How a Rural Irish Farmer Became an Expert on the Euro Crisis

talk to Lorcan roach Kelly. He's our handyman social media expert at Bloomberg Market, also a expert on the Eurozone, the ECB, and most extraordinarily, he comes to us from the small town or village of six mile Bridge, Ireland, where he has a farm with cows. And I'm pretty sure he's the only person in six mile Bridge who has a Bloomberg terminal. I don't know that for sure, but I'm like ninett nine percent sure. And we're going to talk a little bit about what's going on in

the Eurozone these days. There's a lot of tension once again around government and the banks. But before we get to that conversation, I want to uh talk to Lorcan about how he became a farmer who is also a expert on the e c B. So Lorcan, thank you very much for joining the Odd Lots podcast. Joe, great to be here. So Lorcan, let's start from the beginning. There aren't many people who are experts on the ECB and the Eurozone who also live on an operating farm

with cows. What's your background? How did you? Where does your story start? Take us from as far back as you'd like to go. I suppose, I'm I suppose it was was start the bit that people might be interested in, which is how I got to be where I am, And it's a I suppose the start of it starts out with a bit of a tragedy away and that I used to work as an exposive engineer in the mind, which just straight up is the best job in the world.

At the end of every day, no matter how bad your day is being you get to blow up a lot of stuff, which is incredibly therapeutic. I think everybody should get to blow something up at some point. It was it would solve many of the world's problems. What are the kind of skills that you have to have to be an explosive engineer. What what is the job really involved? You have to to run really fast. That's the number one skill. I think that is basically what

it is with exposes. When you're exposing in the mind, you have to design an explosive blast in a way that it will blast what you want to blast and leave everything else alone. It's very important that you don't blow up the stuff you don't want to blow up. And it's my background is engineering, so it's that's what's that's kind of spatial development stuff. That was kind of fush a lot of what I was doing anyway, So this was Ireland. What kind of mining is big in Ireland?

And the base metal, lead and zinc mines. We have one of the biggest lead zinc mine in Europe is in Ireland. It's writing, it's pretty much mine. That was the moment, has been there since the nineteen seventies. All right, so let's take the next step. So then what did you do after? So after in two thousand and seven, my my first wife dies and so I've left for two children. So I was in mining, which meant I traveled a lot, So obviously I had to stop that

job come home. Look after the kids, and I found self in the position where I was very time rich and cash poor. And if you remember two thousand seven, thou there was one event that was dominating the world at the time. I think I remember that and that that was the financial crisis. So I was, like I said, I was time rich. So I started looking into this, going okay, I'm naturally curious, I suppose. So I started looking. It's going, okay, what what's causing this? What does it mean?

And I found a lot of the corbadge I was reading was very saying and then that's what I mean. It is like everyone was on the same path saying the same thing, saying to say, like the euro is going to fall apart, the whole world's going to hell in a hand basket by gold. You hadn't studied this before. You don't have a background in economics or finance or anything like that. I did economics and it's in high school,

and beyond that, I hand on anything with it. So it was basically you had a lot of time on your hands. You saw that the world was kind of falling apart. There was a lot of anxiety in Ireland, and in particular because of how big the banking sector was, and so you just wanted to sort of scratch an

itch and see what the heck was going on. Actually, and I think it's like with the firmans well at the time, but the firms that I say, if the firm, my father is eight years old this year, the farm is still in his name because Irish people are very funny about farmland. You never sell land, you never give it away. You have to wait for the generation above you to die before you get it, which sounds very macavelium,

but how it is. But then whatever, when I was growing up, there was the five children in my family. Five wasn't the family. And my mother always sets was when you were growing you have to go to college. You have to get a good degree, or you end up with the firm. The firm was always the threat. It's the white elephant, that the thing that nobody wants to have because you're you're kind of stoked. You can't ever sell it. You've got an asset, that money, but

you can't lick with it. It's been the family for twenty five generations. You have to hold it for the next generation. So you didn't go to college and you ended up with something that that's pretty much what happened. Yes, I was the black sheep, so the black sheep ended up with the cows. So what what was you said? You were curious? What was the first thing you looked into? What was the first question you suddenly answered to? I

think that the first question. I thought that it was how are ever was saying that the Irish banks you should throw a draw money from the banks. Everyone should be deposit flights. And my my first question was what's the mechanics? So this is my engineering backgrounds, like what's the mechanics that are keeping the banks open? If everyone is taking their money out? Should the banks fall over? Like?

