Dear Joan,

Led by a Labour Government, a set of ethical rules within which to frame thinking, fundamentally altered the Norwegian oil experience from the early 70’s. Those 10 principles, reset the course of Norwegian modern history. They now have a sovereign wealth fund worth hundreds of billions and enjoy a standard of living unparalleled in Europe but they very nearly got it badly wrong, like the Brits did in the North Sea.

In wasting our money to get the OECD to repeat what we already know about our retirement and ageing crisis, there was an absence of principles. Without the right principles there is no courage to drive change, just another expensive tome sitting in your cabinet behind the next Minister for Social Protection. Here’s 10 principles that lead to very different outcome to the OECD report;

1. All workers are treated equally, there is to be no pension apartheid, that means sharing of resources where surpluses are distributed to those most at risk of poverty.
2. Tax transfers from private sector workers, most of them non-pensioned to the 15% that make up the public sector workforce, to be redirected to their own pensions. That means the public sector scheme becomes self-funding leading to recurring independent actuarial examinations of contribution levels and benefits.
3. Simplify, simplify, simplify. One of reasons behind high costs for small schemes is the labyrinthine, arcane and stupidly over-engineered legacy of previous Governments who tampered rather than rebuilt the pensions system. Few understand the poxy thing anymore and even experts have to consult one another to puzzle out the rules. Too many savers are hopelessly dependent on high commission-paid salespeople to tell them the rules rather than discuss the most important thing, investment tactics and contribution levels.
4. Throw out the asinine rule book whose core objective is to ensure nobody gets a bigger pension than the civil service. It’s dumb and hopelessly out of date. Put no ceiling to what a man or a woman earns from saving and investing. These ceilings create a dislocation in investment allocations by ham-fisted braking on risk taking. Instead put the ceiling on contributions by limiting tax incentives to for example €1m in total contributions throughout a career whether from the worker or employers.
5. Set up a big administration engine to drive down costs as an alternative to retail pension products, farming out fund management to the best in the business globally by picking horses for courses. This will pull down industry costs.
6. Smooth out pension income risk when choosing to draw cash down from funds through state-backed pension guarantees as an option. Stop the crazy rule about forcing out 5% to 6% each year that is destroying retirement funds and replace it with drawdowns that use real actuarial numbers linked to extreme mortality like age 100.
7. Stop using Insiders to decide the shape of the pensions model for outsiders, that means establish a short-lived and radical taskforce made up of independent experts to recast the Irish pension model where everything is on the table, including public sector pensions.
8. Tell the truth. Produce an annual report that forecasts shortfalls and contribution levels for both the Social Protection fund for old age pensions and Public Sector Pensions so that we all can see the real shape of future social contributions and plan accordingly. Look to Denmark.
9. Simplify, centralise and lower the cost of regulation by amalgamating it under one Ministry, it is currently split between your Dept and the Dept of Finance. Pull the Pensions Board or its successor under The Central Bank.
10. Any new central fund should allocate some capital towards establishing the Irish equivalent of Statoil, a public and private partnership to harvest our offshore oil and gas. That’s where the real wealth is buried and we’re giving it away.

- Eddie

The rejection of voluntary pay cuts by public sector workers may, ironically, mark the beginning of the end of the shadow Government, a clouded nexus of relationships between a handful of highly paid union chiefs, senior civil servants and the political establishment. Much now depends on the strategic response of the official Government. It has committed these cuts to the Troika. The question is, does it have the gumption to finally kill off the remnants of the partnership process, a gathering which morphed into a cartel for 15% of the workforce? You recognise and measure cartels by determining the extra price they extract by exercising excessive bargaining power. Despite five years of economic depression, that's still an impressive 17% premium over private sector pay and ignoring pensions.

With Leaving Cert exams imminent you can expect a period of phoney negotiations to June, phoney because workers will simply not vote for token readjustment and phoney because the Government has no choice but to legislate - there is a bigger issue at stake - exiting the bailout end year. Labour, the political arm of public sector unions, whose own leadership has been rebuked by its members, will be crushed. It is the price for obtaining power under false pretences.

Unions Turn to Easter Island Groupthink

Tuesday night on RTE Primetime CPSE and INO union chiefs openly championed SInn Fein policy in a convoluted, illogical and desperate attempt to rewrite national economic policy by assuming that human beings do not behave rationally. These cuts, we were told, are the result of "failed austerity" and would be "deflationary" by reducing spending. The solution is to introduce a new rate of tax of 60% for any couple earning more than three times the average wage - as if this will not be deflationary. Tax higher earners at punitive rates and any reasoned human being, not trapped by high debt repayments, will engage in tax avoidance, hiking pension contributions, slashing effort and cutting payouts from small businesses, keeping the cash in companies instead. Mobile business executives who came to Ireland because of its tax promises will start filling in transfer requests. The IDA will fight the loss of foreign direct investment by stressing the craic but savvy business execs who take their holidays will put their European headquarters elsewhere.

