Wednesday, September 14, 2011

14/09/2011: More soft slop from Irish stuff-brokers

You gotta hand it to the Irish stuff-brokers community. They do routinely produce pearls of wisdom that we, the mere mortals can only aspire to. Here's one latest installment from one morning note issued today:

"If Ireland can meet its deficit cutting/growth targets over the next 2 years, then investor demand for Irish bonds should remain firm".

Let's start peeling this profoundly rhetorical onion:
  1. The problem with Irish bonds is that there is NO demand for them. This is why we can't sell them and this is why we are reduced to borrowing from EFSF/EFSM/IMF/Bilateral Begging Bowl. So - the law of physics lesson for stuff brokers - that which doesn't exist cannot "remain firm".
  2. If we can sustain our "deficit cutting / growth targets" over the next 2 years (i.e., given I see on my calendar "September 14, 2011") we will be in mid-September 2013 - at which point, per IMF/DofF/ESRI and other folks, usually not renown for their pessimistic assessments of our 'targets', Ireland will be at the peak of our substantial sovereign debt pile. If our stuff-brokers think that is a scenario consistent with "firm" investor demand for bonds, I wonder if the FR should suggest they attend some basic courses in finance.
  3. What the hell does construction "deficit cutting / growth targets" mean? Usually, "/" implies "or". At the very least - "and / or", though that construction has own logical sign "v" as in "A ∨ B is true if A or B (or both) are true" of course, "AB is true when either A or B, but not both, are true, which can also be written as A B". So suppose our stuff-brokers think that delivering on our "deficit cutting" or "growth targets" (but not both) will assure "firm demand" for our bonds. We can, therefore, have NTMA going into the market telling the potential investors: "Give Ireland a chance. We have budgetary consolidation (economic growth), but no economic growth (deficits and debt sustainability)". Again, such a proposition suggests that more basic finance & economics courses are in order.
I am not being pedantic, folks. The problem is that this rhetorical exhortation can easily serve as an example of what passes for policy thinking in Ireland's more august quarters (DofF, Government, Dail, etc). It is an exact formula of what the Government / ESRI / IBEC etc have been putting forward as our policy to resolve the crisis. And yet... yet it makes absolutely no sense.

1 comment:

John Muldoon said...

I think you are wrong on point 1. If demand is 0 and continues to remain at 0, then demand is firm. Now, you might say there is "none," but that implies no one wants our bonds. I am an optimist and say there is zero demand, implying people do want our bonds. They are just not asking for them right now. And, as any optimist will tell you, the only direction is up!