Ireland

Sitting At The Edge Of The World

Whether it is the EU running to the G-20, nations in Asia, the IMF or Spain and Italy and their brethren calling for Eurobonds the distinction is easily made; you pay or you pay or you pay because I cannot. That is the cry in the wilderness as politely, very politely, quite politely everyone says, “No thank you.” The curtain is going down on the show and the normal pleas are being made to keep the spectacle in operation but the pocketbooks are closed and Germany and the rest are not going to bet the family farm when the final act draws nigh. The Elves in the boulders cackle and the “invisible people” move on and sigh as the ending of one more chapter is inscribed in the Book of Life.

Guest Post: US Citizens Now One Step Closer To Becoming Permanent Tax Slaves

My sense is that the government has been watching the number of expatriates rise over the years, and simultaneously watching the value of the exit tax fall… and they’ve been looking for an excuse to make sweeping (i.e. retroactive) changes. Eduardo Saverin is the perfect excuse. The Facebook co-founder’s recent renunciation of US citizenship has become a rallying cry for politicians to go back in time and steal money from former citizens retroactively…plus establish a larger base for future tax revenues. This is a truly despicable thing to do considering that these former citizens followed the appropriate rules at the time, paid the tax, and moved on with their lives. Now Uncle Sam wants to go back in time to unilaterally change the deal, and expect everyone to abide even though they’re not even citizens anymore. The arrogance is overwhelming. More importantly, this bill is also a major deterrent for people who are thinking about renouncing US citizenship today.

Things That Make You Go Hmmm - Such As The "Grexit"

“I don’t envisage, not even for one second, Greece leaving. This is nonsense, this is propaganda.”

– Jean-Claude Juncker, Chairman EuroGroup FinMin Committee

 

When it becomes serious, you have to lie.’’

– Jean-Claude Juncker, Same guy

Forget The "Bazookas": Here Come The "Tomahawks" And "Howitzers" - An R-Rated Walk Thru The Greek Endgame

"So lets "run" through the mechanics of a Greek bank run. ... The end is of course ECB printing, Eurobonds and every developed market central bank dumping massive liquidity into the global financial markets as systemic risks rise - QE, LTROs, Currency swaps, and every funding facility under the sun come into play. The path to this end game will be bumpy, but make no mistake, the developed market central banks will dump so much fiat on the system to cover the losses, that risk free real rates will plummet to levels so negative that anyone left holding cash or cash equivalents will see massive destruction of real wealth. We may have to push risk assets a bit lower from here, but the global central banks will be firing howitzers and tomahawks very shortly, not bazookas!"

The Elephant In The Room: European Capital (Out)flows And Another €215 Billion In Spanish Deposit Flight

Frequent readers know that Citi's Matt King is our favorite analyst from the bailed out firm. Which is why we read his latest just released piece with great interest. And unfortunately for our European readers, if King is right, things in Europe are going to get far worse, before they get better, if at all. Because while one may speculate about political jawboning, the intricacies of summit backstabbing, and other generic nonsense, the one most important topic as discussed lately, is that terminal event that any financial system suffers just before it implodes or is bailed out: full scale bank runs. It is here where King's observations, himself a member of a TBTF bank which would likely be dragged down in any cash outflow avalanche, are most disturbing: "In Greece, Ireland, and Portugal, foreign deposits have fallen by an average of 52%, and foreign government bond holdings by an average of 33%, from their peaks. The same move in Spain and Italy, taking into account the fall that has taken place already, would imply a further €215bn and €214bn in capital flight respectively, skewed towards deposits in the case of Spain and towards government bonds in the case of Italy....Economic deterioration, ratings downgrades and especially a Greek exit would almost certainly significantly accelerate the timescale and increase the amounts of these outflows." That's right: according to Citi there is a distinct likelihood that, all else equal, the domestic bank sector in Spain will see another €215 billion in deposit outflows.

The Keynesian Emperor, Undressed

The standard Keynesian narrative that "Households and countries are not spending because they can’t borrow the funds to do so, and the best way to revive growth, the argument goes, is to find ways to get the money flowing again." is not working. In fact, former IMF Director Raghuram Rajan points out, today’s economic troubles are not simply the result of inadequate demand but the result, equally, of a distorted supply side as technology and foreign competition means that "advanced economies were losing their ability to grow by making useful things." Detailing his view of the mistakes of the Keynesian dream, Rajan notes "The growth that these countries engineered, with its dependence on borrowing, proved unsustainable.", and critically his conclusion that the industrial countries have a choice. They can act as if all is well except that their consumers are in a funk and so what John Maynard Keynes called “animal spirits” must be revived through stimulus measures. Or they can treat the crisis as a wake-up call and move to fix all that has been papered over in the last few decades and thus put themselves in a better position to take advantage of coming opportunities.