But not content with punishing high performance at work, union chiefs also want to punish entrepreneurial energy with an annual tax on net assets. So, Ireland, desperate for growth, is also expected by the cartel to motivate her high performance workforce by appropriating net assets at a rate of 1% -1.5% each year. This is dangerous Easter Island groupthink.

Off camera I tackled Sinn Fein's engaging Mary Lou mcDonald TD. Take a look the long list of European countries that ditched wealth tax, I suggested, how are you going to police capital flight and with it, jobs and entrepreneurial energy the life force of economic growth? Will you erect exchange controls and police border exits? She cited France but knew little of the detail like the net loss to its economy from capital flight. Isn't coming up with a wheeze that immunises your own core support the essence of political calculation I asked. Mary Lou smiled, the question was a cynical one she said, but it was a calculating smile, classic of the political breed.

The Rapa Nui on Easter Island plundered their assets, stripping the island bare of its natural resources and trees, leaving instead statutes to their Gods, their beliefs and their folly. It was a messy end, a spiral of self destruction and tribal conflict. The Polynesian islanders failed to grasp they were at a tipping point and that, at the precipice, they needed to collectively adopt radical change or else perish. They couldn't and didn't. Listening to the union chiefs I understood why. In the end, they ate one another.

- Eddie

Primetime on RTE, Tuesday night concurred with data repeated by guest debater, public sector union chief, Shay Cody of Unite that the average public sector pension is €20 grand a year. It was a blunder. The Comptroller and Auditor General Special Report 68 tells us that the average is nearly half as much again, at €28 grand a year. Recently Minister Brendan Howlin announced the elusive figure at €29 grand plus a tax free lump sum of €87 grand. Price that in the private sector and you’re looking at about €1.2m in a pension pot.

Getting pension data right is tricky in a hotbed of deliberate obfuscation in official reviews and reports mostly because of Government / Union politics, but here are some inconvenient facts you might want to keep handy, next time there is misinformation knocking about;

• In the five years before the public sector pay cuts, wages rose 11%, but pensions rose 66%.
• In 2000 the total future public sector pension debt was €25bn, by 2009 it had ballooned 6.5 times to €116bn. This happened largely because of a huge swelling in middle and top management pay and numbers.
• The average age in the public sector is rising one year every 15 months according to the OECD. The mean age is about 42 which means that most of that €116bn pension debt is just over the horizon.
• Contrary to what you’re constantly told, there are not 300,000 on the pay roll, there are 400,000, of which 100,000 are now retired at a current cost of €2.8bn.
• The total current cost wasn't supposed to be this size until 2027 based on a Dept of Finance report that preceded benchmarking.
• The Social Insurance Fund is now running at a deficit of €1.5 bn per year. The total deficit by 2020 will be nearly €15bn. Over the next five decades the deficit totals €324bn.
• There are 1m private sector workers without any pension savings but paying, through tax transfers, for pensions in 15% of the workforce. These private workers are relying on the old age pension. Most face retirement poverty. Others that do have private pension savings can only supplement with about €3 grand a year without destroying their savings.
• Guaranteed pensions in the private economy have collapsed. Total numbers have declined by a third in just two years to 2011. These Defined Benefit schemes now cover only 197,000 workers and many of their schemes are upside down and vulnerable to closure.

We are looking at is an apartheid pension system that rewards the few to the cost of the many.It's clear what must be done;

• Public Sector pensions must become fully self- funding. That means haircutting unaffordable pensions, probably at somewhere near thirty grand a year.
• The haircut should be decided after an independent actuarial study that is open to the public. It must not happen behind closed doors under exclusive oversight by the Insiders and Union Chiefs who stand to lose most.
• Once restructured to fit the economy we then proceed to radically simplify pensions and start a Danish-style sovereign wealth fund owned by all of us and which sees no distinction between public and private.

With national debt now €200bn and national income five times lower at €40bn, Ireland simply cannot delay debate and analysis that leads to haircutting these unfunded debts any longer. To do so is to foster an entirely false expectation among public sector management that there’s a big payola as they get older by rotating through a high paid job just before retirement. The money aint there and that old game is well and truly goosed..

