Ireland

There's that name again: BlackRock, the world's largest asset manager, and the firm that was forced to deny last Wednesday it is in any trouble courtesy of accumulating unknown amounts of Italian bonds (how about a nice little Cusip list there Rick Reider?), just made the news following a report in Reuters that the firm anticipates massive haircuts in 3 of the 5 PIIGS. From Reuters: "Debt restructuring in Greece, Portugal and Ireland with write-downs for private creditors of 75 percent to 80 percent are needed to help stop Europe's debt crisis turning into a global meltdown, said BlackRock, one of the world's largest asset managers. "Governments are falling, bond yields are zig-zagging by whole percentage points and markets around the world are locking up: the euro zone turmoil risks turning into a global crisis," BlackRock said in a research note on Monday." So, let's see: Greece, Portugal and Ireland... But not Italy of course? The country that has the second largest amount of debt in Europe is somehow excluded from a very conflicted BlackRock's "objective" analysis. Why is that? "BlackRock also said the European Central Bank should buy more bonds and that policymakers should provide more details on the rescue fund and implement fiscal discipline without hurting growth, according to the note." Is BlackRock betting the farm that the ECB will bail it out? That didn't work too well for MF... Seriously, Rick, some CUSIP level breakdown of your Italian exposure would be terrific. Even if it is at the "net" level. We can wait. So can the market.

Previously we noted that, just as expected, the weakest PIIGS - Portugal and Ireland - wasted no time to start rumblings about a "suddenly slowing economy" in the aftermath of the Greek bail out which achieved nothing but to delay contagion by 48 hours (we won't bother readers with the blow out in Italian bond yields any more), and to unleash demands by everyone else to get the same concessions, in essence pushing Europe into an even deeper hole, forcing Golum Van Rompuystiltskin to say he was only kidding about the 4-5x EFSF leverage: he really meant 45x. Confirming that the tsunami of demands has been unleashed is today's announcement from the Bank of Spain that not only was Q3 GDP flat (read: negative), but that the deficit target for the year would not be achieved. Google translated from Expansion: "The Bank of Spain says the Spanish economic growth was zero in the third quarter from the previous quarter and warns that there are significant risks that may prevent achieving the deficit target this year. The Bank of Spain said that the information available for the third quarter suggests that the pattern of decline shown in the previous quarter "would have continued in the middle months of the year, in an environment marked by the deepening crisis of sovereign debt euro area." Truly nobody could have seen this coming, yet it is odd how it was casually slipped in broader discussion three short days after the Greek bailout.

Just about 48 hours after it was duly noted as the greatest threat to the Eurozone in the post bailout world, Germany finally grasps the enormity of what global moral hazard truly means. As we said before, the biggest risk facing Europe, and by that we mean undercapitlized French banks (all of them) obviously, is not Greece or what haircut is applied to the meaningless €100 billion in Greek debt when all the exclusions are accounted for. It is what happens when everyone else understands they now have a carte blanche to pull a Greece at will. And while until now we had some glimmer of hope there was a behind the scenes agreement for this glaringly obvious deterioration to not manifest itself, Merkel just opened her mouth and proved our worst fears wrong. As Reuters reports, "Chancellor Angela Merkel said on Friday it was important to prevent others from seeking debt reductions after European Union leaders struck a deal with private banks to accept a nominal 50 percent cut on their Greek government debt holdings. "In Europe it must be prevented that others come seeking a haircut," she said." Too late, Angie, far, far too late. Because, just as expected, here comes Ireland and literally a few hours ago, launched the first warning shot that will imminently lead to what will be demands to pari passu treatment with Greece. Next up: Portugal, Spain, and, of course, Italy, which however won't be faking its own economic slow down.

We take advantage of this brief lull in the European panic headline blasting for a comic interlude, presented without comment.

Who would have thought a few years ago that Moody's would be one of the biggest supporters of the gold bulls..."Moody's Investors Service has today downgraded Ireland's foreign- and local-currency government bond ratings by one notch to Ba1 from Baa3. The outlook on the ratings remains negative. The main driver of today's downgrade is the growing likelihood that participation of existing investors may be required as a pre-condition for any future rounds of official financing, should Ireland be unable to borrow at sustainable rates in the capital markets after the end of the current EU/IMF support programme at year-end 2013. Private sector creditor participation could be in the form of a debt re-profiling -- i.e., the rolling-over or swapping of a portion of debt for longer-maturity bonds with coupons below current market rates -- in proportion to the size of the creditors' holdings of debt that are coming due."

Just when you thought you had seen it all...

Gold and silver are flat in US dollars but higher in euros this morning. Trade is thin with the UK and US markets closed for spring holidays. Gold and silver were 1.75% and 8% higher last week and the precious metals and especially gold appear to be on solid footing due to the continuing debt crisis in Europe and concerns about a slowdown in the US and global economy. Despite gold being only some 2% away from the record nominal highs seen at the end of April ($1,563.70/oz), sentiment remains lackluster at best with little or no coverage of gold in the international financial press and media over the weekend. In the last two weeks we have experienced a lot of sell orders and the ratio of sell to buy orders has been the highest since our foundation in 2003. Value buyers emerged last week but much of the buying was by existing clients adding to their holdings. The threat of sovereign default and contagion increases by the day.