How are they not closing down? Because the one thing we didn't have when we weren't having we're bank failures. And I was nosing around asking people because Joe I knew nothing, so I was able to ask the really dumb questions that other people wouldn't like to ask. And I got talking to an Orish economists called David McWilliams, who I ended up actually working for after a while because end up being his researcher. And as part of that research gig I was doing, I was finding I

was reading, like I said, I was trying rich. I was reading lots of bank banks plan annual reports, all the hundred forty five pages of them, just to try and figure out my own head how this machine that is a bank works. And the thing I was finding out with them was like, the banks are still standing because they're getting liquidity, which is money from somewhere. And it was to find joke, to follow the money, where is this money coming from? And as part of that.

In two thousand and nine, I think it was I was reading Anglo Irish Banks, which is probably one of the worst banks that whatever existed in the Arby manage, reading there any report and there was a footnote number six seventeen on page A hundred and twenty seven which they were getting eleven billion euros from the Irish Central Bank as part of the master Loan We Purchase agreement, which is a bit technical. But I saw that I

don't know what that is, so I'll ask somebody. So I got onto some like Jaredson's Banks spot Is and ask loan Purchase agreement and they said this is something we used to use in the nineties when Ireland had its own currency. That floated to balance the currency at the end of the day. And then the next question asked was why white. Where have you seen that written down? And I said, I saw it on Anglo Irish Banks

two thousand nine report. And then the next thing they said to it was we didn't have this conversation and they hope, Okay, there's definitely something here, so and to to find trying to find out about that. I found out about this thing called Emergency Liquidity Assistance e l A back in two thousand nine when I think it was. It was supposed to be a secret, but they just

show didn't think any would ever ask about it. So they literally had this thing buried in a footnote deep in an annual report that they didn't really want anyone to look into. But it was sort of it answered the mystery of mysteries because there was a big part of the balant sheet and that they had to put it in their banat the number and they have to

explain where the number came from. So they explained it in a way that kind of Joe, don't look any furthers, don't look behind the Nobody else was poking around and asking these questions. Besides you, not that I know of. I remember I wrote about the l A in two thousand and ten emergency and at the time because I use the first the first point of any investigations to just go to Google and type the words in and

see what comes up. And nothing came up, like the ECB hadn't even published their rules for l A in a meaningful way at that stage. So that's where I started, right. So then I because the guys worked for Dave McWilliams. He's a he writes for a broad audience. He wasn't FreeFly interested in isn't he knew his audience the intrixees of Central Banks Banet. So I started a blog as I write with this thing, just like Joe. It was aimed at that's what nerds like myself and that became

very popular. And through that becoming popular, then I think the ft picked up in a few How did people find it? That's not a lot over that step, because I want had a blog and that's how I got started. But how do people find your blog? Who was reading it? Ums? For TO? A lot of this is for TO this time it's with um Paul Murphy at FT Alphabelle who was starting in this thing called markets Lie the ft Alp and then they still run it to this day.

Well they start talking about today and you could comment and say, look, I think this is important. I think one of the things that I thought it was on it one day and I said, look, I think this how anglers panks t open is important, and I pointed towards this blog and Paul then took my blog and

republished it at the Alphaville blog itself. And once you get re published once or twice, like, the thing just gets the momentum and then you're seeing as an expert in So I started following you on Twitter it maybe late two thousand nine, but that you had really made your name by that point at least among a very sort of narrow influential media set as someone who really knew the ins and outs by that point of the

Irish banking system. Okay, so you're on the farm and through the magic of the Internet and blogs and Twitter, you start to establish yourself as someone who's really done the work to figure out what's going on in Ireland, what's next, What's what, what's where? Did where did it lead from there? And then the next thing, I'm an American UM company who are obviously looking to get some European coverage. Yeah, tracked me down through via Twitter and the ends and offered me a job. That would you

like to come to New York. We'll fill you over. We'd like to sit down and child just see how we're looking for for a view on the whole Eurozone that we're not getting. I think maybe it's an important point that I made to the guy in the don's gonna end up working for is there are seventeen there were times seventeen countries that use the Euro Area. The US use the Euros the currency. There's only one that

speaks English. That's aren't a lot of particularly at the time there's two thousand nights as and said a lot

of the media. I suppose feed that was coming into New York, particularly in the Wall Streets, was coming out of London, and at the time maybe still exists now, there was a certain bias amongst reportage from London on the euro Area, as in, look at that terrible thing over there, it's falling apart, It's going to burn to the ground, aren't we So betver not been in the euro So all I had to do all is do.