- Eddie

In the 1972 film The Godfather, Don Vito Corleone, promised he'd give an uncooperative producer an offer he couldn't refuse. The Hollywood mogul woke up in bed next to his prize horse's head. In the early hours of last Saturday morning the Eurogroup of Finance Ministers, under the Irish presidency, gave the 1.1 million people of Cyprus an offer they couldn't refuse;

To save yourselves with a €10bn loan you must first raid your banks for nearly €6bn including swiping money from your smallest savers or we will cut off the oxygen supply of the ECB money, collapse your banking system and force you to exit the Euro in chaos.

A horses head might have been more diplomatic.

The Cypriots three main banks took a hiding from the Greek implosion, forcing the Government to face the impossibility of borrowing nearly 100% of GDP to add to its already elevated national debt. With GDP of just about €18bn, the deal instead offered to Cyprus was to increase its national debt by €10bn while raiding deposits for the rest. On Tuesday its new Government could not get that deal past a shell shocked parliament as furious Cypriots demonstrated outside.

Despite rejecting the rescue deal, the Cypriot Government, already creaking under 15% unemployment and economic contraction, cannot stand over its Depositor Guarantee Scheme nor can it avoid the grip of long term austerity from the inevitable ballooning of its national debt. Meanwhile Cypriot consumers will react to threatened tax hikes by cutting consumption and driving up unemployment.

• At best Cyprus is facing the destruction of its safe haven status, a severe shock to its economy and a bitter feeling of being shafted by a Europe dominated by Germanic rigidity.
• At worst it will exit the Euro, default on its national debt and watch its new currency plummet releasing an inflation beak out as its state services implode.

On Saturday, the Irish Government, which has campaigned in Europe for a fair deal for Ireland by reminding our partners that solidarity was a two way street, grossly misread the international reaction by welcoming the deal. The Irish statement reminded those of us with longer memories, of Noonan's capacity to cruelly misconceive that might equals right. Ireland should have stood up for Cyprus against German hegemony.

Instead Taoiseach Enda Kenny intervened from the US to reassure the home audience that the Cypriot gig was a once off. The Irish leader mustn't have been watching too much US TV, filled with reports of falling markets which were clearly joining the dots to both Italy and Spain. Both Eurozone behemoths are too big to bail should either fail to make their economies rapidly more competitive. After Cyprus and before a properly functioning banking union, deposits in Italy and Spain are at elevated risk of appropriation. So too are private pension funds.

Two years ago, writing here, I campaigned against the Coalition's €2bn raid on small pension savers because the Irish Government, within weeks of election, had chosen to cross the Rubicon into asset appropriation to finance the national deficit - under the camouflage of a mythical Jobs Initiative programme. Minister for Finance Noonan was fast out of the blocks in the Dail to reassure depositors that private pensions were different. Fellow Ministers chimed in unison.

Last Saturday morning Michael Noonan rubber stamped a raid on small savers in the South east corner of the Empire, well away from his Limerick constituency in the far West. In doing so the Limerick TD and his colleagues have grossly overplayed their hand, forcing Putin, of all people, to lecture Europe about private property appropriation and opening up the vestige of a back door deal between Moscow and Nicosia for the Cypriot's seven trillion cubic metres of offshore gas and for bases in its strategic waters for the Russian navy.

Come midweek, there wasn't a Finance Minister to be found in the Eurozone prepared to man up to the earthquake they've caused by fracking under the bedrock of the Eurozone, shaking public trust in deposit guarantees and pushing a fellow EU member towards new masters. In Moscow.

-Eddie

One by one, union leaders were, this week, given unchallenged interviews by the national radio broadcaster across its news coverage. Rarely over the course of these past four years have union chiefs found themselves presented with the contrarian position on a RTE radio news programme. Instead chiefs get a free run and when comment is sought it is usually from another insider, like a university lecturer in the public pay.

It is self-evident that Ireland has first class frontline personnel, from Gardaí to Firemen, from Nurses to Doctors, but that’s not the issue, the issue is the affordability of pay rates, structures and pensions. In behaving the way it does RTE fails a simple test of journalistic objectivity perhaps because the issue close to home. Here are a few things you have never heard put by a RTE radio news presenter to a public sector lobbyist:

