Simple lesson on Kerry economics.

We Kerry people are confident enough to admit that we don’t understand complicated “angle” on issues, which others pretend they understand. Our view is if you cannot understand it, then how can you use it to your advantage? With our back to the sea, we need all the advantage we can get.

I will try to explain in simple Kerry English what all these economic fundamentals are, so that you too can benefit even if you are not lucky enough to be from Kerry.

The price paid by the cattle dealer at the fair, was determined by how badly he wanted the bullock and how badly the farmer needed to sell the animal, because of lack of feeding or the necessity of cash to pay for the groceries. When there was a perceived scarcity of beef animals, it was easier for the farmer to LIQUIDATE his bullock. In other words he was able to turn him into cash. If the farmer was unable to get an adequate price to pay for the groceries, he had what economists now term a possible LIQUIDITY CRISIS. This means that his asset (bullock) wasn’t worth what he thought, but maybe it wasn’t fatal that day. He could at least pay part of the grocery debt.

But if his grocery debt continued to grow and his assets (bullocks) continued to drop in value, he would eventually become cash insolvent. The only other asset he could turn into cash would be his production base, ie his land. If he was forced to sell this into a depressed market, he wouldn’t get anything like the price he expected and his future capacity to pay for his groceries would be seriously diminished. He would eventually become bankrupt.

The farmer really only knew the value of his bullock when he and the cattle dealer spit and clasped each others hand at the end of the deal. All previous rumours about prices were merely speculation.

The same fundamentals exist today, but with 24/7 media coverage, the markets are fuelled by rumours and the “herd” instinct. 

The supposed “smart” cattle-dealer was the one who spread the rumour that he was rich and operated by “flipping” the bullock onto the shipper before he had to pay the farmer and took his margin from the deal. He was LEVERAGING many sales from a very small actual “wad of money”. This worked great until he eventually got greedier and started to believe his own publicity. Now he was buying larger numbers of bullocks and not flipping them over as fast, expecting the rising market to make even more money for him. This formula worked great until all of a sudden the market changed and started to fall. Initially he was in denial and continued to buy the cheaper cattle, hoping to make even more money when the prices would turn upwards again. Unfortunately for him, his stock was building in numbers and reducing in value, with reducing opportunities of trading on the bullocks. He was now “fecked”.

The same fundamental stepped process gripped the population as the Celtic Tiger gathered pace. The critical issue was to buy the asset irrespective of price and either flip it to make an immediate smaller capital gain, or hold onto it and gain a larger capital gain. While the economic wheel continued to turn at a pace, it appeared to be better than the roulette wheel, but when the wheel went into reverse, many got caught with their trousers down around their ankles and unable to run from the approaching tsunami. Trousers positioned like this are similar to a dairy cow being spangled with a rope to prevent her kicking.   

Trading on the market with money you really don’t have, but which you thought you had via your inflated unrealistic assets is gambling and is not risk management. Many had beginners luck and even though they had some initial absolute success, it was the greed of rolling up the winning into bigger compound bets which like the cattle dealer eventually “fecked” them up.

How many of you were intelligent enough not to go in for that last “big” deal? Were you just another gambler who had an initial luck run of deals, but then blew it all?

Blaise Brosnan

www.mriwex.ie