Speaker 1: Hello, and welcome to another edition of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisenthal, Managing editor of Bloomberg Markets. My colleague
Speaker 1: and co host Tracy Elloway is away this week. She's
Speaker 1: out in the desert uh and on safari near Abu Dhabi.
Speaker 1: UH So we miss her this week, but we have
Speaker 1: a special episode this week. Another one of our colleagues
Speaker 1: is with us. Today we're going to talk to or
Speaker 1: me I guess I should say. Today I'm going to
Speaker 1: talk to Lorcan roach Kelly. He's our handyman social media
Speaker 1: expert at Bloomberg Market, also a expert on the Eurozone,
Speaker 1: the ECB, and most extraordinarily, he comes to us from
Speaker 1: the small town or village of six mile Bridge, Ireland,
Speaker 1: where he has a farm with cows. And I'm pretty
Speaker 1: sure he's the only person in six mile Bridge who
Speaker 1: has a Bloomberg terminal. I don't know that for sure,
Speaker 1: but I'm like ninett nine percent sure. And we're going
Speaker 1: to talk a little bit about what's going on in
Speaker 1: the Eurozone these days. There's a lot of tension once
Speaker 1: again around government and the banks. But before we get
Speaker 1: to that conversation, I want to uh talk to Lorcan
Speaker 1: about how he became a farmer who is also a
Speaker 1: expert on the e c B. So Lorcan, thank you
Speaker 1: very much for joining the Odd Lots podcast. Joe, great
Speaker 1: to be here. So Lorcan, let's start from the beginning.
Speaker 1: There aren't many people who are experts on the ECB
Speaker 1: and the Eurozone who also live on an operating farm
Speaker 1: with cows. What's your background? How did you? Where does
Speaker 1: your story start? Take us from as far back as
Speaker 1: you'd like to go. I suppose, I'm I suppose it
Speaker 1: was was start the bit that people might be interested in,
Speaker 1: which is how I got to be where I am,
Speaker 1: And it's a I suppose the start of it starts
Speaker 1: out with a bit of a tragedy away and that
Speaker 1: I used to work as an exposive engineer in the mind,
Speaker 1: which just straight up is the best job in the world.
Speaker 1: At the end of every day, no matter how bad
Speaker 1: your day is being you get to blow up a
Speaker 1: lot of stuff, which is incredibly therapeutic. I think everybody
Speaker 1: should get to blow something up at some point. It
Speaker 1: was it would solve many of the world's problems. What
Speaker 1: are the kind of skills that you have to have
Speaker 1: to be an explosive engineer. What what is the job
Speaker 1: really involved? You have to to run really fast. That's
Speaker 1: the number one skill. I think that is basically what
Speaker 1: it is with exposes. When you're exposing in the mind,
Speaker 1: you have to design an explosive blast in a way
Speaker 1: that it will blast what you want to blast and
Speaker 1: leave everything else alone. It's very important that you don't
Speaker 1: blow up the stuff you don't want to blow up.
Speaker 1: And it's my background is engineering, so it's that's what's
Speaker 1: that's kind of spatial development stuff. That was kind of
Speaker 1: fush a lot of what I was doing anyway, So
Speaker 1: this was Ireland. What kind of mining is big in Ireland?
Speaker 1: And the base metal, lead and zinc mines. We have
Speaker 1: one of the biggest lead zinc mine in Europe is
Speaker 1: in Ireland. It's writing, it's pretty much mine. That was
Speaker 1: the moment, has been there since the nineteen seventies. All right,
Speaker 1: so let's take the next step. So then what did
Speaker 1: you do after? So after in two thousand and seven,
Speaker 1: my my first wife dies and so I've left for
Speaker 1: two children. So I was in mining, which meant I
Speaker 1: traveled a lot, So obviously I had to stop that
Speaker 1: job come home. Look after the kids, and I found
Speaker 1: self in the position where I was very time rich
Speaker 1: and cash poor. And if you remember two thousand seven,
Speaker 1: thou there was one event that was dominating the world
Speaker 1: at the time. I think I remember that and that
Speaker 1: that was the financial crisis. So I was, like I said,
Speaker 1: I was time rich. So I started looking into this,
Speaker 1: going okay, I'm naturally curious, I suppose. So I started looking.
