The rest of you can celebrate St. Patrick’s Day with your green beer, green bagels, and shiny green plastic hats. I thought it more appropriate to pay brief homage to the Celtic tiger – the economic miracle that visited the country from the mid 1990s until the financial crisis took over in 2008. Popular sentiment holds that the collapse was caused by profligate bankers making poor investments, and lax supervision from regulators which allowed the mal-investment to take place under their very noses. That’s probably true, but the boom that led to the collapse may have been led by Central Bankers more than the lender on the street corner in Dublin, and there may be a lesson there for other problems cropping up around the globe.
Politicians also obviously played a big role. Ireland’s aggressive Foreign Direct Investment policies may have been an important contributor. So successful were the 12.5% corporate tax rate and other development friendly policies that FDI soared to over 26% of GDP. Then capital began to flow out, FDI collapsed, and in 2004-2007, Ireland ran a deficit. At that point, it looks like banks took up the slack, borrowing significantly in wholesale markets, doubling in size – well, you know the rest of the story.
These days, Ireland is on the mend, I guess. It became the first Eurozone country to exit the IMF bailout in December, some degree of economic competitiveness has been restored, and it is at least flirting with growth. I can smell the spring on the smokey wind…
Now we can talk about Credit in the U.S. Supply continued to be heavy, at least at the start of the week. The market saw almost $37 billion in new issue, but over 50% of it came on Monday. By the end of the week, fears over China and the Ukraine finally forced the market to roll over a bit. Spreads were moving wider by the end of the week – in ten-year space we’ll call it +5 or so for the banks, +3-4 for industrials. Trading in newly issued bonds looks a little sloppy – shorter maturities were trending a little better than long bonds. Overall it looks like the credit curve steepened, but levels were messy.
We’ll see what next week brings – geopolitics has us a little on edge. There’s always something lurking in some dirty old town somewhere…