Ireland

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

And the award for the most prosaic and "Field Marshall Obvious" statement of the day goes to Irish finance minister Michael Noonan, who just told the Dail that Irish sovereign debt is sustainable if the economy grows. We have just one question: how does the brand new minister, who therefore gets the benefit of the doubt for a few more hours, justify that statement, with the attached chart?

One can be rest assured those Irish haircuts are coming. Will the other indebted EU nations just sit back as Ireland clips its debt without following suit? Doubtful! Remember, I have been warning of this event for over a year, and the daisy chain effect is still being ignored.

When even Goldman's summary update on Ireland, which conveniently ignores today's news that the country may be preparing for a senior bondholder haircut and most certainly ignores last week's dump of Irish paper by LCH Clearnet from the repo market), is unable to find much if anything good to say about Irish bonds it is really time to get out of dodge (not like anyone was still left in it). The kicker in Francesco Garzarelli's just released analysis: "With around EUR 30bn worth of senior bonds maturing in 2011-12 (40% of
which is not already government guaranteed) and under continued
reduction of funding efficiency of the covered bond program, rolling
over maturing debt remains indeed one of the biggest challenges faced by
the Irish banks." Everything else is noise. Add to this the Portuguese government crisis, its own funding crunch, and the rapidly deteriorating German political crisis and Europe will be a very fun place over the next few months. In fact for once we agree with Goldman: "In light of this, Irish bonds [ZH: aka Paddy Paper] will continue to exhibit high volatility, in our view."