Many years ago, I spent a summer working in Canada, where the national hero at the time was Wayne Gretzky, the brilliant ice hockey player. Gretzky was so good that when he retired, his number – 99 – was retired from all North American professional hockey teams.
His most famous quote followed a simple question from a commentator about why he was so successful. Gretzky didn’t even think, he just responded as if it were the most simple thing in the world: “I skate to where the puck is going, not where it’s been.”
The same applies to economics. When looking at the economy, we have to be ready for where it is going next, not so much where it has been. Therefore, we should look at leading, not lagging, indicators.
I believe that one of the non-scientific but accurate leading indicators in this country is the attitude of senior bankers. Bankers’ attitudes are significant because credit made the economy buzz. I think we are at the beginning of a renewed lending cycle which will drive up asset prices as well as lubricate the economy in a way we haven’t seen since the early 2000s.
So, rather than focus on what the new regime, spun by the government as a “victory” against the banks, means for variable mortgage holders, we should interpret this move by the banks as the beginning of a new phase in the economy’s trajectory which will involve lots of new credit.
That fact that the banks are going to reduce the spread on their mortgage lending from July is a sign that their balance sheets are repaired. Had there still been worries about the balance between performing and bad loans, the banks would have dug their heels in.
They are ready to lend again. The banks are now in a race with each other for market share. Bank of Ireland will try to steal a march on its nationalised competitors in the months ahead, and the bosses of the nationalised banks will do anything they can to accelerate the process of privatisation, because they will make money from the sale. At the moment, their stock options are worth nothing, but they will be turned into cash when the banks are resold.
Self-interest is what drives these guys, so they will be nice as pie to Michael Noonan in the next few months. Expect them to reduce variable rates a little more, because it means the last political obstacle to a sale is removed. The government is playing yesterday’s game, while the banks are on to tomorrow. It is interesting that the government’s rather pathetic aim in all this is to get all mortgage rates under 4 per cent by the end of the year. But why only 4 per cent? After all, deposit rates are zero, so why should the banks make a whopping 4 per cent margin on every loan?
The banks played the government like a violin on this one, pretending to show resistance to changes in the variable rate and then walking away with a massive prize. The prize is the government’s acceptance that making a 4 per cent margin is “normal”, when it is rapacious. Worse still, it is being played as a victory for the common man, when it is nothing of the sort. It is a carte blanche to the bankers, again.
The game the banks are playing is clever, because they want to be free of government interference in order to lend as much as possible, again. Right now, I think the economy is growing much faster than people understand. The key is that the consumer is back in the game. The banks sense this.
A recent publication about credit card spending is very interesting in this regard. Last week, I spoke to the board of Visa, who were in Dublin for their annual board shindig. Visa and other credit cards are fascinating leading indicators of the economy, because activity in credit tells you what people are doing right now and expecting to do in the future.
Visa has devised a consumer index which tells you, four months ahead of official figures, what people are doing, how much they are spending on plastic and in what areas.
Ask yourself: do you use your credit cards on smaller and smaller purchases these days? If the answer is yes, then you are typical of the Irish punter because they are spending more and more on smaller and smaller things with their debit or credit cards.
The Visa indicator picks up this activity. There was an increase in year-on-year spending of 4.3 per cent in April on cards. This is interesting because up to now the idea has been that domestic demand is slow but it’s not.
According to Visa, its index showed strong performance by retail-facing categories with spending on food and drink up 9.2 per cent and e-commerce spending up by 7.8 per cent, while traditional retail spending is growing by close to 3 per cent.
One of the best leading indicators of people being confident again is spending on household goods in DIY shops. This is the territory on which DIY Declan and Deckland thrived in my Pope’s Children yarn a decade ago. They are back in business, a decade later. Last month it was up 8.6 per cent, while clothing and footwear saw an expansion of 6.4 per cent.
Parts of the economy are moving strongly now. The bankers know this, which is why they are playing ball with the state. In ice hockey parlance, the state is worried about where the puck is when it should be really concerned about where it is going to be. There is no better indicator of this than the attitude of the country’s senior bankers.
It wasn’t them who blinked first last week but the government.
Plus ça change.
David, Are these consumer indices publicly available? They sound fascinating…
Subscribe
“Rebuilt their balance sheet”. It’s always slightly suspicious when these sorts of terms are used. Like “extraordinary rendition’. ‘Rebuilt their balance sheet’ means having made outsize profits for something like 8 years. Every economic media person, politician, and of course the bankers themselves go to considerable lengths to have you believe that this is because they are good business men, and somehow smart. Of course, with one minute’s thought you would realise that these profits are made because there is no competition. This means that the banks are colluding to hold up prices. This is illegal. A fraud. This means… Read more »
“Rebuilt their balance sheet”. It’s always slightly suspicious when these sorts of terms are used. Like “extraordinary rendition’. ‘Rebuilt their balance sheet’ means having made outsize profits for something like 8 years. Every economic media person, politician, and of course the bankers themselves go to considerable lengths to have you believe that this is because they are good business men, and somehow smart. Of course, with one minute’s thought you would realise that these profits are made because there is no competition. This means that the banks are colluding to hold up prices. This is illegal. A fraud. This means… Read more »
Or not DB that is the question! Apologies.
