Eur Wedge On De Edge


#1621

Two issues that haven’t been mentioned so far… to earn a decent return at the moment you need a term deposit, so if perceived risk increases then you can’t change your mind at the drop of a hat. Also, it’s one thing to weigh the possibility of a 10% haircut against several years of decent returns, but what about the remote possibility of total loss? How do you insure against that? Of course, foreign deposits are by no means guaranteed to be secure either. So the “insurance policy” may be useless too. Slightly scary when your entire livelihood hangs on these questions about traditionally “safe” uses of money.


#1622

Loss is one variable but the cyrpriots have enjoyed it’s nesscary companion, Capital controls. I suppose in one sense you are sure your money is not going to go anywhere anytime soon. :astonished:


#1623

I’m failing to understand how this argument is any different to the one the property pluggers were making during the bubble. Prices have appreciated by x% over the last three years, you’d be mad not to put your money in…

The risk that Ireland will require a second bailout seems real enough to me. The risk that a bailout will involve a depositor bail in seems real too in light of Cyprus. The risk that amounts of less than €100k would be impacted maybe less so. But, if any of this does come to pass, I think your estimate of the downside as only a 9.9% levy is hopelessly optimistic. That was what was proposed for Cyprus but what actually ended up happening is going to be a haircut of between 60% and 100% of amounts over €100k in their two biggest banks. Think what it would be like if that happened in AIB and BOI. But even then the haircut is only part of the story. The capital controls are arguably having a wider impact. Even if you still have money in the bank, either in one of the other banks that wasn’t haircut or in one of the two main banks but less than €100k, it’s there on your statement but you have great difficulty actually doing anything with it. If, for example, Ireland was going through a similar scenario to Cyprus right now and the economy was going down the toilet, and you decided to follow the traditional Irish path and emigrate during the hard times, that €50,000 you have stashed away in Rabobank might be really useful for setting yourself up in Australia or Canada but capital controls mean you can’t actually touch it. All you can do is use it to by your plane tickets and stick €1,000 in cash in your pocket when you are flying. The rest has to stay locked up here in Ireland.

Personally, I set myself up an account in Switzerland just before the Troika came into Ireland. I had a much larger stash then as we had sold one home and not yet bought another. Even now with a sub-€100k stash I’m still not going to put myself at the mercy of the Irish banking system so the bulk of my savings are staying in Switzerland earning close to zero interest. It allows me to sleep a whole lot easier at night and that is worth it to me.


#1624

That’s fine, and it is the same approach I have taken too in the past 12 months or so. But it is a world away from the ‘zerohedge, beans and shotgun, only a fool would have their money in an Irish bank’ line that has been resurrected since Cyprus went down the toilet.

I’m not simply looking back and saying that because we haven’t had to call on the insurance that it is a waste. I’m looking back on it in the same way that a single person someone in their 30’s could look back on having VHI cover for the previous 10 years and judged it to be a poor spend, given the low likelihood of a young person needing to call on it.

5k cost on an initial sum €100k is where the 5% comes from. The 9.9% was the mooted levy/haircut for small depositors in Cyprus. The point is that its not a binary ‘have insurance/don’t have insurance’, you need to factor in the cost of that insurance. Given that the scenario I outlined involved trading a certain 5% loss for the possibility of a 9.9% loss a la Cyprus, which currently has knickers in knots, the cost is very important.


#1625

Not what I suggested.

Chances of a second bailout being required? Always been pretty good IMO. What additional danger would it pose to deposits? Little or nothing. Cyprus was a different animal entirely. Our problem is a sticky deficit more so than banks, even though there is probably a €16bn hole there that could do with filling. You yourself have pointed out that in the end deposits under the €100k ended up being untouched - if you’re looking for a precedent, that’s it. Obviously you’re convinced there is a real threat to your deposits and you’re prepared to pay a very significant premium. There is the absolute certainty that your strategy is costing you approx a thousand euros every year versus the likelihood of scenario that you are guarding against playing out. That’s what you’ve got to weigh up.


#1626

Yeah, that’s it. Given that the 9.9% is the closest thing to an actual real life depositor haircut in the EZ since 2007, it is the only appropriate figure to use. I see no reason why it would need to be that high given the relative scale of Cyprus’s bank problems versus ours at this point. The return is based on rates over the past three years. At present 3% is available for demand, and better for term so they are pretty solid.