1. Why should 85% of the workforce continue to cross subsidise 15% with some of the highest public sector pay in Europe?
2. How come we employ similar public sector numbers as a proportion of the workforce as the rest of Europe but pay them the highest as a percentage of our GDP?
3. You talk of fairness, how is it fair that, despite security of tenure, public wages are on average 17% higher than the private sector after adjusting for education and experience?
4. Since the crisis Irish national debt has quadrupled to nearly €200bn, that's 120% of GDP, how can you justify adding ever more debt to maintain your premium pay privileges?
5. Your economists state that private sector wages have not fallen as a plank to justify your demands, but what of the 350'000 whose wages have fallen to zero?
6. Time and again you claim that you have taken cuts of 14% but CSO data clearly shows that gross pay is down only by 4.4% after four years of increment top ups - how do you justify continuing to make false claims?
7. You state that the pension levy is a cut but never define it in terms of its net cost after tax relief, which for many halves its impact - why is that?
8. Based on OECD data the public sector in Ireland works the second least amount of core hours in Europe, 20 hours more than the Portuguese but 250 hours less than the Germans and 100 hours less than the Brits - why is extending working hours such a big deal?
9. You campaign against further cuts, but given the scarcity of resources nationally, whom do you think should carry your load for you, who should be cut instead?
10. The SIPTU President continuously calls for wealth tax in lieu of adjusting public sector pay, but what is the €1bn raid on private pensions and the imposition of property taxes, but a tax on wealth?
11. The German’s ditched theirs, the French are in difficulty with Hollande’s 75% tax, how could a “rich” tax work here without triggering a flight of scarce job-creating capital to neighbouring economies?
12. Where, anywhere in the world, have public jobs been ring-fenced after national finances crashed?
13. You claim 30,000 jobs lost, but can you point to one full time contract that was lost to redundancy? Isn't it more accurate to say these were encouraged into early retirement on lucrative terms and have simply moved from the earned payroll to the unearned one?
14. The annual cost of public sector pensions now equals the total income tax take from it - how is it equitable to expect a private workforce, (where one in two have no pensions and those that do have one get pensions seven times lower than the public scheme) to continue to cross subsidise an uncapped public scheme?

- Eddie

Strange as it may feel, we are entering year five after the infamous whirlpool year of 2008 that culminated in the Lehmann collapse in Sept. We examine both the supports and the drags on the global economic recovery, or, in sailing parlance the tailwinds and headwinds. Plotting a middle course position through these conflicting forces, the outlook, thanks to Uncle Sam, is brightening for 2013 and 2014 globally as tailwinds pick up and some of the scariest storms are behind – but it’s all relative to the extraordinary weather from which we are emerging, one characterised by real fears about Euro survival, the US fiscal cliff and a bubble burst in China.

The so-called output gap including the overhang of joblessness, poor credit and low confidence continues to dampen economic growth but the risks of another major shock have diminished, only by embarking on a massive fiscal experiment that is without precedent since the Industrial Revolution. This is Quantitative Easing (Q/E) on a herculean scale. At the end of 2012 the Governments of the US, Europe, the UK and Japan accounted for three quarters of all borrowing whilst central banks account for 60% of all lending. The expansion of the balance sheets of the ECB, FED, BOE and BOJ is without measure anywhere in economic history and, as outlined, in our Oct report it’s pretty much fiscal expansion now or bust.

Interestingly, inflation protection has finally begun to emerge in much research and analysis as we head into 2013 with the first round of US fiscal cliff just behind us and seasonal profit taking affecting most asset classes. So what’s this year and next likely to look like, insofar that it is possible to guess?

First the Headwinds

Europe remains moribund. The big question is how much social pressure can countries like Spain absorb from internal devaluation, without unravelling and exiting the Euro. Spanish youth joblessness is 50% and overall unemployment is 25%, yet still Spain remains 30% less competitive than Germany, Europe’s backstop economy where Debt / GDP is 80%. Spanish loans continue to worsen and its property market falls, meanwhile French growth has stalled widening the gap between it and Germany.

Italy’s Debt to GDP has rarely been higher since Garibaldi unified the country in 1860 and with Monti departing, Europe’s third largest economy faces into difficult austerity programmes. Greece’s economic decline matches that of many ex-Soviet states but even after haircuts it’s Debt / GDP is 170%. Portugal continues to contract but with no clear strategic plan to pull itself out of the mire while Ireland, reliant largely on its export economy is set to peak at Debt / GDP of 122% but has household debt of a similar scale and cannot rely upon a domestic economic recovery until there is restructuring of the national debt and relief on households where it looks like 10% will be bad debts.

The decisions to empower the ECB as a single banking regulator for big banks of systemic importance, the establishment of a central fund to separate banking and sovereign debt coinciding with the appointment and quick actions of Draghi has helped calm nerves but, notwithstanding these developments there is a hard road ahead for countries like Spain and France where productivity gains or wage declines of 30% are required to match German competitiveness.