Hi,
The article is fascinating and upbeat. It doesn’t consider the wider macro view though. Deposit rates are zero because the world economy is fucked because of too much debt. You hero is skating beautifully on an ice floor which is on the top deck of the titanic.
What is becoming more obvious though is that if debts are too big they will be written down to a sustainable level and life will go on.
This article has given me great hope.
Michael.
https://hat4uk.wordpress.com/2015/05/25/analysis-u-turn-if-you-want-to-neoliberalism-is-for-burning/
In the past year both Lidl and ALDI have begun accepting credit cards. As a result I personally now use the credit card instead of cash every week at those shops for convienence.
Given their size and the fact every family uses supernarkets,
I just wonder what percentage of the increase in credit card usage they may be responsible for.
Interesting though that its a leading economic indicator.
“so why should the banks make a whopping 4 per cent margin on every loan?” Why do you perpetuate the myth that banks use regular business practice. You refuse to address fractional reserve banking. Banks are the only business in town that can create inventory from thin air and sell the “product ” to a “customer” and then charge interest to do so. Margin is a myth. Banks lend 10 times (or 20 and 30 times ) more than is held on deposit. your 4% margin is at minimum a 40% margin. Then add in the sales of these loans… Read more »
Another quote from Gretsky is his answer when asked why He scored so often. His answer was along the lines of “I aim at the net and some shots go in”.
The author of this blog in my opinion spends a lot of time as a defender and continually sends random shots into the other end. Very seldom does he aim at the net.
No examination of the money system is to be undertaken while we are smothered and distracted with anecdotal stories from around the world. Most are of minor consequence compared with the real problem.
https://mail.google.com/mail/u/0/#inbox/14d8bdba5d2d9968?projector=1
The money system on film.
Thanks to Awaken longford and others.
This is a shot on goal!!
Howya ‘lads’? Had a really bizarre dream that I caught the boat from Holyhead to Dublin on Sat evening to find myself in the midst of ArmaGaydonn with politicians dancing with drag queens till dawn. #MarRef was like some hideous mantra in my brain. It’s a relief to vist this site and realise it was all a dream/nightmare [delete as applicable depending on your point of view] Now that Bono’s doing the Glory Supporter stuff, I’m like, *rollseyesI but was genuwinely disturbed/surprised DMcW didn’t pre-vote boast about his prescience on this topic. Most recent articles on Fish & Ye Olde… Read more »
yeah, right
http://arstechnica.co.uk/tech-policy/2015/05/eu-dropped-plans-for-safer-pesticides-because-of-ttip-and-pressure-from-us/
Where is the puck going ?
http://www.telegraph.co.uk/news/worldnews/europe/eu/11630468/France-and-Germany-behind-plans-for-common-EU-corporation-tax.html
Time for the media to assure everybody that funny taxation policies will run forever.
We are once again back in the realms of financial illusion with respect to the Irish economy. In other words – it is all bullsh!t. I reckon that Ireland is very close STILL the most indebted country (private plus public) in the world. A nation of Charlie Haugheys looking for a lifestyle, and entertaining some massive illusions about self worth, and expenditure. The whole illusion is propped up by low US FRB interest rates, low ECB interest rates, a deliberate policy of non-reform of the Irish institutional state, and a media that continues to brainwash people concerning the true financial… Read more »
Posted at lemetropolecafe “As of this week, Citicorp, JPMorgan Chase, Barclays and Royal Bank of Scotland are felons, having pleaded guilty on Wednesday to criminal charges of conspiring to rig the value of the world’s currencies. According to the Justice Department, the lengthy and lucrative conspiracy enabled the banks to pad their profits without regard to fairness, the law or the public good. “Besides the criminal label, however, nothing much has changed for the banks. And that means nothing much has changed for the public. There is no meaningful accountability in the plea deals and, by extension, no meaningful deterrence… Read more »
China sets up largest gold fund XI’AN, May 23 (Xinhua) — A gold sector fund involving countries along the ancient Silk Road has been set up in northwest China’s Xi’an City during an ongoing forum on investment and trade this weekend. The fund, led by Shanghai Gold Exchange (SGE), is expected to raise an estimated 100 billion yuan (16.1 billion U.S. Dollars) in three phases. China is the world’s largest gold producer, and also a major importer and consumer of gold. Among the 65 countries along the routes of the Silk Road Economic Belt and the 21st-Century Maritime Silk Road,… Read more »
http://investmentresearchdynamics.com/democracy-is-long-dead-in-the-u-s-meet-alec/
Democracy is Dead in this country. The Citizens United vs. Federal Election Commission Supreme Court ruling sealed that fate. If you think your vote ever matters, it doesn’t. Anyone who thinks voting makes a difference is either hopelessly in denial or tragically ignorant.