Speaker 1: It's going, okay, what what's causing this? What does it mean?
Speaker 1: And I found a lot of the corbadge I was
Speaker 1: reading was very saying and then that's what I mean.
Speaker 1: It is like everyone was on the same path saying
Speaker 1: the same thing, saying to say, like the euro is
Speaker 1: going to fall apart, the whole world's going to hell
Speaker 1: in a hand basket by gold. You hadn't studied this before.
Speaker 1: You don't have a background in economics or finance or
Speaker 1: anything like that. I did economics and it's in high school,
Speaker 1: and beyond that, I hand on anything with it. So
Speaker 1: it was basically you had a lot of time on
Speaker 1: your hands. You saw that the world was kind of
Speaker 1: falling apart. There was a lot of anxiety in Ireland,
Speaker 1: and in particular because of how big the banking sector was,
Speaker 1: and so you just wanted to sort of scratch an
Speaker 1: itch and see what the heck was going on. Actually,
Speaker 1: and I think it's like with the firmans well at
Speaker 1: the time, but the firms that I say, if the firm,
Speaker 1: my father is eight years old this year, the farm
Speaker 1: is still in his name because Irish people are very
Speaker 1: funny about farmland. You never sell land, you never give
Speaker 1: it away. You have to wait for the generation above
Speaker 1: you to die before you get it, which sounds very macavelium,
Speaker 1: but how it is. But then whatever, when I was
Speaker 1: growing up, there was the five children in my family.
Speaker 1: Five wasn't the family. And my mother always sets was
Speaker 1: when you were growing you have to go to college.
Speaker 1: You have to get a good degree, or you end
Speaker 1: up with the firm. The firm was always the threat.
Speaker 1: It's the white elephant, that the thing that nobody wants
Speaker 1: to have because you're you're kind of stoked. You can't
Speaker 1: ever sell it. You've got an asset, that money, but
Speaker 1: you can't lick with it. It's been the family for
Speaker 1: twenty five generations. You have to hold it for the
Speaker 1: next generation. So you didn't go to college and you
Speaker 1: ended up with something that that's pretty much what happened. Yes,
Speaker 1: I was the black sheep, so the black sheep ended
Speaker 1: up with the cows. So what what was you said?
Speaker 1: You were curious? What was the first thing you looked into?
Speaker 1: What was the first question you suddenly answered to? I
Speaker 1: think that the first question. I thought that it was
Speaker 1: how are ever was saying that the Irish banks you
Speaker 1: should throw a draw money from the banks. Everyone should
Speaker 1: be deposit flights. And my my first question was what's
Speaker 1: the mechanics? So this is my engineering backgrounds, like what's
Speaker 1: the mechanics that are keeping the banks open? If everyone
Speaker 1: is taking their money out? Should the banks fall over? Like?
Speaker 1: How are they not closing down? Because the one thing
Speaker 1: we didn't have when we weren't having we're bank failures.
Speaker 1: And I was nosing around asking people because Joe I
Speaker 1: knew nothing, so I was able to ask the really
Speaker 1: dumb questions that other people wouldn't like to ask. And
Speaker 1: I got talking to an Orish economists called David McWilliams,
Speaker 1: who I ended up actually working for after a while
Speaker 1: because end up being his researcher. And as part of
Speaker 1: that research gig I was doing, I was finding I
Speaker 1: was reading, like I said, I was trying rich. I
Speaker 1: was reading lots of bank banks plan annual reports, all
Speaker 1: the hundred forty five pages of them, just to try
Speaker 1: and figure out my own head how this machine that
Speaker 1: is a bank works. And the thing I was finding
Speaker 1: out with them was like, the banks are still standing
Speaker 1: because they're getting liquidity, which is money from somewhere. And
Speaker 1: it was to find joke, to follow the money, where
Speaker 1: is this money coming from? And as part of that.