All told Europe, at best, will experience no overall growth this year and its declining imports will impact non-OECD countries. On the opposite side of the Atlantic the USA, narrowly avoiding the fiscal cliff in a last minute deal between Obama and the Republican dominated Congress, has merely delayed the inevitable tax increases and entitlement adjustments required to reduce the US deficit by $4 trillion over the next decade through higher taxes and lower spending. Japan continues to be swamped by a huge national debt sustained only by the willingness of Japanese workers to sustain it with savings and is unlikely to see economic growth in a year when Iran is expected to have enough enrich uranium to build a nuclear weapon, increasing the risk of an Israeli-US-Iranian conflict.

The Strengthening Tailwinds

Interest rates remain remarkably low which helps Governments carrying high debt and are likely to remain so for some time while mute inflationary forces will allow central banks to continue QE operations. But thank heaven for Uncle Sam. The biggest, strongest and most balanced economy in the world is recovering and set to remain the global powerhouse for decades to come as its institutions tackle its debt, bolstered by a remarkable transformation in its domestic oil and gas industries reviving the US as the manufacturing giant.

The US housing market is beginning its recovery, consumer spending is showing signs of returning after several years of deleveraging and repairing balance sheets and the world’s largest economy seems to be adding 200,000 jobs per month while its corporations sit on vast reserves of cash filtering out in dividends and acquisitions. Overall the USA is poised to grow 2.5% to 3% this year, good news for exporters to the USA.

Fears of a bubble burst in China are abating as it enters its tenth year of reform under this Chinese Government with growth forecast at a rude 8% and which will help drive the rest of Asia where interest rates have fallen to support the economic lag created by Europe’s rolling crisis.

What Moves to Consider?

Given this background European equities are 30% cheaper in comparison to the USA which, priced at 12 times forecasted earnings is still reasonably priced. As ever in this part of a recovery cycle from a deep recession, an over-indulgence in pessimism leads many growth investors to remain too cautious despite the clear value in equities. The trend has been towards high dividend-paying PLCs, making undervalued and unloved cyclical growth stocks the likely next winner for those taking fresh long only positions in equities.

In Non-OECD markets prices have come down, reducing multiples since before Lehmann’s and reflecting the general manufacturing slowdown. We continue to rely on Asia excluding Japan and allowing fund managers to take a view on China’s allocation rather than second guessing from a distance.

Despite recent profit taking we continue to recommend a presence in portfolios for precious metals, gold and silver as a hedge against declining fiat currencies from too much QE and to counteract inflation.

At best we are in a sustained period of ultra- low interest rates which means lousy returns on cash deposits but good news for highly indebted nations grappling with deficit reductions. In these conditions returns on Fixed Income Securities, (conventional Government debt) will be flat and expectations for returns on equities reduced but still capable of outperforming cash by 4% to 6%.

Today we’d strongly favour European equities which are trading at a deep discount to the US and capable of giving higher returns over the next five years but any portfolio without a heavy allocation to the US would be most unwise given the huge advantages the US has in R&D, Education, Institutions and the world reserve currency. Asia Pacific still remains a favourite but at lower multiples and expectations.

Inflation – the next big cycle?

Keynesians, comfortable with massive expansionary policies at a time of deep recession have confidence in central banks to reverse QE as growth returns without triggering high inflationary forces. So far the theory is working, buts that’s only because of huge output gaps depressing inflation. We expect historically low bond yields to continue but, ultimately, the fixed income bond market will sour as interest rates follow inflation, albeit delayed by central bank nervousness over strangling recoveries. That’s why we continue to emphasise global inflation-linked Government bonds protected with a Euro hedge for defensive investors.

So what to do?

• Growth investors comfortable with long only equities and commodities could now consider moving fully back into unprotected funds, with a strong emphasis on Europe High Yield and USA and Asia ex Japan growth funds. Global Natural Resources, combined investment across precious metal, oil, gas and coal miners is also recommended.
• For those with shorter horizons and lower risk we suggest taking the second step back into carefully selected growth funds and some absolute return funds. These target returns typically 3% to 5% above Euribor using highly diversified range of investments including derivatives and can make money in falling markets.
  
  We are advising those who took defensive steps in 2011 to now begin the second tranche back to growth funds. Last year the first of these was taken by many shifting 1/3rd out of defensive funds. We are now recommending that half the remainder follows suit.
• Highly defensive investors should stick to global inflation linked bonds protected with a Euro hedge as an alternative to cash deposits.

