On Dead Rental Money

It’s a subject I try to avoid. But, at least once a month I will be berated by family, friends or work-mates for apparently throwing money away on rent. Being married with no home was greeted with quiet horror, but after announcing we now have a baby on the way and have still no plans to buy, people are beginning to shake their heads. “Would you not like to have your own place?”, “There is real value in the market now”, or the classic “Sure rent is dead money, you’d be better off with a mortgage”. Our decision just doesn’t compute for most people I meet. It’s like I am telling them 2+2 is 5.

I always want to defend my position, but an adequate defense is tricky for two reasons. The first is the difficult task of trying to dislodge the very fixed ideas Irish people have about the economics of buying house in a short conversation. And the second is not wanting to offend people who are generally heavily invested in the home-owning game with my estimates of what their houses are, and will be, worth. Schadenfreude is not an attractive characteristic to give off even if I bear none. Indeed I take absolutely no glee in the financial hell many people will find themselves in over the coming years because they followed the path of home ownership at all costs.

The Bank of Ireland Elf pondering getting up to her ears in mortgage debt circa. 2007

The Bank of Ireland Elf pondering getting up to her ears in mortgage debt circa. 2007

I can very easily see if you never left the country during the boom years, you could have got sucked into the great property cult. It was heavily reinforced by the media, the banks, parents and friends who had made a killing. Luckily, I left at the turn of the millennium, and headed to Los Angeles for a few years. Upon my return in 2002, I immediately noticed something very strange. Apartments in Dublin which friends very buying were going for 50% more than the equivalent in a flash neighborhood like West Hollywood, despite higher wages and lower taxes in Los Angeles. I was continually pestered into buying a 1-bedroom apartment anywhere despite the fact I had just started work and needed a mortgage in my early twenties like a hole in the head.  After a year back in the country, I ended up jetting off again for another few years, far from the house buying mania.  Upon my return in early 2006, things had got even stranger. People were going into 40 year mortgages with friends, or worse still, with girlfriends they had only known a few months. The numbers most definitely didn’t stack up in 2006 right before the crash, and after two years of tumbling prices, they still don’t.

Without belaboring this piece with too much numbers, I will go through a simple example of what I mean. Currently I am renting a two-bedroom house in Blackrock, and the current market rate is about 1,300 euros per month, and the only capital I have tied up is 1,300 euros deposit. The current asking price of a similar house in the neighborhood is about 500K euros. A regular mortgage for such a house, assuming I have 50K euros deposit, would be approximately 2,000 euros per month. While I could deduct interest relief from this, with all the life assurance and other things required in holding a mortgage, I will leave it at 2,000. Repairs, plumbers, things like broken washing machines and rates will easily add 200 euros to the monthly bill, and then there is the income the 50,000 euros could be generating had I not bought. Even at today’s meager interest rates, that comes to about 100 euros a month. So the monthly outgoing is easily 2300 euros per month to own.

Now it is not fair to compare the 2300 euros directly with the 1300 euros, as the former includes a capital repayment component, which is the equivalent of saving over in the rental world. Capital repayments average out at about 550 euros over the first five years. This leaves a real differential each month of about 450 euros between renting and owning. So 550 chips away at the capital each month, but what about the rest of the mortgage payment? Surely those 1450 euros each month wasn’t a waste? This is the very tricky bit for most Irish people. You see, interest repayments also follow their deathly cousin, the monthly rent, into the undiscovered country from which no traveling cash returns. In other words, it is also “Dead Money”, to use the term I hate.

So over the first five years, I will have saved 27K euros by renting the same house. But what about the value of the house? I think in the current economic climate of deflation, rising taxes, and falling wages, house prices will be lucky to stay level over that period. Feeling very safe in my assumption house prices will not increase over the next five years, I will be at least 27K euros better off, but probably more. In fact much, I believe much more. Revaluing the house by crudely letting the cost of owning it move in line with the rental it commands, I estimate the house is actually worth between 250K and 300K. And this is assuming rents are not falling, which they are. So we have a long way to go yet in this house price crash. In fact, we are only half way there. I expect this house to drop a further 40 to 50%

And there are multiple other benefits to not owning a home besides not being exposed to the downside risk that seems apparent in the Irish market. Having liquid assets could prove useful in the uncertain economic climate, as will the ability to be mobile should the need arise to find work elsewhere.