Speaker 1: In two thousand and nine, I think it was I
Speaker 1: was reading Anglo Irish Banks, which is probably one of
Speaker 1: the worst banks that whatever existed in the Arby manage,
Speaker 1: reading there any report and there was a footnote number
Speaker 1: six seventeen on page A hundred and twenty seven which
Speaker 1: they were getting eleven billion euros from the Irish Central
Speaker 1: Bank as part of the master Loan We Purchase agreement,
Speaker 1: which is a bit technical. But I saw that I
Speaker 1: don't know what that is, so I'll ask somebody. So
Speaker 1: I got onto some like Jaredson's Banks spot Is and
Speaker 1: ask loan Purchase agreement and they said this is something
Speaker 1: we used to use in the nineties when Ireland had
Speaker 1: its own currency. That floated to balance the currency at
Speaker 1: the end of the day. And then the next question
Speaker 1: asked was why white. Where have you seen that written down?
Speaker 1: And I said, I saw it on Anglo Irish Banks
Speaker 1: two thousand nine report. And then the next thing they
Speaker 1: said to it was we didn't have this conversation and
Speaker 1: they hope, Okay, there's definitely something here, so and to
Speaker 1: to find trying to find out about that. I found
Speaker 1: out about this thing called Emergency Liquidity Assistance e l
Speaker 1: A back in two thousand nine when I think it was.
Speaker 1: It was supposed to be a secret, but they just
Speaker 1: show didn't think any would ever ask about it. So
Speaker 1: they literally had this thing buried in a footnote deep
Speaker 1: in an annual report that they didn't really want anyone
Speaker 1: to look into. But it was sort of it answered
Speaker 1: the mystery of mysteries because there was a big part
Speaker 1: of the balant sheet and that they had to put
Speaker 1: it in their banat the number and they have to
Speaker 1: explain where the number came from. So they explained it
Speaker 1: in a way that kind of Joe, don't look any furthers,
Speaker 1: don't look behind the Nobody else was poking around and
Speaker 1: asking these questions. Besides you, not that I know of.
Speaker 1: I remember I wrote about the l A in two
Speaker 1: thousand and ten emergency and at the time because I
Speaker 1: use the first the first point of any investigations to
Speaker 1: just go to Google and type the words in and
Speaker 1: see what comes up. And nothing came up, like the
Speaker 1: ECB hadn't even published their rules for l A in
Speaker 1: a meaningful way at that stage. So that's where I started, right.
Speaker 1: So then I because the guys worked for Dave McWilliams.
Speaker 1: He's a he writes for a broad audience. He wasn't
Speaker 1: FreeFly interested in isn't he knew his audience the intrixees
Speaker 1: of Central Banks Banet. So I started a blog as
Speaker 1: I write with this thing, just like Joe. It was
Speaker 1: aimed at that's what nerds like myself and that became
Speaker 1: very popular. And through that becoming popular, then I think
Speaker 1: the ft picked up in a few How did people
Speaker 1: find it? That's not a lot over that step, because
Speaker 1: I want had a blog and that's how I got started.
Speaker 1: But how do people find your blog? Who was reading it? Ums?
Speaker 1: For TO? A lot of this is for TO this
Speaker 1: time it's with um Paul Murphy at FT Alphabelle who
Speaker 1: was starting in this thing called markets Lie the ft
Speaker 1: Alp and then they still run it to this day.
Speaker 1: Well they start talking about today and you could comment
Speaker 1: and say, look, I think this is important. I think
Speaker 1: one of the things that I thought it was on
Speaker 1: it one day and I said, look, I think this
Speaker 1: how anglers panks t open is important, and I pointed
Speaker 1: towards this blog and Paul then took my blog and
Speaker 1: republished it at the Alphaville blog itself. And once you
Speaker 1: get re published once or twice, like, the thing just
Speaker 1: gets the momentum and then you're seeing as an expert
Speaker 1: in So I started following you on Twitter it maybe
Speaker 1: late two thousand nine, but that you had really made
Speaker 1: your name by that point at least among a very
Speaker 1: sort of narrow influential media set as someone who really
Speaker 1: knew the ins and outs by that point of the
Speaker 1: Irish banking system. Okay, so you're on the farm and
Speaker 1: through the magic of the Internet and blogs and Twitter,
Speaker 1: you start to establish yourself as someone who's really done
Speaker 1: the work to figure out what's going on in Ireland,
Speaker 1: what's next, What's what, what's where? Did where did it
Speaker 1: lead from there? And then the next thing, I'm an
Speaker 1: American UM company who are obviously looking to get some
Speaker 1: European coverage. Yeah, tracked me down through via Twitter and
Speaker 1: the ends and offered me a job. That would you
Speaker 1: like to come to New York. We'll fill you over.
