Long-time readers will be familiar with Michael Lewitt, one of my favorite thinkers and analysts. He has gone off on his own to write his letter, and I am encouraging him to write even more. I call Michael a thinker because he really does. He reads a lot of thought-provoking tomes and then thinks about them. And then writes, making his readers think. The world needs more Michael Lewitts.
Today, he roams the world, commenting as he goes, starting of course with Europe. I have permission to use the first half of this most recent letter as today’s Outside the Box, leaving off the investment recommendations that he shares with his subscribers. If you are interested you can subscribe at www.thecreditstrategist.com.
I am back from the Kilkenomics Economics Festival in Ireland, where there was a lot of attendee angst about their banks. They are not happy about taking on private debt with public money, and the mood in Ireland is to tell the ECB to take their debt and (insert your favorite personal expletive). Clearly, the rest of Europe wants the Irish to pay.
I told them to be patient. When the rest of European banks are upside down sometime next year and France, Spain, et al. have to pay, the mood among voters everywhere will be quite different. I said they could probably default on their bank debt at that point and no one would notice, amidst the massive debts that are going to implode on the Continent. My remarks excited a measure of schadenfreude-tinged laughter from the crowd.
Michael Lewitt agrees. Noting this interview with Oliver Sarkozy, the half-brother of France’s Nicholas Sarkozy, he says:
“Institutional funding has a three-year average life, so European banks need to generate more than $800 billion each month to fund maturing institutional borrowings. This is, in Mr. Sarkozy’s words, unsustainable. And the markets are saying so. The CDS market for European banks is back at or above the peak levels seen during the 2008 financial crisis. While Mr. Sarkozy does not come out and say it, TCS will – the likely future for European banks is Dexia SA, which was nationalized by France and Belgium when it ran aground a couple of weeks ago.”
I will write more about what I learned in Kilkenny later this week, but Europe is getting ever closer to imploding, one way or another. There is no end of problems for the markets to focus on. I can only hope that we in the US will observe the increasingly sad state of affairs in Europe and become sufficiently motivated to fix our own problems. If we do not, we will end up in an even worse condition, which will then be worse for the entire world. I remain somewhat optimistic that we will fix what ails us, as not doing so is just too horrible to contemplate.
On that bright note, have a great week. I am off to Atlanta tomorrow and then DC this Sunday, and then home for a few months (more or less).
Your seeing too much to worry about analyst,