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Chapter 1: What recent economic data was discussed regarding interest rates?
The other hand is part of the ACAST Creator Network. Hi, Chris. We're recording on Thursday afternoon. It's been quite a busy week on the interest rate front. We had the Bank of Japan. We had the Bank of England. And we had the Federal Reserve. I want to talk about those. We had some economic statistics out of Ireland that I want to start with. We got house price data for April. And as...
Always with the CSO, they break the house price analysis into three broad categories. There's the national average, there's the Dublin market, and there's the rest of the country outside of Dublin. So the national average prices were unchanged on the month, and the annual growth rate has fallen to 6.2%, down from 6.7%.
In January, outside of Dublin, prices increased by 0.1%, 6.9% year on year, down from 7.2% in January. And in Dublin, prices fell again by 0.1%. The annual rate is down to 5.4%. down from 6% in January. So in the first four months of the year that we have data for house price data certainly showing some softening in terms of prices.
I have to say I'm not remotely surprised by that because if you look at all of the uncertainty that's been out there over the past while in relation to Iran, if you look at the kind of nervousness that's creeping in about the implications of AI for employment and wages and so on. And of course, there is the point about affordability.
You know, prices have increased so much that there is a limit to what people can afford. pay for houses. So anyway, I regard this as good news, a softening of the market. It might bring some sanity back in. But talking about sanity, in April, prices nationally were 25.2% above April 2007 peak. In Dublin, 10.1% above the February 2007 peak. And in the rest of Ireland, 28% above the May 2007 peak.
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Chapter 2: How are house prices changing in Ireland and what does it mean?
You know what I'm going to say now, don't you? Yeah, I do. Yeah, I'm going to start banging on about it in real terms.
Real terms, real terms.
Does that mean Dublin prices are lower than they were in 2007? In real terms, yes, Chris. Yeah, that's quite a sobering thought, isn't it? But probably welcome from a young person house buying perspective. They probably don't feel it in the way that a numbers geek like me or you would. But falling house prices in real terms, it's probably a good thing, isn't it?
Yeah, it is indeed. Absolutely. But tell me, Chris, when you are measuring house prices in real terms, what...
deflator do you use? Well, that's always a good question because there's no perfect one to use. What you're trying to get at is purchasing power, I suppose, of the average house purchaser. So the right thing to deflate it by would be wage growth over that time. So you bang for your wage buck and wages have certainly grown quite a lot over that time. What is it, 2007 you said? 2007, yeah.
Nearly 20 years of wage growth. So, you know, that's going to be a lot. I mean, wages are probably... Up, what are they, 80% in that period? 4% a year? Probably. That's interest rather than compound. But 4% a year, I can't do it in my head. 3% or 4% a year compounded over 19 years is going to be a lot more than that house price increase, isn't it? Yeah.
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Chapter 3: What insights were shared about the implications of AI on employment?
average wage earners will be getting more house for their buck. And so, you know, I wonder why politicians don't actually trumpet this a bit more, but anyway, um, it's, it's also the case over here, Jim, before we came on air, we were chatting about London and I'd been there over the last few days and it was as vibrant and hot as it ever is.
You certainly don't get the impression of London on the slide, which is the debate that I've been having with one of our commenters. But I also know that I know several people trying to sell two-bedroom flats at the moment, and you can't give them away with your cornflakes in London, in certain areas anyway. And that is a slight exaggeration, of course, before anybody jumps on me.
But yeah, I think that property prices are slowly, slowly adjusting back to something like reality in both jurisdictions.
Yeah, hopefully. We also got merchandise trade data for April. And in the month of April, exports were down 13.2% year on year. with the medical and pharmaceutical exports down by 27.9%. Exports to the US in April were down by 45.1%. To the UK, up by 38.6%. And to the European Union, 27, down 4.4%. So a weak export performance in April. by and large.
If you look at the first four months of the year, exports are down by 37.2%. Exports to the States down by 71.5%. The UK up 34.7% and the EU down by 6.2%. Chemical and pharma exports down 55.8%. Food down 1.7% and machinery and equipment down up 51.6%.