Speaker 1: We'd like to sit down and child just see how
Speaker 1: we're looking for for a view on the whole Eurozone
Speaker 1: that we're not getting. I think maybe it's an important
Speaker 1: point that I made to the guy in the don's
Speaker 1: gonna end up working for is there are seventeen there
Speaker 1: were times seventeen countries that use the Euro Area. The
Speaker 1: US use the Euros the currency. There's only one that
Speaker 1: speaks English. That's aren't a lot of particularly at the
Speaker 1: time there's two thousand nights as and said a lot
Speaker 1: of the media. I suppose feed that was coming into
Speaker 1: New York, particularly in the Wall Streets, was coming out
Speaker 1: of London, and at the time maybe still exists now,
Speaker 1: there was a certain bias amongst reportage from London on
Speaker 1: the euro Area, as in, look at that terrible thing
Speaker 1: over there, it's falling apart, It's going to burn to
Speaker 1: the ground, aren't we So betver not been in the
Speaker 1: euro So all I had to do all is do.
Speaker 1: But I kind of once I figured out how the
Speaker 1: ECB worked and how they were proping off the entire
Speaker 1: system through E l A when they had to what say,
Speaker 1: things might get bad, but for things to break, it's
Speaker 1: going to be a very big jump from where we are. Yeah,
Speaker 1: I remember, you know, because I was following the Eurozone
Speaker 1: crisis pretty intently back then, and I remember how you know,
Speaker 1: it would sort of one there would be the period
Speaker 1: when everyone was talking about Greece and then everyone was
Speaker 1: talking about Spain. But I really did appreciate when Ireland
Speaker 1: was in the spotlight, simply because it was the only
Speaker 1: time when I could read the local press that follow
Speaker 1: up was happening in the parliament or the Doyle is
Speaker 1: you call it, because I could actually understand what the
Speaker 1: politicians were saying. So I really did appreciate that, And
Speaker 1: I think it's kind of a broader point that I
Speaker 1: also I've learned a lot, is that if you can
Speaker 1: ever get to the source of information, get to the
Speaker 1: source information. Because if you read reports, especially on the report,
Speaker 1: say on the German parliament or the Greek tournament, it's
Speaker 1: always true and Lens that always so, and the UK
Speaker 1: press is not known for. It's sort of like cool,
Speaker 1: level headed, lack of hyperbole. Is. Yeah, they have papers
Speaker 1: to sell and they're good at selling papers. I guess.
Speaker 1: So let's sort of skip ahead, and how long did
Speaker 1: you work for the American firm and what did you
Speaker 1: He finished in twenty thirteen, I think, but to thirteen
Speaker 1: finished and went to start on my own because I
Speaker 1: developed a few clients in London, and by having my
Speaker 1: own client based London, it was just meant I did
Speaker 1: not have to fight. You know it states that's once
Speaker 1: a month. And what did you do? These clients you
Speaker 1: told you gave them your view on what was happening
Speaker 1: in the year zones, give a view give I think
Speaker 1: the clients particularly, we're interested in what the European Central Bank,
Speaker 1: because by twenty people looked to central banks. I think
Speaker 1: the big change between two thousand and seven and two
Speaker 1: thousand and thirteen is in two thousand and seven thousand
Speaker 1: people were still looking to governments to solve the problem.
Speaker 1: By twelve thirteen normally looked to governments anymore. That sounds
Speaker 1: so quaint, the idea that any any government could do anything.
Speaker 1: Now we live in this time when central banks really
Speaker 1: are all where the action is. So it's the point
Speaker 1: I think that less than ten years ago we actually
Speaker 1: might have believed the governments could be competent to fix something.