But I kind of once I figured out how the ECB worked and how they were proping off the entire system through E l A when they had to what say, things might get bad, but for things to break, it's going to be a very big jump from where we are. Yeah, I remember, you know, because I was following the Eurozone crisis pretty intently back then, and I remember how you know, it would sort of one there would be the period when everyone was talking about Greece and then everyone was

talking about Spain. But I really did appreciate when Ireland was in the spotlight, simply because it was the only time when I could read the local press that follow up was happening in the parliament or the Doyle is you call it, because I could actually understand what the politicians were saying. So I really did appreciate that, And I think it's kind of a broader point that I also I've learned a lot, is that if you can ever get to the source of information, get to the

source information. Because if you read reports, especially on the report, say on the German parliament or the Greek tournament, it's always true and Lens that always so, and the UK press is not known for. It's sort of like cool, level headed, lack of hyperbole. Is. Yeah, they have papers to sell and they're good at selling papers. I guess.

So let's sort of skip ahead, and how long did you work for the American firm and what did you He finished in twenty thirteen, I think, but to thirteen finished and went to start on my own because I developed a few clients in London, and by having my own client based London, it was just meant I did not have to fight. You know it states that's once

a month. And what did you do? These clients you told you gave them your view on what was happening in the year zones, give a view give I think the clients particularly, we're interested in what the European Central Bank, because by twenty people looked to central banks. I think the big change between two thousand and seven and two thousand and thirteen is in two thousand and seven thousand people were still looking to governments to solve the problem.

By twelve thirteen normally looked to governments anymore. That sounds so quaint, the idea that any any government could do anything. Now we live in this time when central banks really are all where the action is. So it's the point I think that less than ten years ago we actually might have believed the governments could be competent to fix something. Ten years ago we were all kimdy and looks now yeah crazy. Now we're all monitoris all right? So let's

jump ahead because now you're our colleague. You work at uh Bloomberg. You came here I think early, just about a year ago. You do uh social media, You do some editing, you do some writing, you sort of do your you do a little bit of everything. What's your day like right now? I think there's a lot of fascination and curiosity about this person who works for Bloomberg, who lives on a farm with cows. Take me through

a day in the life of Lorcan. Right now you're you're at busy time for Lorcan because right now is calving season. Caving season kicked off the end of January, beginning the ferry. So right now, on my day, I get up our own sickly m go out check the cows, because Joe check in the morning, how many cows do you have? We've only got turkey cows, so we have turts turkeys, and what is checking the cows entail. You go up. I suppose I'm talking to a towny here,

so I better take this slowly. The first thing you do is make sure they have feed and water. So I come in what I'm sure they fed water, make sure there's known new cars. I come in for seven I am turned on my coming to my office, turn on the terminal, turn on the web, and catch up with what's happened in the markets where markets are going

for today. I've then got about an hour and a half to get everything updates, to get the website updats, get Twitter flowing, get Facebook flowing, and then I go back out to the cows again for twenty minutes to make sure they're okay. Back in again for nine o'clock, and then I start. Every morning, I do this five things that are happening in the markets today, posting and loss.

It goes out it's about nine nine fifteen. I'll started writing that get the idea of where we're going, while continuing to make sure that all the social media side is updated. Once the five things is published, I'll go for lunch for about twenty minutes. Lunches actually a but

back up to the cause. Make sure they get their lunch because basically before I think it's are important, and then come in for the afternoon work work at the office for the afternoon, around five pm, finish up, back out to the couch and then make sure that everything's okay, come in, have a dinner and then normally about half a night o'clock, go backups getting just check for calves and stuff like that. Check for calves. On the typical day,

there's no calves. On the typical day, there's no calves, but what the moment, because we're in calving season, there is on a typical day, there's always the possibility of calves. And you live your you live in a town of six mile Bridge, right, So how many people? Where is six mile Bridge? How many people live in six mile Bridge? And why is it called that? Six month Bridge is a town of about people. It's in the west of Ireland's in a place called County Claire. It's handling enough.

It's ten minutes away from an international airport. There's an airport in the west foreign and called Shannon, which means it's quicker for me to get to London than this for me to get to the capital of Ireland. Because I can drive to the airport. Came a plane in London. It's called six Mile Bridge because apparently years ago it was six miles from the nearest town of Limerick, which is kind of six miles from the nearest place people actually want to be because there's a bridge. Is the

smallest in market town. It's got seven pubs, two churches and two shops. Yeah. Our colleague Dash visited you in Ireland last summer and I think, if I recall, he couldn't find your plays and you didn't have cell service, and you just walked into one of the pubs and asked like, does anyone know Lorcan And they were able to figure out who he was talking about, right, yeah, pretty much immediately they knew who you're talking about. That this is not saying that I'm someone that that spent