Finally on property we remain unconvinced that the floor has yet been found in the Irish market and favour distressed property in fast recovering economies like the USA. We are currently investing heavily for clients in Metro Detroit at rental yields of 15% and scope for capital uplift as the remarkable Midwest recovery continues with the US manufacturing rebound. There is no leverage required and minimum investment is €1m.

For more information on suggested switches within fund ranges or to better performing asset managers, whether for personal funds, lottery wins, inheritances, charities or retirement schemes, contact Eddie at 045 409364 or email eddie@eddiehobbs.com

Eddie Hobbs
January, 2013.

Financial Development & Marketing Limited is regulated by the Central Bank of Ireland
Unit W9A1, Tougher’s Business Park,
Newhall, Naas, Co. Kildare.
Tel: +353 45 409364
Fax: +353 45 409196
Email: eddie@eddiehobbs.com

Tick Tock

Tick Tock. Led by a former INTO activist Minister Brendan Howlin, secret talks begin among the insider officer class on the continued oppression of the Irish people, those not on the Croke Park deal payroll. Tick Tock.

Political antennas twitching in the flux of shifting public opinion are detecting a savage change of mood as all the low hanging fruit is gone and with it the blustering rhetoric from this parody of a "reform" Coalition. Tick tock. Young politicians, those who cannot cruise into obscene pension entitlements over the next few years, fear what comes after. Tick Tock. Minister Simon Coveney publicly refuses to adopt dodgy accounting practices for phantom non payroll savings. Tick Tock.

Fianna Fail the architects, Fine Gael the turncoats and Labour the apologists, will shortly find themselves facing middle class wrath, a rage against the conventional political class itself.

RTÉ

This week I resigned as a presenter on RTE's Consumer Show but remain on good terms even though I despair at the direction of some of its current affairs. Watch out for My Civil War Monday night December 3rd 9.30 as I take three young adults on a time machine back to the chaos and it's effect on their families. The hour long programme is a gem from RTE's hidden diamond, its documentary unit.

12 Ways to Reform Ireland

A new centrist political movement is an inevitable response to the hegemony of the tired, failed and old mainstream parties and the recklessness of socialist economics espoused by Sinn Fein and the ULA. Expect a raft of new lines of thinking like;

1. The Prime Objective to be a relentless lifting of the Minimum Basic Income for all citizens and the eventual elimination of poverty and inequality.
2. Government policy and infrastructure is robustly tested against the Prime Objective which means a transformation into a lean State, intolerant of waste so that there is maximum pass through to those most at risk.
3. Public jobs are interlocked with and expressed as a multiple of the Minimum Basic Income (MBI) and cannot be lifted without first lifting the MBI.
4. Nothing survives if it is an obstacle to achieving the prime objective, that includes anti-competitive agreements and practices in the private economy and public cartels designed to reward the few at the expense of the many.
5. Power is reversed, citizens use cash and credits to drive competition and efficiency in protection services delivered by competing state and private agencies
6. All debates about privatisation versus public ownership of non-essential services is framed within the Prime Objective and less at risk to being hijacked by pressure groups
7. Income taxes begin above the MBI, everyone pays in a simplified tax code that moves towards flat taxes, where success is not punished and where rates are set to support the Prime Objective and not an ideology.
8. Public pensions are capped at what is affordable and a new universal pension scheme replaces both private and public schemes with equality of treatment.
9. Government in sunshine laws are enacted to outlaw unrecorded and unpublished lobbying of Government or officials. Everything is reported on websites.
10. No one gets privileged access and freedom of information becomes the benchmark of liberty.
11. New technologies are deployed to engage citizen debate in parliamentary choices and as a fast track to frequent referendums on key decisions.
12. Minimum competency standards are introduced for all parliamentarians covering economics, finance, administration and ethics with annual continuous professional development.

RTÉ Current Affairs and The Broken Pensions Model

First published Daily Star Nov 8th

On Monday night November 5th RTÉ completed two hours of TV “specials” on pensions. The first special was a year ago and was presented by George Lee. It was billed as dealing with the viability of the Irish pension model. Instead it went on a tangent to pursue the daft charges in parts of private pensions. Monday night told the story of retirement poverty, and notably, all within the private economy. Primetime, Tuesday night Nov 6th, covered obscene pensions to AIB’s officer class but did not venture near the lavish pots of those of the permanent government and its political officer class, where vast numbers of them run €4m to €6m each. Newstalk’s Breakfast show made the obvious link the following morning.

In over two hours of broadcasting on pensions, RTÉ has not scoped out the problem, highlighted the gross inequality of massive tax transfers to an insider elite and offered possible solutions. By doing so it has not served public debate perhaps for fear of fomenting anger by threading through the social injustice swamp of the apartheid Irish worker remuneration model.