Speaker 1: Ten years ago we were all kimdy and looks now
Speaker 1: yeah crazy. Now we're all monitoris all right? So let's
Speaker 1: jump ahead because now you're our colleague. You work at
Speaker 1: uh Bloomberg. You came here I think early, just about
Speaker 1: a year ago. You do uh social media, You do
Speaker 1: some editing, you do some writing, you sort of do
Speaker 1: your you do a little bit of everything. What's your
Speaker 1: day like right now? I think there's a lot of
Speaker 1: fascination and curiosity about this person who works for Bloomberg,
Speaker 1: who lives on a farm with cows. Take me through
Speaker 1: a day in the life of Lorcan. Right now you're
Speaker 1: you're at busy time for Lorcan because right now is
Speaker 1: calving season. Caving season kicked off the end of January,
Speaker 1: beginning the ferry. So right now, on my day, I
Speaker 1: get up our own sickly m go out check the cows,
Speaker 1: because Joe check in the morning, how many cows do
Speaker 1: you have? We've only got turkey cows, so we have
Speaker 1: turts turkeys, and what is checking the cows entail. You
Speaker 1: go up. I suppose I'm talking to a towny here,
Speaker 1: so I better take this slowly. The first thing you
Speaker 1: do is make sure they have feed and water. So
Speaker 1: I come in what I'm sure they fed water, make
Speaker 1: sure there's known new cars. I come in for seven
Speaker 1: I am turned on my coming to my office, turn
Speaker 1: on the terminal, turn on the web, and catch up
Speaker 1: with what's happened in the markets where markets are going
Speaker 1: for today. I've then got about an hour and a
Speaker 1: half to get everything updates, to get the website updats,
Speaker 1: get Twitter flowing, get Facebook flowing, and then I go
Speaker 1: back out to the cows again for twenty minutes to
Speaker 1: make sure they're okay. Back in again for nine o'clock,
Speaker 1: and then I start. Every morning, I do this five
Speaker 1: things that are happening in the markets today, posting and loss.
Speaker 1: It goes out it's about nine nine fifteen. I'll started
Speaker 1: writing that get the idea of where we're going, while
Speaker 1: continuing to make sure that all the social media side
Speaker 1: is updated. Once the five things is published, I'll go
Speaker 1: for lunch for about twenty minutes. Lunches actually a but
Speaker 1: back up to the cause. Make sure they get their
Speaker 1: lunch because basically before I think it's are important, and
Speaker 1: then come in for the afternoon work work at the
Speaker 1: office for the afternoon, around five pm, finish up, back
Speaker 1: out to the couch and then make sure that everything's okay,
Speaker 1: come in, have a dinner and then normally about half
Speaker 1: a night o'clock, go backups getting just check for calves
Speaker 1: and stuff like that. Check for calves. On the typical day,
Speaker 1: there's no calves. On the typical day, there's no calves,
Speaker 1: but what the moment, because we're in calving season, there
Speaker 1: is on a typical day, there's always the possibility of calves.
Speaker 1: And you live your you live in a town of
Speaker 1: six mile Bridge, right, So how many people? Where is
Speaker 1: six mile Bridge? How many people live in six mile Bridge?
Speaker 1: And why is it called that? Six month Bridge is
Speaker 1: a town of about people. It's in the west of
Speaker 1: Ireland's in a place called County Claire. It's handling enough.
Speaker 1: It's ten minutes away from an international airport. There's an
Speaker 1: airport in the west foreign and called Shannon, which means
Speaker 1: it's quicker for me to get to London than this
Speaker 1: for me to get to the capital of Ireland. Because
Speaker 1: I can drive to the airport. Came a plane in London.