Yes, that too.


#1627

Maybe, but the logic is similar.

Our deficit is what, €8bn and falling? Lined up against that a €16bn bank shortfall seems like a big deal. Not very different from Cyprus I would suggest.

Not untouched. They didn’t suffer a haircut but having your access to your money severely restricted is still a significant downside.

Agreed. It all depends on your personal attitude to risk.


#1628

Source? Because that’s the exact opposite of what is happening. Funding proposals/ S50 applications for all the busto DB schemes are due with the Pensions Board by 30/06/13 (most will be S50 applications imho). These will require lower equity holdings than traditionally what has been the case to be passed - i.e. a greater match off of bonds against liabilities.

The bonds these trustees will be investing in won’t be negative yield bonds - pension funds need to earn returns, their projections needs to be based on same or they’ll be facing wind up. I know of many that are getting into Irish bonds due to the circa 4.4% return.

Also Sovereign annuities are offered at a discount to traditional annuities thereby offering a cheaper settlement method.The reference bonds for these annuities - again the reference bond used in many cases is an Irish government bond.

I’ve sat in at these trustee committee meetings and not once have I heard Mercer or other actuaries say that Irish bonds we’re too high risk or that there was regulator issue.

edit:

I found the source. It makes no sense to me - irish pension funds hold ony 11m of Irish bonds? Out of 115b. I know one fund that holds 20m alone. I’ve no clue how the indo got that figure - none but it’s horseshit.

independent.ie/business/iris … 80033.html


#1629

Yes, that. :smiley:


#1630

Also depends on how much you are talking about. In my case it’s not a grand per year, but a very decent living wage, and my only income. No chance I’m going to forego it for a strategy that might not even protect successfully against risk.


#1631

That’s the thing, isn’t it?

There are some things that seem obvious - don’t have more than 100k in an Irish bank, don’t invade Russia during the winter, the masked man is immune to iocane powder, but the rest is really up in the air. I don’t fancy sterling as a haven - the people there are property mad; the bubble still is everything. I don’t really fancy any of the ‘safe’ currencies, as they’re already overbought by significant amounts.


#1632

Considerably reduced house prices of course :wink:


#1633

Bitcoin so! :smiley:


#1634

Cyprus had a bank sector 8 times GDP. They had a hole in the banks that was 2/3 GDP. Ours, even if you include everything that has already gone in comes nowhere near that. Cyprus GDP is approx 1 tenth that of Ireland, and they needed to find €16bn. Even in our current predicament, there is no comparison between them having to find €16bn and us having to find €16bn.


#1635

It’s worrying people think our deficit is 8bn when it was 15bn at the end of 2012.


#1636

Is 8bn not the current projection for 2013 after the additional cutbacks for this year and the impact of the promissory note machinations?


#1637

Maybe 8% not 8bn.

From reporting on Budget 2013:

“The government now expects a general government deficit of €13.42bn, or 8.2% of GDP, in 2012 based on a revised nominal GDP of €163bn in the Medium-Term Fiscal Statement”


#1638

Never a bad time to wheel this out:

financedublin.com/debtclock.php


#1639

When you say our deficit is a figure, it should be the last full deficit (i.e 15bn). The next projected one is now around 12.65bn but that’s based on; 1.5% growth (not happening), no overspends (unlikely), tax receipts being in line with projections and a whole range of possible things. It could literally end up being any figure.

As per here it was projected to be 13.3bn in 2012.

fxcentre.com/other/topic20121206.pdf

But as per here it was €14.9bn

finance.gov.ie/documents/exc … naldec.pdf

That’s Ireland for you.

Edit:

PS There was no promissory note payment in 2012 so pretty sure you can’t just take 12.65bn then take off 3.1bn but i’m open to correction


#1640

Just in

fiscalcouncil.ie/wp-content/ … RApr13.pdf

see pg 27 and commentary on pg32. Deficit still expected to be nearly 13bn for 2013

Second, in February the promissory notes owed by the Government to
the Irish Bank Resolution Company (IBRC) were replaced with a portfolio of Irish Government
bonds as part of the orderly wind-up of the IBRC (see Box C). According to Department of Finance estimates,this transaction is largely deficit neutral in 2013