News
A guaranteed recession

By Michael O’Connor
The bond market has shot back into focus in recent weeks.
For the last 40 years, it has been home to one of the most impressive bull runs in history.
The disinflationary period from the early 1980s saw the structural decline of interest rates. Bizarrely, US Treasury Bonds were offering 16% a year back in 1980, a far cry from the pennies on offer today.
Over the intervening years, continuous interest rate cuts were needed to facilitate GDP growth, but as rates approached zero, the central banks' weapon of choice ran out of ammo. Interest rates are now rising again as inflation persists.
The 10-year treasury has gone from a low of 0.5% in the summer of 2020 to 2.4% as of the end of March.
As the four-decade bull run comes to an end, what's next?
Is the negative correlation between equities and bonds, the cornerstone of a diversified portfolio, now officially dead?
Is a recession imminent?
Recession Rumours
If historical indicators are to be believed, then a recession is on the horizon. At the end of Q1, we saw multiple yield curve inversion, reigniting debates about an imminent recession.
Yield curve inversions between 2- and 10-year bonds have long been regarded as a solid indicator of a recession in the next 12 to 24 months.
In simple terms, a yield curve inversion occurs when the interest rate paid on short-term debt is higher than the interest rate paid on long-term debt of the same quality.
In a healthy economy, the yield curve should be upward sloping (longer-term rates higher than short-term rates). Logically this makes sense as investors seek higher returns as a reward for the greater uncertainty that comes with investing over longer periods.
When short-term interest rates exceed long-term rates, market sentiment suggests that the long-term outlook is poor, and the yields offered by long-term fixed income will continue to fall.
But like everything, it's not quite that simple.
Since 1978 there have been six inversions of the yield curve.
While the above data shows yield curve inversions have accurately predicted recessions in the past, not all instances of yield curve inversions have resulted in recessions.
The 2- and 10-year yield curve has inverted 28 times since 1900, and in 22 of those instances, a recession has followed.
While an indicator that accurately predicts a recession over 75% of the time shouldn't be ignored, some material changes in recent years need to be considered.
Firstly, the Fed's manipulation of the yield curve has been well documented. I will stop short of saying this time is different, but the Feds intervention in the bond market over the prior decade suggests that a yield curve inversion may not be as valuable an indicator as it once was.
For example, we saw a yield curve inversion in August 2019, yet US stocks are up almost 70% since then. A switch to cash over this period would have meant missing out on the fastest bull run in history.
Another issue with inferring asset allocation decisions following a yield curve inversion is, even with this predictive information to hand, the alternative investment options are not as obvious as you might think. At least not across traditional asset classes.
While US stock returns for the one-year period following a yield curve inversion are lower (4.7% vs. 9.0% during all other one-year periods), the data also suggests that US Treasury Bonds will underperform US stocks over this period.
A paper from Eugene Fama and Kenneth French concluded:
"We find no evidence that inverted yield curves predict stocks will underperform Treasury bills for forecast periods of one, two, three and five years"
So, while recent data may suggest that equity markets will experience slowing growth, switching to bonds or cash is not the answer.
Stay the course.
"Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves" - Peter Lynch.
To learn how to protect your portfolio in a recession, go to theislandinvestor.com.
News
Fossa School says ‘bonjour’ to French classes

Fossa National School is giving its pupils a headstart in learning a new language.
The school signed up to Language Sampler scheme as part of the ‘Say Yes to Languages’ initiative in primary schools organised by Post Primary languages Ireland in 2021. This is the school’s third year running the module.
Hélène Olivier-Courtney, the school’s French teacher and director of French For All Killarney School of French, covers ten schools in Kerry over the three terms.
The success of the initiative relies on an all-school approach and the active involvement of class teachers and management.
“The whole staff in Fossa certainly helped make this new journey a special and enjoyable experience for the children as we learnt French through art, songs, games and food tasting! This year, we also organised a catwalk on our last day. Our sixth-class students will have such a head start before secondary school and most importantly will have develop curiosity interest and love for the language,” said Hélène.
News
Opinion: Silent majority needs to stand up and call out far-right hate

By Chris Davies
Last Friday’s Dublin Riots should not have come as a surprise to anyone. It has been bubbling under the surface of Irish society for a good number of years now. The actions of a small minority last week was a culmination of years of racism, hatred and misinformation shared online by far-right groups.
Late on Friday night a disturbing WhatsApp voice note was doing the rounds on social media where a far-right actor could clearly be heard encouraging violence on the streets of Dublin.
“’Seven o’clock, be in town. Everyone bally up, tool up…Any foreigner, just kill them”
Watching the Riots unfold on social media brought me back to when I was working in Dublin a number of years back. My morning commute from Skerries to the city centre involved a dart to Connolly Station followed by a short trip on the Luas to the Jervis. Every week, without fail, I would witness at least one racial slur or attack on someone who didn’t fit the narrow minded view of what an Irish person should look, dress or talk like. I don’t know if it is the eerie silence of public transport that seems to amplify the situation, but that’s where I found it to be most common. The abuse was usually perpetrated by a group of youths or someone who was clearly under the influence of drink or drugs. The victims were always of colour, often dressed smartly enough to presume they were on their way, or coming from work. A far cry from the perpetrators who you could tell were roaming aimlessly around the city looking for trouble.
While shameful to admit, I would often look on and watch the abuse unfold, only to spend the rest of my work day thinking about the poor person who was told to “F*&K off back to your own country”. I would sit at my desk questioning why I didn’t step in and say something. There were one or two occasions where I did step in and call it out, but not nearly often enough.
This disgusting behaviour is much more visible in our cities. Since moving back to Killarney I wouldn’t witness as much direct abuse on the streets but working with the Killarney Advertiser I would be tuned in to local news and some of the comments I read on our social platforms are far worse than anything I witnessed during my time in Dublin.
There is a significant group of people in Ireland that I would call the ‘silent majority’. We are not as outspoken on issues we care about. We tend to observe and consume the news quietly, and only speak of our support or disgust on certain issues in close circles, too afraid we might offend someone. The problem with this is that we are leaving these far-right groups unchallenged, to become louder, more aggressive and more hostile as seen last week.
The past week Sinn Fein and the Social Democrats have been busy in the media expressing no confidence in Justice Minister Helen McEntee and Garda Commissioner Drew Harris but I would suggest that there is a large percentage of the Irish population that bears some of the responsibility. We witness racism in our communities and online every day and we need to start speaking up and calling it out.
On the issue of immigration in Killarney, there is no doubt resources are being stretched and our tourism industry is suffering as a result of an influx of immigration. Locals have also raised concerns in relation to the placement of so many male international protection applicants in one setting and we only have to look back on the incident in Hotel Killarney last year where a number of men were involved in a harrowing stabbing incident to see how that played out.
However, being concerned around immigration is not the same as anti-immigration. It is important to raise these issues with local representatives and Kerry TD’s but also to separate ourselves from far-right groups who are only interested in encouraging violence.
The anarchy we witnessed last week should never be the answer and research shows it is completely unnecessary. Harvard University have looked at hundreds of protests over the last century, and found that non-violent campaigns are twice as likely to achieve their goals as violent campaigns and that it only takes around 3.5% of the population actively participating in the protests to ensure serious political change.
Let’s continue to protest peacefully for issues we believe in, but stand up and speak out against people and movements in our community that incite hate and violence.