Speaker 1: It's called six Mile Bridge because apparently years ago it
Speaker 1: was six miles from the nearest town of Limerick, which
Speaker 1: is kind of six miles from the nearest place people
Speaker 1: actually want to be because there's a bridge. Is the
Speaker 1: smallest in market town. It's got seven pubs, two churches
Speaker 1: and two shops. Yeah. Our colleague Dash visited you in
Speaker 1: Ireland last summer and I think, if I recall, he
Speaker 1: couldn't find your plays and you didn't have cell service,
Speaker 1: and you just walked into one of the pubs and
Speaker 1: asked like, does anyone know Lorcan And they were able
Speaker 1: to figure out who he was talking about, right, yeah,
Speaker 1: pretty much immediately they knew who you're talking about. That
Speaker 1: this is not saying that I'm someone that that spent
Speaker 1: all of my time in the pub. I just spent
Speaker 1: Tim's outlining how busy I about that? Clearly, I have
Speaker 1: no time for clearly, clear um. And in the summer,
Speaker 1: I remember you told me you right, you have a tractor, right,
Speaker 1: and you could just be out there on your tractor,
Speaker 1: on your iPad checking the terminal, right, yeah, yeah, yeah,
Speaker 1: So during the summer. Sometimes if I do so has
Speaker 1: an a lum day, I can I can bring my
Speaker 1: ipen out detractor and then it's got a one of
Speaker 1: the signal movement signal and I can update Twitter. I
Speaker 1: can do Facebook from the tractor if I want. I
Speaker 1: think it makes a lot of people here very jealous
Speaker 1: in your lifestyle. I think whenever when anyone at the
Speaker 1: office hears about that, that that's your I think that
Speaker 1: immediately seems appealing. All right, let's um make the conversation
Speaker 1: a little more topical, because once again there's a lot
Speaker 1: of anxiety about Europe. We've seen some of the big
Speaker 1: European banks, their stocks have really been getting slammed lately,
Speaker 1: Deutsche Bank, Credit, Suez. We're starting to see UH some
Speaker 1: increases in borrowing costs for some UH sovereign for some
Speaker 1: governments again, Portuguese borrowing costs have been on the rise,
Speaker 1: Italy and Spain picking up a little bit. What's going on?
Speaker 1: Why are people suddenly sort of nervous again in Europe?
Speaker 1: I can give you five reasons if you want, but
Speaker 1: to de pick the one that I most believe in
Speaker 1: be tricky. I think, first of all, if you look
Speaker 1: at where banks, or if you do like the stress,
Speaker 1: and how banks are making money up to two thousand
Speaker 1: and seven and how banks are trying to make money
Speaker 1: now are completely different worlds. It was basically, pilem high
Speaker 1: and sell them cheap was the way you made money
Speaker 1: in too does its just it was market share and
Speaker 1: get get your marrigine as much as you can, and
Speaker 1: there's no risk in the world, so you can slip
Speaker 1: your profits. At the end of every year. Things will
Speaker 1: blow up, as they eventually did, but fild the going
Speaker 1: as good. You're making good money. These days, banks are
Speaker 1: very very regulators, so I think that they're almost afraid
Speaker 1: to try new things. The model that they used to
Speaker 1: have is broken. So if I'm an investor and a
Speaker 1: look at the bank and say, okay, how is this
Speaker 1: this bank? That is this large mention it? But I say,
Speaker 1: how was a large legacy bank going to make money
Speaker 1: in the next five years? Where is my dividend yield
Speaker 1: going to come from? I can't see it, But Joe,
Speaker 1: but that's not myself. I can't see so I don't
Speaker 1: think an investor could see it. And I think that's
Speaker 1: but that's not the problems right now? Right now, we're
Speaker 1: looking at a squeeze, so it'll last play into five weeks.
Speaker 1: And European banks have got killed this year. And that's
Speaker 1: not investors. These banks aren't going to be profitbly, are
Speaker 1: going to have are going to struggle to be as
Speaker 1: profitble as the world historically. There's something else happening. I
Speaker 1: thought that something else is maybe investors are resetting their expectations.
Speaker 1: There was like if you looked at Europe, the area,
Speaker 1: the book case was very easy to make on it.
Speaker 1: But there comes the point, as always investors, for you
Speaker 1: have to investors say okay, show me the money, and
Speaker 1: that point. We haven't got to that point. So investors
Speaker 1: maybe just resetting their their ideas. Do you think that?
Speaker 1: I mean, this is a debate that's going on, and
Speaker 1: a lot of people say the difference between now this
Speaker 1: bank sell off and say the bank sell off we
Speaker 1: saw in two thousand eight is not so much about
Speaker 1: these banks are going to have these gigantic losses that
Speaker 1: render them in solvent or It's not about that they're
Speaker 1: going to have some liquidity run. It's just that people
Speaker 1: don't like the business model. And so between the regulation,
Speaker 1: the lack of robust upside people are just saying these
Speaker 1: aren't very exciting businesses to be invested in. Yeah, I
Speaker 1: think that that's a lot of it. I think that.