So on the face of it, a very weak export performance that will have significant implications for the GDP measure insofar as that has any relevance in this country. And indeed, a few podcasts ago, I spoke about the first quarter GDP data for Ireland, which was incredibly weak, down by 12.1% on the quarter. over 17% year on year.
So just to remind listeners again what happened last year in the first seven or eight months of the year, we had a massive surge in exports, particularly chemical and pharma, driven by tariff uncertainty. That sort of growth was never going to be sustainable, impossible. And in the last six months, we've seen a very significant tailing off in that export performance. So
I guess the most the most important point here was really 25 was unsustainable. 26 is bringing us back to a sense of normality. And I think if you if you look at it over the two year period, you know, the export performance continues to be pretty strong and stable. But I stress again, the implications of this for measures GDP growth are, already, but increasingly, will be very, very significant.
On the interest rate front, we saw the Bank of Japan earlier in the week increasing rates by a quarter of 1% to 1%, the highest level since September 1995. The rationale given was to prevent the Iran shock, fueling broader inflation. And the Bank of Japan has said that it will continue raising rates as warranted by economic price and financial developments.
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Chapter 4: What was the recent performance of exports and its impact on GDP?
And, um, Very much in data watching mode for the foreseeable future. I guess if there was a risk in the next six months that rates go up or down, it's probably up. But I'd be surprised if that happens, I think.
Well, we spoke the other day and I think certainly I said that I thought they probably would go. So yet again, another forecast that goes... Belly up. And I think they've been helped by two developments this week. One was the actual inflation data out of the UK, which came in a bit better than expected. 2.8%, yeah.
That's right, which was, I think, a lot of people expecting the big number to be three. So that was helpful for them. And, of course, the other big deal, which we'll talk about later, is... let's use this phrase carefully, the end of the war and the opening of the Strait of Hormuz.
And I think that's probably pushed them into your camp, Jim, which is saying that the inflation that they've got, they can look through and that with all prices falling in the way that they have been over the last few days, they're off a lot now from their peak. They're still not back to where they were before the war, before the war started. But as I say, I think those two things...
would have persuaded wavering members of the Bank of England's Monetary Policy Committee to say, OK, well, let's wait and see. The markets are now pricing in one rate hike this year. But I suspect that's a very tentative conclusion because, as you say, the Bank of England is in wait and watch mode.
I was talking to somebody this afternoon who was at a briefing from Gabriel McClough. the central bank governor here. And he was asked the question, apparently, given what has happened in the last few days on the war front, given that oil prices are now down at around $78 a barrel, would the ECB have made the same decision today as it did a week ago? I'll bet he didn't answer the question.
He did answer the question. He said 100% would have made the same decision. Oh, that's interesting. If they had the benefit of foresight last Thursday, they'd still have increased rates because they are very concerned about the second round effects of inflation. And he spoke about fertilizer prices. I've no idea how... Increasing interest rates can bring fertilizer prices down.
But anyway, this is what central banks think about. It's second round effects. It's inflation becoming entrenched. It's managing expectations.
And on that, one of the surprise contributors to the positive inflation news, positive in the sense that it was good news, inflation coming in lower than expected, was lower food prices here in the UK than expected yesterday. So that would be what Mr. McClough would be worried about would be the effect of fertilizer prices going up on ultimately food prices.
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Chapter 5: How did the Bank of Japan's interest rate decision affect global markets?
We talked about how Andy Haldane, the ex-chief economist of the Bank of England, made the same arguments over the weekend. So everybody seems to be in wait and see mode, Jim.
The Federal Reserve meeting on Wednesday night, a very significant meeting. The first one chaired by Kevin Warsh, the new chairperson or chairman of the Federal Reserve meeting. As we know, Trump has been at his predecessor, Jay Powell, for the last while, calling him an idiot because he wasn't cutting rates.
So a few months back, there was certainly some concern that Warsh would bow to that sort of pressure and just be a lackey for Trump. He didn't. Rates were left unchanged. And it was it was interesting. The economic commentary went with it. You know, the economic activity is expanding at a solid pace. Productivity, growth and capital investment strong. Job gains are strong.
