest.

And finally..


IIB Bank economist Austin Hughes said the indication that interest rates could rise as early as next month "is probably the biggest shock the ECB has delivered to financial markets in its nine-and-a-half-year history.
6/6/08 http://www.independent.ie/business/european/markets-reeling-as-ecb-warns-of-interest-rate-rise-1399536.html

So "Comical" Austin Hughes is rocked to the very core of his being by the idea that a Central Bank (whose sole mandate is to maintain price stability) would consider raising interest rates during a period of rising inflation, when inflation is already double their stated target level.

Well fuck me dead.