Speaker 1: But there is something more because if you look at
Speaker 1: the sell off that's happened in Europe, it's it's a
Speaker 1: broad based sell off. Yeah, so it's like, we don't
Speaker 1: like your business model, and also we don't like the
Speaker 1: expectations for the economy in which you're trying to do business.
Speaker 1: You've got that double time in there. You've then on
Speaker 1: the fringes of all that, You've lots of other things
Speaker 1: going on. You've got investors suddenly realizing that Coco bonds,
Speaker 1: contingent convertible bonds are actually convertible if the contingency riises.
Speaker 1: So this is a sort of a unique class of
Speaker 1: security that's only been around since the crisis. It kind
Speaker 1: of looks like dead, it kind of looks like equit.
Speaker 1: But the idea is that this is these are investors
Speaker 1: who had piled in getting above market yield and are
Speaker 1: now starting to realize that there's no such thing as
Speaker 1: a free lunch, and as these banks struggle with profitability,
Speaker 1: that they could get clipped. Yeah, exactly. So the I
Speaker 1: think that anything that makes investors nerves in a place
Speaker 1: where they're not particularly keen on being invested, Nay, then
Speaker 1: to get out. So if you see these Coco bonds
Speaker 1: start to look like they're going to be converted. So
Speaker 1: the Coco bond is a bond that pays seven So
Speaker 1: you've got your bond that trade the power, you get
Speaker 1: paid seven percent. That's absolutely it turns into equity. You're
Speaker 1: a bond, a bond investor, you know what to behold
Speaker 1: the next in the bank. And also at the point
Speaker 1: where it converts to the equity, you're holding equally to
Speaker 1: the bank that's had a massive equity squeeze that needs
Speaker 1: to raise capital quickly, so you get an equi in
Speaker 1: the bank that you'd never buy. Yeah, so that's but
Speaker 1: again that's what Coca bond, that's what they're supposed to do.
Speaker 1: But they're new, so there are people didn't that much
Speaker 1: experience with them, Brands didn't know how to model them. Perhaps, yes,
Speaker 1: I'm not buying that one, but perhaps the other thing
Speaker 1: then I think that's important is if you look at
Speaker 1: commodity assets, oil metals they will ignore goal but oil
Speaker 1: mets they have got hammered and in the last fourteen
Speaker 1: eighteen months they've just had a disastrous time. And that
Speaker 1: is one of these things that just grinds down earnings,
Speaker 1: grindsdowne profits, and grinds down the circulation of what for
Speaker 1: what of a better phrase petrol dollars in the world. So,
Speaker 1: if you've got a large sovereign wealth funds, and there
Speaker 1: are lots of very large stuff and wealth funds that
Speaker 1: have very large equity holdings, and we thought, u um,
Speaker 1: if you look at the Norwegian ex so it is
Speaker 1: huge equity holdings. A lot of the Gholft funds have
Speaker 1: equity holdings, and a lot of those equity holdings are
Speaker 1: in financial stocks. That there has to be a point
Speaker 1: where these governments say, okay, rather than putting in our
Speaker 1: own people, there are too much pressure by cutting our
Speaker 1: budget too much, We're going to spend some of a
Speaker 1: rainy day fund and that means liquidation assets out of
Speaker 1: the raining So basically, during the boom times of oil
Speaker 1: you had these governments like Norway, Saudi Arabia and others.
Speaker 1: They built up tons of cash because oil was so high.
Speaker 1: They went out and bought all these assets and among
Speaker 1: the assets that they owned we're financial stocks around the world.
Speaker 1: Now that oil has been plunging, these government budgets are understrain.
Speaker 1: These governments are then deciding that it might make sense
Speaker 1: to sell down some of their assets, as you say,
Speaker 1: liquid ad part of their rainy day fund. And this
Speaker 1: is putting pressure on everything. But because they were so
Speaker 1: heavy into financials, that could be one aspect driving the
Speaker 1: selling here, but not even that could be an asset drive.
Speaker 1: But also if I'm a bank investor myself and I'm
Speaker 1: not a SOB wealth fund, I look at these ser
Speaker 1: wealth funds and I think, Okay, the next thing they're
Speaker 1: going to do if their financial shares, I'm going to
Speaker 1: sell mine first to get out of the so even
Speaker 1: if they're not selling yet, people want to get ahead
Speaker 1: of the people want to get ahead of that so Lorkan.