RTÉ is big and bold enough to take criticism and, heaven knows, it is not short of razor sharp and talented journalists but it, itself, is a microcosm of the gross inequity in retirement provisioning as many of its older and more senior staff enjoy the protection of a defined benefit scheme while it's youngsters travel second class, in a hybrid. This is reflected across Irish pension provisioning but why should a better paid and privileged minority continue to reap wealth transfers from everyone else, simply because of the date on their birth certs?

In the private economy the injustice is much worse with one in four workers barreling towards retirement poverty without a cent saved, because they can't afford to. Most of those who can save will end up with pensions worth no more than three or four grand a year while public workers, already enjoying a 50% salary premium, expect on average to get seven times more - at least on paper.

The truth is that the €120bn public sector pension liability mountain can never be paid and neither can the old age pension. The model is shattered and in case you're wondering nobody bothered ringing to ask me why. Indeed in some weaker parts of RTÉ, my guess is that Rip Off Republic in 2005 which challenged how Ireland was run, has been buried with a headstone inscribed “partial, unbalanced, never again”. Perhaps so, but RTÉ itself has sown its own legacy in this crisis, a legacy for its best journalists to start asking some probing questions before it is too late;

Why, in four years of this economic and social crisis has there been no RTÉ special benchmarking managerial public sector remuneration against EU peer groups?

Why has there been no RTÉ special highlighting the public sector ponzi scheme and it's obscene manipulation to enrich a small few at the expense of the majority?

And why will there be no RTÉ “special” drawing the clear link between the pillaging of scarce resources under a public cartel and the savagery of the next budget?

If advocating for equal treatment and solidarity between private and public sector workers is wrong, then isn’t it better to be guilty of it? If it is seen as revolutionary to call for the tearing down of the walls between insiders and outsiders, then isn’t it better to be so? And if, as I suspect, that middle Ireland shortly moves into open revolt against the establishment, the conventional political parties and the public sector elite, doesn’t it make more sense to be part of it?

- Eddie Hobbs

Seven years ago I wrote and presented Rip Off Republic for RTE. Since, it’s been hard to get back in to the topic of how Ireland is run. On Friday Oct 19th The Wall Street Journal published my analysis, highlighting it on their front cover on the morning EU leaders and Civil servants breakfast. It has not been yet mentioned by RTE. It is here; click to view.

It’s Fiscal Expansion or Bust

This commentary can be read with detailed supporting graphs. If you’d like to have these to hand just pop us an email and ask for the market guide graphs, to eddie@eddiehobbs.com.

Having increased exposure into “risky” funds for clients as the second half of 2012 opened, I continue to remain cautious about going further until there is more certainty about the direction of the global economy. Well, we are truly on a journey into the unknown now. The best minds in economics cannot un-wrap the puzzle and are split into two opposing camps; the Austrian’s who decry artificial money expansion and believe that it will end in a heap of hyperinflation and the Keynesians who believe in stimulus almost at any price, determining that canny Central Bankers can reverse the worse effects as economies carry forward under their own steam.

The debate seems to be settled now. The IMF has thrown in the towel on over-aggressive austerity, determining that every Euro extra in taxes and spending cuts is not having the effect of taking 50 cents out of the economy but maybe as high as nearly two Euros! That’s a whopper of a strategic u-turn. So looks like the dye is cast, it’s more fiscal expansion. You’ll see the rate of expansion in the US, UK and EZ monetary base among the graphs.

Hold on for the ride. On both sides of the Atlantic both the FED and the ECB under Draghi are committed to open-ended, almost unlimited money printing as developed economic regions battle with the headwinds of high unemployment, poor consumer sentiment and high debts, both private and national. Meanwhile The Bank of Japan has come to the party as has the Chinese Government, determined to plateau its slowdown at about 7% GDP growth.

The Inflation/Deflation Fight

The big global arm wrestle fight between downward deflationary forces from excess unemployment, tepid consumer demand and poor credit markets and upward inflationary forces from money printing and higher commodity prices has created a hiatus. On both sides of the Atlantic inflation, which is currently mute, at least on official measures, remains range bound between 2% and 3%, but watch this space because repairing credit markets and rebounding consumer sentiment and property values especially in the US, will tip the balance towards an inflation break out. Remember Central Banks and Governments caught between heading inflation off at the pass by rising interest rates and reversing quantitative easing too early will risk a big double dip recession. That might partially explain the continued rise of precious metal prices especially gold, which when looked at as a currency or store of value, continues not to disappoint those fleeing holding cash purely in fiat currencies.