So that is why I am over thirty, married, soon to be a parent, and horror-of-middle-class-ireland-horrors, still renting. But I can never explain that to people directly when asked, as I outlined above. One particular colleague continues to advise me to move back in with the parents despite having outlined my arguments to him multiple times. So I don’t even bother anymore, as I always just end up feeling like some sort of Armageddon mongering conspiracy theorist, who lives in a bizarro netherworld somewhere between living his parents and living his own home, whose main hobbies are throwing away vast amounts of money.

And even if I did get all the points across, and all the points were digested without further responses involving rental money and its lack of vitality, I would still be asked the reasonable question, “But wouldn’t you just like us to have your own place?”. The answer to that is yes, of course I would. But it will happen when it economically makes sense to us, not when other people tell us we should. A while I would not mind paying a reasonable premium for home ownership, I don’t think it should be 450 euros a month and a heavy dose of risk. So we may try to buy a house in five years, ten years, or even next month. But right now, I firmly believe it is still financial madness, married, single, with or without children

On Invention

There was a special Primetime program on RTE on Wednesday dedicated to the country’s economic predicament. The first half was heavy with the doom and gloom that has become so prevalent on the TV here.  A set of interviews with unemployed brickies and couples in negative equity, followed by a panel discussion, where the main participant from what I could see was George Lee’s ever more deeply furrowed brow.  However, to second half tried to be a little more upbeat, and the presenter,  Mark Lyttle, went out in search of some optimism and hope, exploring roads out the current mess.   The key message thrown forward was that a “Smart economy” (Knowledge Economy is so 2008) of innovation and invention would be required.  Several companies were profiled, and there was a discussion on how to drive invention in the country.

And who were these innovative companies?  NTR,  Creganna and Steorn.  Apparently NTR, of West-Link fame, have bought a company in Arizona developing solar Stirling engines, which while innovative, is only going to fatten the company’s coffers further, but not drive any real employment in Ireland.  It is still an improvement on gouging commuters for a living.  Creganna are a positive story, an indigenous producing innovative and viable biomedical products in an industry in which Ireland can compete.  The country badly needs more companies like it. 


Saviours of the economy?

 This brings me to Steorn.  Initially I laughed out loud about how we were pinning our hopes on a company that claims to have invented a perpetual motion machine.  Now while I am almost 100% sure that they are either a) not very good at taking correct measurements or b) a bunch of chancers and the whole thing is a continuous PR exercise to loosen gullible investor’s wallet, I tried to take something positive from it in these pessimistic times.  And there are some elements of the story I like.

Firstly, we need people challenging the so-called Laws of Physics, whether they are complete crackpots or people conducting legitimate research.  The term Laws of Physics has always made me uncomfortable.  It gives off the impression to the general public they are gospel, set in stone, some sort of platonic forms.  Whereas all they are in reality are base scientific rules we have learned from empirical evidence.  All the evidence we have found so far fits the rule, but we can never proves it is true.  The only thing we can do it possibly falsify them, and then come up with and new and improved rule.  Newton’s Law of Gravity becomes Einstein’s Law of General Relativity and so on.  And while this does not happen very often, it is no harm to have people continually pounding away at the foundations of science, just to make sure they are as solid as we think they are.