Greece hasn't even filed for bankruptcy yet and the "unexpected" consequences are already coming. In comments to The Sunday Times newspaper, Irish Transport Minister Leo Varadkar said the country will likely need another "unexpected" loan from the troica, after he became the first cabinet member to cast doubt in public on Ireland's ability to raise cash. In other words once on the temporary bailout wagon, always on the temporary bailout gain. Reuters reports: "I think it's very unlikely we'll be able to go back next year. I think it might take a bit longer ... 2013 might be possible but who knows?" Varadkar was quoted as saying. "It would mean a second program (of loans from the EU/IMF)," he said. "Either an extension of the existing program or a second program. I think that would generally be most people's view." We wonder how German taxpayers will fell now that they realize they have not one, not two, but three (and soon 5 or more) heroin addicts they need to clean, wash, scrub, and feed on a monthly basis (with their, and US money, but Americans continue to not care that the biggest source of capital for the IMF is them). And speaking of ground zero, Greece is now scrambling after the Independent said that even Sarkozy is now prepared to let the Greek chips falls where they may. Following earlier news that the troika believes that the privatization plan it itself set up is not ambitious enough, Greece which now realizes that Germany, the EU, IMF, and Franch all are prepared to let it go, the country is now coming up with last ditch ideas faster than a speeding bullet: according to Reuters: "A Greek paper reported on Sunday that the government was considering setting up a Spanish-style "bad bank" to clean up its lenders' accounts from "toxic" Greek bonds and make them more attractive to potential buyers." Of course since it is toxic Greek sovereign bonds we are talking about, this implies that the country will somehow be split into a "good" and "bad" version of itself. And who thought financial innovation only comes out of the US.

So in Europe socialist beggars can be choosers. According to Reuters, "Ireland  wants to reschedule debt issued under its EU/IMF rescue package and will not accept less favorable treatment than other bailed out countries in changing the deal, its public expenditure minister said on Thursday. Brendan Howlin told Reuters that the government intended to seek to reschedule the International Monetary Fund/European Union portion of its debt in due course. "Obviously long-term rescheduling of debt is something that would be desirable and we will deal with it," Howlin, appointed in March to the newly created expenditure department, said." Congratulations to Ireland- having been boxed into a corner so deep, Ireland has now downshifted from Mutual Assured Destrcution to Self-Assured Destruction unless its ultimatum is met.

Ireland just floated another proposal that is sure to be very popular with the general population: "The various tax reduction and additional expenditure measures which I am announcing today will be funded by way of a temporary levy on funded pension schemes and personal pension plans. I propose that the levy will apply at a rate of 0.6% to the capital value of assets under management in pension funds established in the State. It will apply for a period of 4 years commencing this year and is intended to raise about €470 million in each of those years. The levy will not apply to pension funds established here and providing services and benefits solely to non-resident employers and members....I am conscious of the concerns of the pensions industry about the impact of a levy in circumstances where the pensions sector, in common with other sectors in our economy and society, is finding the current economic and financial environment very challenging. However, the imposition of the levy is for a relatively short period and its purpose is to improve that environment by providing the means to encourage job creation in areas of our economy most likely to deliver that employment quickly."

And another economic fail, this time an attempt from Ireland to bury bad news on a royal wedding, later afternoon Friday:

• Ireland revises 2011 GDP growth to +0.8% from +1.7%; 2012 to +2.5% from 3.2%
• Irish govt revises 2013 deficit forecast to 7.2% from 5.8%; 2012 to 4.7% from 2.8%.
• Ireland revises 2011 debt/GDP forecast to 111% from 98.6%; 2012 to 116% from 102%

Which only means more stimulus. And since fiscal is out of the question (austerity remember, duh) it means monetary. Which means gold surges to $1,566.

The IMF has just released its latest "Fiscal Monitor" report which, not surprisingly, is as usual full of pretty charts that alas amount to pretty much nothing. What was surprising is the increasingly more antagonistic tone the IMF has taken with regard to the developed economies. In what could be a first, the IMF is starting to get increasingly realistic, and in the report notes that of all budget deficits in "selected countries", the US will hit the highest at 10.8%, the same as Ireland, and just ahead of Japan at 10%. And a direct stab at the US: "The United States needs to accelerate the adoption of credible measures to reduce debt ratios....Market concerns about sustainability remain subdued in the United States, but a further delay of action could be fiscally costly, with deficit increases exacerbated by rising yields." Other observations by the IMF: deficits in the Middle East could widen as governments increase subsidies to ease social tensions; higher food, fuel prices are likely to slow the pace of spending in emerging markets; US fiscal adjustments in 2012 are needed to put fiscal consolidation back on track. Oddly enough, the IMF which yesterday decided to trim GDP estimates very modestly even as it activated its SDR500 billion New Arrangements to Borrow line of credit, is Cottarelli's statement that the US still has a "lot of credibility." For now the rating agencies still seem to buy this load of BS.

And you thought the EU bailouts were a mess?

With TEPCO stock dropping to a fresh all time record overnight at just over Y300, it is pretty clear what the fate of the company is at this point. What was less clear is the fate of TEPCO debt, of which there is just over $90 billion, and which many had expected would be made whole once the company is nationalized. Well, one entity is not taking a chance. Three months after quietly excluding Irish bonds from its General Collateral basket, the Swiss National Bank, by far the most prudent of all central banks in the current race to the bottom regime, has decide to take out 600 million in CHF-denominated bonds out of the eligible basket. Perhaps this is an indication that at least one investor is not quite so sanguine about the lack of impairment in TEPCO bonds: all those who have been selling TEPCO CDS in hopes of a JGB-TEPCO compression trade may want to take note...

"The downgrade reflects our view of the concluding statement of the European Council (EC) meeting of March 24-25, 2011, that confirms our previously published expectations that (i) sovereign debt restructuring is a possible pre-condition to borrowing from the European Stability Mechanism (ESM), and (ii) senior unsecured government debt will be subordinated to ESM loans. Both features are, in our view, detrimental to the commercial creditors of EU sovereign ESM borrowers." Shocking