Right now the USA is showing increasing strength, pockmarked occasionally by reversals in early economic indicators. But rising car sales, which are also mirrored in China is a good indicator, as is an improving property market after several years of deleveraging by US consumers. Europe remains in much worse shape badly damaged by the lethargic and confused policy from its leaders but with Merkel, now supporting Draghi, there are grounds for some optimism that the Eurozone will find a way, even if over very bumpy waters and slowed by domestic German political concerns until its next general election.

And so we maintain a watching brief as we head towards the Winter but a watch with cautious optimism that a 2008 reversal or worse can be avoided, albeit at the price of inflation much higher than the current consensus.

Will it Work?

Is it working? Will it work? If it does, just what kind of inflation will we be left with? Well we’ll know in time. In these early days it’s pretty damn well impossible to tell if positives are sustainable or purely driven by stimulus. The stock market, although, loving the sustained low borrowing rates and increased easing by Central Banks is, itself, uncertain. The US stock market is selling at 13 times earnings well below historical peaks, meanwhile the European stock market is nearly 40% below its former peaks representing a juicy buying opportunity if you’re convinced that Europe will rebound.

Notwithstanding the backsliding by the German, Dutch and Finnish finance ministers, there is certainly much better hope for the Eurozone. The decision by Prime Minister’s in July to move to a banking union and to break the link between the Sovereign and its banks by ESM intervention and OMT is a big step forward. European bond yields have come down, Spain awaits calling for assistance and even the Greeks now look less likely to jump overboard. Still, while these steps will steady the ship it’s impossible to see how excessive national and private debt can be carried forward indefinitely without relief in the form of haircuts or, which may be more likely now, by inflation.

- Eddie Hobbs

Want to really grasp the Irish economy through all the BS? Set aside two hours, a glass of water and a vase of anti-depressants because it’s all contained in the latest tome by the IMF who clearly understand the gaffe better than many of our mouthiest politicians. Here’s some sobering takeaways;

• The debt overhang is a shocking 210% of disposable income, double the USA. Spain's is 130%, UK 150%. Even ten years into the crisis, by 2017, Ireland will still be at 185%- way above the starting point of other stressed economies.
• Net Wealth has collapsed by a third and continues to fall while taxes have risen steeply. GDP per capita in 1985 at €17k rose to €40k by 2007 but has fallen back to €36k.
• Getting your income chewed alive at 52% happens in Ireland now at just once the average wage for a single PAYE worker, that’s a little under €33 grand. In the UK where the top bite is also 52% you need to be earning 4.4 times the average wage and 8.3 times in the US where the top bite is 43%. Even in socially-minded Sweden where the top is 57%, it kicks in at 1.5 times average wage and at 1.8 times in Finland.
• Nearly half of our combined savings is being directed to paying off debt, taking cash out of the domestic economy which can't recover without new lending. The estimated real growth in income is just 0.2% pa. Without intense debt restructuring and some debt relief, how can consumer spending recover to create jobs?
• During the madness, the entry level before you entered the tax net, doubled to 50% per capita GDP meanwhile day to day Government spending jumped from 27% to 38% of GDP. For example social welfare doubled, child benefit trebled and health and education combined, leapt 118% mostly on pay.
• The IMF who state they believe in equal sharing of the burden while protecting the weakest, did not prescribe Property Tax at 0.5%, but suggested that it would be pointless below 0.2% of value. Evidently the recent headlines are Government spin, painting the IMF as the bogeyman to bind up coalition divisions.
• Home affordability is back to 2001 levels relative to per capita income but the damn debt overhang is as dampening as the lack of credit.
• Finally, just in case you thought I was making it up, the IMF tell us that Public pay in Ireland is 3% of GNP higher than the EU average and named as especially high are Secondary Teachers, Nurses and Hospital Consultants - much of the payroll. No need to take a pill for that one.

- Eddie Hobbs

Joan Burton should really ring Matt Elderfield at The Central Bank where they take defining advice seriously. The Minister is setting up a panel of Accountants who are to explain bank mortgage restructuring proposals to distressed homeowners. Funny thing though, the terms of engagement preclude Accountants from, well, actually giving advice. They may only give information and for the privilege Joan’s new breed of bank clerks are to get €250 plus Vat a pop. Now call me picky but surely that doubles the problem?

First the Accountants can't give advice, then they get paid by the bank, and so are acting as the banks agent. Now I know lots of Accountants, folk who take their profession, independence and integrity quite seriously and I can't see many, except the cash-starved, happy to act as bank patsies in political theatre orchestrated a Minister who, evidently, has gone native.