And then there is how Steorn claim to have invented the technology – Serendipity.  Accidentally discovering a perpetual motion machine while developing an anti-fraud device for a cash machine?  In this case it seems a little too big a leap to be credible.  But serendipity is the key to almost every great invention.  It is not too be confused with plain luck.  Louis Pasteur probably put it best when he said”In the fields of observation, chance favours only those minds that have been prepared”.  After the show, I talked to my dad about this idea and he reminded me of an invention of his own that came about from serendipity.  Working away in the UCD veterinary lab in the early 1960s, he was trying the concentrate the level of antibodies in a blood serum using a centrifuge.  He accidentally spun a test tube from the freezer than had not fully defrosted.  Along with noticing his mistake, he also noticed that some thick liquid that collected at the bottom resembled concentrated serum.  He tested it and found it was indeed concentrated serum.  Somehow, spinning half frozen serum was more successful than the regular method.  After a few more experiments, fine-tuning the temperature and centrifuge speed, he submitted a letter to Nature magazine,  “A Freezing-thawing Technique for Concentrating Antibodies in Serum”  outlining his method, although at this stage he did not know the exact underlying mechanism, merely that it worked.

Back in the 1960s, scientists only read journals in libraries, and without photocopiers, they would mail the authors for reprints.  My mum pulled out a dusty old bag that had been stored up in their attic, which contained over five hundred letters from laboratories and universities around the world that had been sent to my dad asking for reprints of the published letter.   Looking online, many biological and medical science papers in the 1960s cite my dad’s letter in Nature, with one Russian scientist referring to it in his 1966 paper as “McErlean’s Method of Concentration”.  Eventually a chemist wrote to him proposing the mechanism, and they fine-tuned the process further.  Essentially,  the ease at which serum is removed is due the to the fact that the water freezes first and the substances suspended or dissolved therein are trapped in the lattice work of ice crystals in a concentrated form and are removed by centrifugal force.  If the temperature is too high, the water doesn’t freeze, too low and everything gets frozen.  He never patented the idea, and it simply became standard laboratory practice over the years, his association with the idea fading from view.   He also managed to recover salts from solution using the same method, and it occurred to him later it could possibly be used as another method for de-salination of seawater.

Alexander Fleming was not very tidy

Unlike in this picture, Alexander Fleming's lab was apparently an untidy disorganised mess. If he had been tidy, we mightn't have antibiotics today

Serendipitous discoveries seem to be most prevalent in medicine, biology and pharmacology.  Possibly the two biggest weapons we have in fighting diseases, antibiotics and vaccination, were discovered accidentally by Alexander Fleming and Edward Jenner.  Fleming’s sloppiness meant fungus managed to grow on a sample he had forgotten about, and Jenner happened to be working in a rural community where cowpox and cow maids could be observed, something not possible if he had be working in an urban laboratory.  There was an rural myth about cowmaids being immune to smallpox and he was able to join the dots.  Another newer invention, reminiscent of Jenner’s, is that of this years Young Scientist winners, two 13-year-old boys from Cork, John O’Callaghan and Liam McCarthy.  They developed a cheap test for measuring the level of infection in dairy cows, by investigating a belief that infected milk visibly thickened when a drop of washing up liquid was added.  I doubt the initial person who spotted this deliberately added a drop of washing up liquid, and I doubt the two enterprising boys would have investigated and developed it further had they not lived on dairy farms, heard about the belief, and worried about the financial effects of undetected infection.

The bottom line to all this is we can try and plan a “Smart Economy”, but pouring money from a government venture capital funds into start-up companies and continuing billions in funding through SFI to heavily directed university research programs will not necessarily produce any immediately useful innovation.  Forced innovation has a very poor record. Instead, we need to focus on creating an army of prepared minds rather than a handful of PhDs, an army who are taught to question their everyday work, whether they are milking cows or designing anti-fraud systems for ATM machines.  And eventually someone, somewhere will eventually have a “That’s weird” moment, realise their mistake or result wasn’t a necessarily a bad one, and go on to discover something game changing.  And creating prepared, questioning minds starts well before university or industry, in a school system that promotes thinking, not learning things by rote, and practical application,  not repetitive homework.  And it would also help if we stopped being gloomy, downbeat and seeing failures before they happen.  And if they do happen, they are not always a bad thing.