“It’s A Coup D’Etat,” David Stockman Warns “Central Banks Are Out Of Control” Submitted by Tyler Durden on 05/24/2015 13:30 -0400 We’re all about to be taken to the woodshed, warns David Stockman in this excellent interview. The huge wealth disparity is “not because of some flaw in capitalism, or Reagan tax cuts, or even the greed of Wall Street; the problem is central banks that are out of control.” Simply put, they have “syphoned financial resources into pure gambling” and the people that own the stocks and bonds get the huge financial windfall. “The 10% at the top own… Read more »
” If you were sitting on a jury . . . and looked at all the evidence, you would say guilty beyond a reasonable doubt. People don’t want to go there because we (GATA) are taking on all the money and power in the world.”
http://usawatchdog.com/rising-gold-price-could-set-off-derivative-nightmare-bill-murphy/
http://usawatchdog.com/60000-gold-may-be-laughably-low-bill-holter/
DB, in reply to your most recent comment above (the column width is larger here). Let me try to explain again. Grzegorz says that Bendit Cohn is a paedophile and links to a short video as evidence. I just watched it again (it is short) and it does not, in my opinion prove his case. Look at it again yourself, carefully. What he said was in public and he was not trying to hide anything. I certainly see it as at least dodgy, irresponsible and in poor taste (just as, to a lesser degree, I find casual swearing or graphic… Read more »
DB Finally, I didn’t follow the Max Clifford case but would not be surprised if he was locked up for nothing. I’ll have to have a look some time. Cyril Smith appears to have been unjustly dealt with. http://www.spiked-online.com/newsite/article/cyril-smith-no-justice-for-dead-men/14942 Cyril Smith feeds in, apparently, to the current Westminster Paedophile Scandal. This is the one about which Newsnight recently said (remember), and with a straight face, that witnesses could not come forward because they were afraid of the Official Secrets Act. The possibility that witnesses (*named* witnesses) have so far not stepped forward is because they don’t exist and the the… Read more »
China is buying up mining assets around the world.
http://www.scmp.com/business/commodities/article/1810014/chinese-firm-zijin-mining-group-buys-us710m-gold-and-copper
Are we all going ballistic!!!!
http://www.equedia.com/nuclear-arms-race-threatens-world/?utm_source=May+24%2C+2015&utm_campaign=May+24%2C+2015&utm_medium=email
My missing emails of the last 4 daYS ARE ARRIVING NOW!!
This one which is worth reporting and posting again as it asks whether Island is willing to try to skate where the puck is going to be.
http://awaken-longford.com/2015/05/24/ireland-once-again-shows-the-way-are-we-capable-of-obliterating-another-ingrained-fallacy/
Going unobtrusively to where the puck will be. It is called reading the game!! Met up with David Tice (of Prudent Bear note), Grant Williams and my friend Jim Smith here in Dallas last evening. Was most enjoyable amidst all the thunder, lightning, and tornado sirens going off. Grant has been going around the world listening to what some very important people have to say, interviewing a number of them. A common theme is that many expect market convulsions in the not too distant future … the same theme shared by many of the presenters in this space. Not to… Read more »
Here is a message to take to heart “That economists would concoct such an absurd explanation for negative interest rates, an explanation obviously contradicted by empirical evidence, shows that economists are now prostitutes just like the media. The economists are lying in support of a Federal Reserve policy that benefits a handful of mega-banks at the expense of the rest of the world.” Now you know why the banks make bulging profits. And haw many times have I said this equivalent!!!!!!!!!! “The absence of integrity in Western institutions and politicized professions is proof that Western civilization has declined into total… Read more »
http://investmentresearchdynamics.com/bullish-news-for-precious-metals-and-goldsilver-get-paper-smashed/
Collusion, corruption, creates coming chaos.
https://iman.infusionsoft.com/app/linkClick/67193/11b1864b3a0ed416/203537163/42fb822860e640a7
Wanna go fight for the freedom of your country??
Get your cash out of the bank, now, while you still can.
http://www.sovereignman.com/offshore-banking-2/the-coming-capital-controls-are-designed-to-protect-the-banks-from-you-17081/?inf_contact_key=82089bd27211a77a83a8000e058aa2968083610cfdd97eea4256c76fd9c8a519
The belief that there has ever been a standoff or so much as a momentary friction between our fevering representatives in Government and the ever tricking bankers is a false one. That this government operates with the best interests of the people at heart is simply false. Perception and reality may be occasionally and insolently discriminated through application of facts. But let us avoid those for now and talk of generalities. Again the outcome slaps us squarely as a conundrum of probability. That the ‘Banks’ make out like bandits; again and again and again, what luck the have! And always… Read more »