Inflation remains elevated. And against that sort of backdrop, the bias that the Federal Reserve had towards an easing of monetary policy increased. they've got rid of that. They've dropped that bias towards lower rates. And interestingly, nine Fed officials around the table anticipated borrowing costs will rise by the end of the year.
There's 19 relevant Fed officials, as I say, nine anticipated higher borrowing costs. And actually, Kevin Warsh himself did not submit his own forecast. Okay. There you are. The bias on US rates is probably now in an upward direction.
So let's see what happens. I think that ultimately events might turn out and vindicate your original stance, which was the advice you gave central bankers, was to sit back and do nothing. So all these fears about significantly higher interest rates, higher mortgage rates, higher car loan rates, credit card rates, may yet not come to pass, Jim. So I have to say tentatively, I'm congratulating you.
Ah, jeez, you're flattering me, Chris. Thank you. What else is there going on? Well, obviously, the Iranian war situation. We've had the 50th announcement that a deal is being done or on the brink of being done. 300 billion fund for Iran's reconstruction and economic development. And I saw a headline last night and I never got back to check it. It was in the middle of the English soccer match.
Fine performance by England, let it be said. But anyway, in the middle of that match, I saw a headline that the US will not contribute to that fund. Well, it's not clear who's going to contribute.
Yeah, exactly.
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Chapter 6: What is the significance of the Federal Reserve's recent meeting?
That's what I was wondering. Where is this money going to come from? It's hardly going to come from all of those neighbours of Iran that it just bombed the crap out of during the war. I would have thought not. So where is this money going to come from? The private sector to develop Iranian oil infrastructure?
You know, we heard similar chatter at the time of Trump's defenestration of Maduro in Venezuela, that all these American oil companies are going to be piling tens and hundreds of billions of dollars into oil. Venezuelan oil production. And I don't think much of that has been forthcoming. So it's very easy to say there's going to be a $300 billion fund.
But the detail, as with much of this so-called deal, is missing. And it's not a deal. This is your 90-second reminder, Jim, as if you need it. that this is not a deal, it's a page and a half, according to J.D. Vance, of a memorandum of understanding. And it amounts to Trump saying, I started this war, I pitched the U.S.
military, the greatest fighting machine history has ever seen, against this puny, tiny economy, really. Big country, lots of people, but...
a very small weak economy all things considered I pitched my military machine against theirs and I lost Iran has won I've lost and we are now going back to a situation that is worse than the day before the war started and of course it's worse from a strategic point of view because Iran now has leverage over the Strait of Hormuz that it never really knew that it had before now it knows now it really knows this is far from over
I hope it is. They've got 60 days. Most of the people that purport to know about these things are saying it'll last a lot longer than 60 days and the negotiations will just go on and on and on. And there's always a risk that the fighting starts again. My expectation is that they'll still be talking this time next year.
And if, I stress, if they ever come to a final agreement, it will be probably where they left off, which was Obama's deal with the Iranians where they promise not to develop nuclear weapons, but they continue to do so. Um, um, as I say, I think this represents a strategic defeat. Um, I've seen speculation by some commentators that it's Trump's Katrina moment.
You might remember when hurricane Katrina hit New Orleans, and that was the beginning of the end of George Bush because he was seen to have really messed up the United States response to a domestic disaster. This is possibly America's biggest foreign policy disaster since Vietnam.
It may even rank equivalent to it in terms of treasure lost, lives lost, blood shed, and failing to achieve the original objective. Of course, one of the problems with it, we never knew what the original objective was, and we probably never will. But I do think that this is...
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Chapter 7: How does the ongoing conflict in Ukraine influence global politics?
Because the more daylight you can put between yourself and Trump on this particular issue, if not several others... the more successful you're going to be. Markets have taken it well, Jim, in the sense that equities haven't done a super-sore-away thing. They've continued in some cases to tread water. That would be Europe. United States is up a bit.