On Bearded Union Leaders

With all the murmurings from Governments building about public sector pay cuts and the threats of “Mayhem” from the unions in today’s papers, if the stereotype holds true, there is one thing you can count on – Prepare to see much more angry facial hair on the nine o’clock news over the next few weeks. But how true is this stereotype of bearded union leaders and where does the trend come from? To answer the first question, I decided to do a highly scientific study of both opposing sides of the “Social Partners”, examining the level of facial hair in the members of their respective leaderships.


Jack O'Conor (SIPTU)- Standard Bearer

First up the left corner of the ring, we have SIPTU, ICTU and IMPACT. SIPTU is proudly lead by the heavily bearded Jack O’Connor (pictured), whose thick Sinn-Fein-esque face mane must be the envy of every shop-steward in the country. However, the remaining members of their board, Joe O’Flynn and Brendan Hayes have decided to go for the clean shaven look, giving SIPTU a disappointing 33% hit-rate. Over at ICTU, they only furnish one picture, that of David Begg, sporting a more dashing trimmed white beard and matching quiff. No other pictures of the leadership are available, giving ICTU the full 100%. I would give more points if I could for Mr Begg’s refined look, but I sure David would agree with me on union principles that all beard should be rewarded equally, independent of merit.


David Begg (ICTU) - The refined beard

Finally we have IMPACT, the public sector union that are going to be revving into full gear over the next few months opposing Lenihan’s plans. But are they equipped for the job? Well, General Secretary Peter McLoone is letting the side down badly, but his deputy Shay Cody makes amends with, if not the full beard at least a very impressive goatee, giving them a score of 50%. So overall, the leadership of the three main unions are going into battle with a beard ratio of 3/6 or 50%


Brendan McGinty (IBEC) and Jim Curran (ISME) - Committed capitalists or closet communists?

Over in the right corner of the ring, we have the government, IBEC, and ISME. While hardly ardent capitalists, the two Brians score full marks for the government with 0%. Heading further right, we have IBEC, and of the six men on their executive board, only Brendan McGinty is in trouble, with a dubious moustache. Not the full crime, I’ll let him off with half-marks, giving IBEC 8.3%. And finally, we have ISME. Again, six men on the executive, but Jim Curran had to go even further than Brendan with a goatee, which I will have to penalise fully. While ISME would consider themselves the true voice of free enterprise, over and above the semi-state influenced IBEC, their facial hair tells a different story, with a score of 12.5%. So no-one displays the full beard in the coalition of the government and the business bodies, but a goatee and moustache means that overall, they have a beard ratio of 1.5/14 or 11%

So the results are in. Irish union leaders are almost 5 times more likely to have a beard than their opposition in either government or the business bodies. The union beard is truly alive and well in 21st century Ireland, and will no doubt be getting bushier over the coming months. Now for the second question, where does this tradition come from and why do the union leaders persist with it?

I assume they are just copying a trend started their communist forefathers Karl Marx and Vladimir Lenin, and continued on by newer generations like Che and Castro right through to today. But what was the point of the original beards. Were Marx and Lenin really distinguishing themselves from the establishment with beards back in the 19th century? Hardly considering beards were much more the norm back then, for both the working man and the men at the top. However, Marx’s beard was a sensational effort, only really equalled by Charles Darwin, and of course the beard of their joint nemesis, God.

Perhaps it symbolises how the common working man might not be able to afford a fresh Gillette Mach 3 blade, and the extravagance of clean shaven faces on the union leadership would not display solidarity with their proletariat. Who knows?

