I’ve set my laser from stun to kill”.. “Great, if anyone attacks we can blink em to death…

Mint – Bill Blain’s Morning Porridge  - March 14 2013

I’ve set my laser from stun to kill”.. “Great, if anyone attacks we can blink em to death…

This morning: Ireland, European fault-lines, Greece worries, Buy the Nikkei, Germany/Italy wealth discrepancy simplified.

Markets opened and market closed. Lots happened in between, including a new Pope. (Argentina? Italian v2.1 methinks) I was busy out trying to find buyers for a new bilateral (and very exciting) deal we are putting together, and then trying to understand what’s happening. If Ukrainian chicken farms can raise new money, who can’t! (I can assure you, our new deal is much much better.) Tonight's EU statements on Cyprus bailout and next tranche of Greek aid will be.. “interesting”.

The new Ireland 10-year deal was a blowout success. €13bn of orders from 450+ buyers is distinctly adequate. Ireland has regained its market access.. all they need now is to sell lots of houses, still sort the banks, get the economy working - and not just as a tax-friendly booking centre. With only €2.5bn of its 2013 funding left to complete – what’s the right strategy for Ireland? Fund now, or wait for markets to improve further? Don’t take that risk – the threat of rising bund yields through this year, and the natural spread for Ireland to bunds, strongly suggest the “fund when you can, not when you want to” approach!

Meanwhile, I’m watching developing fault lines across the European hegemonic nightmare: The Germans really do need to read “How to make friends and influence people”. They seem to be making a point of being smugly ahead of their game by announcing in hectoring tones they will balance their budget by 2015 – a year early. A slap in the face to every other European country, and especially France, all looking to miss deficit targets.  Problem is - despite likely German fury, the rest of Europe will gloss over the increasing budgetary morass and agree waivers. Expect a rising German unhappiness index.

Meanwhile, the European Parliament has rejected the budget cuts agreed by European leaders last month. Brilliant. Let the rest of Europe eat cake. So much for the primacy of states and austerity. I would love a quarter-ounce of whatever these guys in Brussels are smoking. Unhappiness index higher.

Greece will be back on the agenda as the failure of the government to match the Trokia’s demand to sack three out of every two civil servants has proved a difficult ask… Now.. I reckon that is a buy on weakness.. while the euro elites may get-by with some jiggery-pokery on Cyprus bank deposits and bail-ins, Greece is too central to the “plan” now, and Greece will get a nod and a wink.

That said, I’m unconvinced by GGB bonds – but would go for foreign law paper like Hells Railway (which we are selling) or some of the corporate paper. Greece remains….challenging. But if Honduras can raise money at 7.5%, what's not to like about a European state, central to the dream, at 11%?

Nikkei – to infinity and beyond…

Away from the bond markets, and there is some stand out stuff underway. Look at the Nikkei power ahead and ponder its dramatic 30%+ plus recent gains.  My macro colleague Martin Malone explains: over the last four months we have seen a net $60bn of new cash flow into the Nikkei ($12bn in the last week alone) – a number that more than covers what was sold 2007-2012. That’s 1.5% of the Japan market cap. The rise in US stocks comes from $100bn new cash or 0.5% of the US market cap. The buying spree in Japan is 3x more powerful than US, hence US stocks up +10% and Japan+30%. Simples.

And it's set to continue.

Germany vs Italy – simple explanation

A couple of readers asked what I was gabbling about yesterday in terms of the discrepancies in Italian and German median wealth. (I did make an error, mixing up income and wealth at one point.) However, the point was: half of Italians are about twice as wealthy as half of Germans. The questions are why and what does it mean - dead simple:

1)    Italians are wealthy because they preserve their median wealth (€163k) by not paying taxes. They don’t like paying taxes so they don’t.

2)    Germans are relatively poor (median wealth circa €76k) because they pay taxes and they don’t get paid enough. They don’t like paying taxes but they do. 

Therefore: it follows Europe will survive because Germans will pay more taxes to pay for Italy, so the Italians don’t have to pay more taxes.

That makes perfect sense then, and I refer readers to a famous book if further elucidation is required:  Old Man in Brothel: “I'm a very moral man, and Italy is a very moral country. That's why we will certainly come out on top again if we succeed in being defeated.”

No porridge tomorrow. Have a great weekend.

Bill Blain

0207 786 3877

[email protected]

[email protected]