The area of the world that's doing really well from a stock market point of view is super-sore-away emerging markets. They're really on a tear. Because arguably, not arguably, they were going to be the worst hit from the Iran war and the oil price hike and therefore are benefiting most from the end of the war, hopefully, and the subsequent fall in oil prices.
I mean, we got well north of $100 a barrel at the peak, Jim. And now we're just, I think, as I speak, under $74. So that's quite a fall, isn't it? We're not back to the $60, which is what we would all hope for. But so far, so good.
The question, of course, is the sustainability of oil price at these levels, regardless of what happens on the...
peace negotiations front but the damage to oil infrastructure how long it's going to take to clear the Strait of Hormuz and so on there are all these uncertainties out there but it certainly is good news and let's hope that this is sustained yeah as you said who absolutely knows at this juncture Chris in the UK today we have the well today Thursday We have the macrofield by election.
And by the time this podcast is actually posted, we'll know the result. And Keir Starmer will probably know his future. I don't think it amounts to much, to be honest. I don't think Keir Starmer has much of a political future. I think that maybe even by the time this podcast is posted, the leadership election will have been launched. I don't think so. I think that's going to wait a little while.
It's quite pathetic listening to him offer Andy Burnham a cabinet post and in the Labour government, should he win the Lakerfield by-election. I suspect that Starmer, if Andy Burnham wins, as the opinion polls say he will, I think that if I was his close advisor, his partner or whatever, I would say time's up, mate. Go quietly, go in a dignified way. It hasn't worked.
You haven't been a good prime minister. Arguably, you could soften the blow by saying nobody could have been a good prime minister given the inheritance that you had. You could say all these sorts of nice things. You gave it a good go. Time to shuffle off the stage. The problem we've got here in the UK is that Andy Burnham is a bit of an unknown quantity.
We don't know what kind of policies he would pursue. He's claimed that he's a socialist and that his success in Manchester was all down to socialism of one kind or another. In fact, it was down to very good public-private sector cooperation and a lot of private sector as well. So not exactly socialism. Not exactly socialism.
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Chapter 8: What role does AI play in today's economic landscape?
And a lot of people are starting to say he's sounding more and more like Keir Starmer in terms of policy. In other words, there isn't much there. but he's a more charismatic, amiable chap.
And people are noticing, for example, that Farage has actually, Nigel Farage has had some missteps recently by appearing to be whipping up, shall we say, racist sentiments by calling for cold anger on the streets. And he scores his biggest political success really through his charisma, through his cheeky chappy image of the sort of bloke you'd like to have a pint with.
And, you know, it's about him smiling, not scowling. And one of the things Keir Starmer lacks, one of the many things he lacks is charisma. And if Andy Burnham is just Keir Starmer with a better smile, then, you know, I think that things are not going to get any better here very quickly.
OK, we wait and see. Chris, I want to ask you a question that's way above my intellectual capacity to answer. I've been thinking about the difference between risk and uncertainty, how you categorize where we are at the moment. I'm coming from left field on this now.
Well, you know the original distinction was made by somebody called Frank Knight. Frank Knight, yeah. the mean expectation of this particular variable is 50% or whatever it is. Uncertainty is about an event in the future that we can form no probabilities about whatsoever.
And I think that one of the problems that we got, Mervyn King and somebody else, I can't remember who it was, wrote a book called Radical Uncertainty a couple of years ago. Great book, actually. Essentially talking about all of these issues. I'm interested in why you asked the question, because let me guess as to why you asked the question.
We live in an uncertain world rather than a risky world in the sense that we are saying, let's wait and see. We've no idea how to form a probability about whatever, you know, from interest rates to whatever. It's particularly uncertain and maybe radically uncertain. And John Kay was the other. Oh, yeah. Mervyn King and John Kay. I've got the book here on my shelves. Thoroughly recommend it.
If that's what you're hinting at there by your question, I would absolutely agree that... Economists are fond of saying we live in particularly uncertain times. You can't, by definition, always be in particularly uncertain times. But I think it is a reasonable thing to say that trying to forecast anything at the moment is extremely difficult, verging on impossible.
Is that what you were going to say?
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