On Taleb and Chesterton

Before heading off for the Christmas break in Oregon, I strolled into Blackrock to pick up two books for the trip.  First stop was Carraig Books, a little second hand bookstore on the way into the village opposite the library I hadn’t been into for years.  The front of the shop was mainly old books about Irish history and culture. The rear section was split evenly between a bizarrely large section of books on Catholicism (you have to see it to believe it), and one with a mix of general history and fiction.  What stood out though was an old portrait on G.K. Chesterton on the wall for sale for 750 euro, guarding the Catholic section, which I thought quite fitting considering his many works on apologetics.

methuenAnyway, down the back was a treasure trove of books by the big man and I picked up a little old book from 1933 called ” Methuen’s Library of Humour: G. K. Chesterton ” which is a collection of some his amusing essays on various topics, both trivial and serious, from his Edwardian day.  There was a list of other authors on the inside leaf that were also featured in the the same Methuen series, although the only ones I had heard off were P.G. Wodehouse and A.A. Milne.  It is interesting how few authors endure the generations, and Chesterton is a man whose profile hasn’t deserved to fade as much as it has.

I then proceeded to Dubray books to get something a little more contemporary and grabbed a copy of Nassim Nicholas Taleb’s “The Black Swan: The Impact of the Highly Improbable”.  This guy has turned into a media darling since the credit crunch started, I was interested to see what the fuss was about.

The Chesterton collection I devoured during the horrendous 46-hour weathered delayed journey to Portland, but Taleb’s book took me the trip to finish, as I only managed to read it in pieces between Christmas engagements. His quirky writing style actually suit this choppy reading quite well (check out this taster on his website).  The two men write about very different topics in very different eras, and yet have very much in common.

Chesterton’s essays ranged from light hearted discussion on the joys of lying in bed and the lack of cheese related literature (“Poets have been mysteriously quiet on the subject of cheese” ), to more scathing attacks on the changing face of his society.  He throws particular scorn at the philosophers and scientists of his day, who he refers in the singular as just “The Professor”, ridiculing his leaps of faith into material reductionism and his blind application of Darwinian theory to every realm of society’s problems.  I guess his debunking method could be referred to as in the reductio ad absurdum school.  A dogged love of the traditions of his homeland also shines through in almost all the stories.

the-black-swan4The main focus of Taleb’s book is to the debunk almost all modern financial mathematics, claiming that we rely too heavily on past experience and rigid mathematical models to predict a future whose greatest changes are caused by entirely unpredictable and improbable event he refers to as “Black Swans” ( Basically, all swans were assumed white until those ugly ones were discovered in Australia).  He saves particular ire for Nobel prize winning economists who use Gaussian distributions to design risk strategies.  I particularly enjoyed these sections, as I share similar opinions on economists in general.  However, despite the aim, he meanders at will into all sorts of shorts essays discussing everything from politics to his background in Lebanon, through to who he considers to be the world’s greatest thinkers.

Both books were very enjoyable are for similar reasons.  They made me think about everyday things in a different way, had very distinctive writing styles and unique humour. Both are attacking dogmatic self-righteous establishment views, and there take downs are very convincing.  I guess what I find most fascinating is just how broad a range on topics that they are able to discuss while still knowing what they are talking about and staying within their depth. So many modern authors have an incredibly narrow focus and concentrate on a single pet theory.  These two guys are able to step back, see the big picture, and how badly the modern theory or mindset fits into it.

Not much to complain about really but if I had to, I guess sometimes Chesterton’s christian drum can bang a little too loudly in the background, while Taleb sometimes gets a little too nasty when describing the suit wearing Nobel prize winning economists who live in the Bell-curve hills of “Mediocristan”.

With all this cold weather, if only a Taleb or Chesterton would come out of the woodwork and write a meandering humourous book taking down the dogmatism of global warming. Oops sorry, my error, I mean climate change. That’s what they are calling is now, right?

On Perseverance

There was an abundance of joggers pounding the frozen cements pavements tonight. While such activity on a Baltic night is a recipe for tearing cold muscles and breaking one’s neck, these people are not as mad as they appear. It is early January, and they are full swing into their new year’s resolutions of getting fit or losing weight. Inside in the warmth, I am starting this blog.

Basically, I would like an outlet to rant and rave about current affairs, review books I am reading, and highlight some of the many interesting facts and stories I obsessively research on a daily basis. After the cold streets clear out in February of miserable runners, will this blog still be in use?

Only time will tell………