Speaker 1: In addition to the tensions at the Bank's, one thing
Speaker 1: that we've been seeing lately is some renewed pressure on government.
Speaker 1: We've been seeing in the last week Portuguese borrowing costs
Speaker 1: have been rising. Is this a return to the same problem,
Speaker 1: the sort of rebuke of austerity ongoing political problems that
Speaker 1: hasn't really been solved in the Eurozone, I think to
Speaker 1: an extent it can be seen as that, but I think,
Speaker 1: as always, this time it's different. Investors are better as
Speaker 1: differentiating between different European countries Eurea countries. The way it
Speaker 1: used to be again in two thousand and ten Stars
Speaker 1: eleven was you bought German sovereign debt, you sold the
Speaker 1: periphery that's Portugal, Islands, Italy, Greece, in Spain is on
Speaker 1: the edge, you sold it. If you look at what
Speaker 1: happened last week, we has Portuguese tenure deal at four percent,
Speaker 1: with the Irish government stategency selling ten year debt at
Speaker 1: point nine yield. So you've a huge spread between two
Speaker 1: of the former peripe countries. And that's because the investors saying, okay,
Speaker 1: let's just let's it's not a euro problem, it's a
Speaker 1: problem within these individual countries. In Portugal at the moment,
Speaker 1: the government, there's socialist government that was elected and there
Speaker 1: came in on a promise of reversing the spending cuts
Speaker 1: of the previous administration, which is how all socist governments
Speaker 1: are elected in European promises of reversing what the bad
Speaker 1: guys did last time around, and then they find themselves
Speaker 1: in a position where they have to implement the policies
Speaker 1: of the previous government anyway, because as a small open
Speaker 1: economy in the world, you don't have a huge amount
Speaker 1: of choice over the policies you implement. You can't go
Speaker 1: it alone. You can it's not like your United States,
Speaker 1: who can set policy. You have to be an economy
Speaker 1: that can exist as an antarchy in order to set policy.
Speaker 1: A small, perifer European state doesn't have that autonomy. In
Speaker 1: Ireland at the moment, there's an election campaign going on
Speaker 1: the election June twenty six February, and politicians from the
Speaker 1: entire width of the spectrum of the major parties from
Speaker 1: left to right, to tell their policies apart is incredibly
Speaker 1: difficult to an outsider, So there's a lot of consensus
Speaker 1: that there is not much inclination to change course. The
Speaker 1: Socialist Party or closest things aren't. As a socialist party,
Speaker 1: I have already committed to maintaining arens twelve and a
Speaker 1: half corporate tax rates. So if you're a socialist and
Speaker 1: you're committing to maintaining al and a percent corporate tax rate,
Speaker 1: you're kind of amazing. We can't really have any large
Speaker 1: policy changes because we're a small, open economy and the
Speaker 1: market will just wipe the economy out if they don't
Speaker 1: like what we do. But in other places, like in Portugal,
Speaker 1: in Spain, in Greece, there's clearly much sharper ideological divisions
Speaker 1: between the parties. There are, and if you look, I
Speaker 1: think Greece is a great example of We look at
Speaker 1: Theresa being in government now over a year and when
Speaker 1: they came in they were going to tear up everything
Speaker 1: and starting you and would be a socialist paradise. A
Speaker 1: year in there are strikes in Greece against the policies
Speaker 1: of the Serisa government which are rather bizarty because of Greece,
Speaker 1: supported by the Sarisa party against the Sarisa government. But
Speaker 1: that's Greece. It's a strange face. Well, lorcan thank you
Speaker 1: very much for joining us from six mile Bridge, Ireland
Speaker 1: and telling us your story and giving us your perspective
Speaker 1: on the latest stuff that's been going on. Thanks for
Speaker 1: having me, Joe, absolutely, and thank you. That was another
Speaker 1: edition of the Odd Lots podcast. I'm Joe Wisenthal. You
Speaker 1: can follow me on Twitter at the Stalwart and if
Speaker 1: you want to follow Lorcan. You should follow him at
Speaker 1: on Twitter at Lorcan r K. Thank you very much
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