On Europe And The United States Of Facebook And JPM

The policy responses and hints of policy responses are starting to come out.  What will they be, how big will they be, and what will they accomplish remains to be seen, but the market is due to rally on almost anything. We expect some announcements out of Europe.  A policy shift towards “growth” and some new ECB plans. We don’t think they will work well, especially if they don’t address the root of depositor fear in Spain, Ireland, Portugal, and Italy, but with so many indicators pointing to oversold conditions, the markets could snap back, and that is the way Peter Tchir of TF Market Advisors is leaning.

The Mortgage Crisis Hits France Front And Center: Are French Bank Nationalizations Imminent?

Name the plunging bond shown on the left. If you said some sovereign or corporate issue based out of Spain, Italy, Ireland, Portugal, or even Greece you would be close... but no cigar. No - the bond in question is an issue of Caisse Centrale du Credit Immobilier de France (3CIF), which together with its sister entity CIF Euromortgage (CIFE), is  a 100% subsidiary of Credit Immobilier de France Development (CIFD), which as Fitch describes it, is a French "housing loans specialist, with business exclusively directed to France." CIFD is in turn owned by Procivis Group, which just happens to be France's second largest full-service real estate group.

Ireland And Portugal Resume Their Places Among Europe's Teetering Dominos

While all eyes are focused on Greece (and contagiously Spain), they have forgotten that two far weaker countries still exits - and combined have the power to do as much (if not more) damage than Spain. Portugal and Ireland have moved back into the Red-Zone of risk in Europe's credit markets. Ireland back over 700bps and Portugal back over 1200bps reflects both their idiosyncratic issues (that we have discussed at length) or the systemic issues (which we discussed most recently this morning here). In the case of Portugal, it appears the Dan Loeb trade (we said to fade it) is now being unwound en masse as the reality of the fundamental risks we discussed here seem to be realized. In the case of Ireland, not only is there a rising chance of a 'no' vote at the forthcoming referendum (discussed here) but as Deutsche Bank notes today, via Bloomberg, that Irish banks may face a further $5.1 billion capital call to cover loan losses as "A new, even modest, increase in capital requirements could deter sovereign investor participation and tip the balance in favor of the sovereign requiring a second loan program." Of course the CDS reflect not just the chance of these nations restructuring but also the probability of a EUR devaluation (since the instruments are denominated in USD) but still - we thought Ireland was the template for the success of austerity?

Will The European Union Destroy Itself Just To Save The Euro?

David McWilliams (of Punk Economics) begins his latest excellent discussion by conjuring Clint Eastwood and noting that when it comes to the Fiscal Compact in Europe "they are pissing down our backs and telling us that it is raining". The Fiscal Compact will NOT strengthen the Euro but in fact by cementing the austerity agenda into law it will make the political environment even more unstable. The Irishman goes on to discuss why Europe is imploding as he insightfully notes that "financial panics do not cause the destruction of wealth, financial panics merely tell you the extent to which wealth has been destroyed by reckless speculation". The realization that current account deficits and not budget deficits were always the problem in Europe which leaves the fiscal compact akin to a doctor prescribing chemotherapy for heart disease. McWilliams explains why France has seen such a change and why the fiscal compact has nothing to do with the Euro but is all about reassuring the German electorate that they will be protected from the consequences of a monetary union that they were bounced into in the nineties; as they are terrified of 'Peripheraid' - the constant drip-drip feeding of German cash to the periphery. Critically, driving to his final discussion of how the Irish should vote on the referendum - remembering that the German elites want a Federal Republic of Europe and that the entire union is in the midst of a massive negotiation - he lays out in cartoon simplicity why Germany is stuck with a massive personal interest in 'cleaning up the EU neighborhood'. Ireland should not give up cheaply in the referendum 'poker match' as all nations try and figure out who the sucker at the table is. Must-watch clip to comprehend the 'game' occurring in Europe and how it is changing very recently.