WORLD ECONOMY RETURNING TO NORMAL CYCLE - Wall Street markets rose for a third day in a row in the US, with the Dow Jones and S&P 500 ending just below 14-month highs after two economic reports continued to fuel optimism about the US economy. The two indices are both near their highest levels since October 2008. Meanwhile, the Nasdaq closed at its highest level since September 2008.
Frank O'Brien, of Frank O'Brien Investment Strategies, who has been watching the markets for many years, says that this time last year market watchers were simply 'terrified'. He said they were looking at the potential collapse of the financial system and what appeared like an impending depression. He says the markets are in a far better spot this year compared to last as governments and central banks throughout the year 'threw the kitchen sink' at the economies through very low interest rates, very loose money, quantitative easing and bank bail-outs. He says all these efforts are working, a world depression has been averted, the world recession has ended and recovery is underway and is being embedded in the normal cycle.
Mr O'Brien says that in a normal cycle - and he warns that no-one is yet sure if this is a normal cycle - bonds usually begin to rise because investors see rising activity associated with inflation. Inflation worries bond holders. Also equities start to perform better. As the recovery gets underway and as increased volumes of goods go through the factories and the shops, company profits can respond dramatically. He says this is especially the case this year in the US because costs have been cut so vastly and because of the weakness of the dollar. He says he has seen predictions of profits growth for companies around the world of about 30% for next year.
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MORNING BRIEFS - the ESRI says Ireland will emerge from recession next year, but fragile growth risks being attacked by interest rate rises - both by the Irish banks on their own, and when the ECB puts rates up to deal with growth in France and Germany.
*** The board of NAMA was announced yesterday. An interesting appointee is Stephen Seelig. While working for the International Monetary Fund, he told the Government that its definition of 'long-term economic value' on bank loans in the draft NAMA Bill was 'masterful' as it was 'sufficiently specific' and 'sufficiently vague' to allow 'appropriate flexibility'.
*** CityJet, the Swords based subsidiary of Air France KLM, made an operating loss of €55.4m in the year to March last even though its passenger numbers rose by 5%. The losses are down to a fall-off in business travellers and higher charges at London City Airport, the airport Irish financier Dermot Desmond sold to a US consortium for an estimated £750m sterling three years ago. CityJet's average fare from Dublin to London City Airport fell by 18% over the year.
*** AIB will hold its EGM at its headquarters in Ballsbridge in Dublin later this morning. Assembled shareholders will vote on its participation in NAMA. Yesterday AIB shares jumped 18.7% to €1.23 after steep falls on Monday.
*** On the currency markets, the euro is trading at $1.4264 cents and 89.38 pence sterling.