all of my time in the pub. I just spent Tim's outlining how busy I about that? Clearly, I have no time for clearly, clear um. And in the summer, I remember you told me you right, you have a tractor, right, and you could just be out there on your tractor, on your iPad checking the terminal, right, yeah, yeah, yeah, So during the summer. Sometimes if I do so has an a lum day, I can I can bring my ipen out detractor and then it's got a one of the signal movement signal and I can update Twitter. I

can do Facebook from the tractor if I want. I think it makes a lot of people here very jealous in your lifestyle. I think whenever when anyone at the office hears about that, that that's your I think that immediately seems appealing. All right, let's um make the conversation a little more topical, because once again there's a lot of anxiety about Europe. We've seen some of the big European banks, their stocks have really been getting slammed lately,

Deutsche Bank, Credit, Suez. We're starting to see UH some increases in borrowing costs for some UH sovereign for some governments again, Portuguese borrowing costs have been on the rise, Italy and Spain picking up a little bit. What's going on? Why are people suddenly sort of nervous again in Europe? I can give you five reasons if you want, but to de pick the one that I most believe in

be tricky. I think, first of all, if you look at where banks, or if you do like the stress, and how banks are making money up to two thousand and seven and how banks are trying to make money now are completely different worlds. It was basically, pilem high and sell them cheap was the way you made money in too does its just it was market share and get get your marrigine as much as you can, and there's no risk in the world, so you can slip

your profits. At the end of every year. Things will blow up, as they eventually did, but fild the going as good. You're making good money. These days, banks are very very regulators, so I think that they're almost afraid to try new things. The model that they used to have is broken. So if I'm an investor and a look at the bank and say, okay, how is this this bank? That is this large mention it? But I say, how was a large legacy bank going to make money

in the next five years? Where is my dividend yield going to come from? I can't see it, But Joe, but that's not myself. I can't see so I don't think an investor could see it. And I think that's but that's not the problems right now? Right now, we're looking at a squeeze, so it'll last play into five weeks. And European banks have got killed this year. And that's not investors. These banks aren't going to be profitbly, are going to have are going to struggle to be as

profitble as the world historically. There's something else happening. I thought that something else is maybe investors are resetting their expectations. There was like if you looked at Europe, the area, the book case was very easy to make on it. But there comes the point, as always investors, for you have to investors say okay, show me the money, and that point. We haven't got to that point. So investors maybe just resetting their their ideas. Do you think that?

I mean, this is a debate that's going on, and a lot of people say the difference between now this bank sell off and say the bank sell off we saw in two thousand eight is not so much about these banks are going to have these gigantic losses that render them in solvent or It's not about that they're going to have some liquidity run. It's just that people don't like the business model. And so between the regulation, the lack of robust upside people are just saying these

aren't very exciting businesses to be invested in. Yeah, I think that that's a lot of it. I think that. But there is something more because if you look at the sell off that's happened in Europe, it's it's a broad based sell off. Yeah, so it's like, we don't like your business model, and also we don't like the expectations for the economy in which you're trying to do business. You've got that double time in there. You've then on the fringes of all that, You've lots of other things

going on. You've got investors suddenly realizing that Coco bonds, contingent convertible bonds are actually convertible if the contingency riises. So this is a sort of a unique class of security that's only been around since the crisis. It kind of looks like dead, it kind of looks like equit.

But the idea is that this is these are investors who had piled in getting above market yield and are now starting to realize that there's no such thing as a free lunch, and as these banks struggle with profitability, that they could get clipped. Yeah, exactly. So the I think that anything that makes investors nerves in a place where they're not particularly keen on being invested, Nay, then to get out. So if you see these Coco bonds

start to look like they're going to be converted. So the Coco bond is a bond that pays seven So you've got your bond that trade the power, you get paid seven percent. That's absolutely it turns into equity. You're a bond, a bond investor, you know what to behold the next in the bank. And also at the point where it converts to the equity, you're holding equally to the bank that's had a massive equity squeeze that needs to raise capital quickly, so you get an equi in

the bank that you'd never buy. Yeah, so that's but again that's what Coca bond, that's what they're supposed to do. But they're new, so there are people didn't that much experience with them, Brands didn't know how to model them. Perhaps, yes, I'm not buying that one, but perhaps the other thing then I think that's important is if you look at commodity assets, oil metals they will ignore goal but oil mets they have got hammered and in the last fourteen

eighteen months they've just had a disastrous time. And that is one of these things that just grinds down earnings, grindsdowne profits, and grinds down the circulation of what for what of a better phrase petrol dollars in the world. So, if you've got a large sovereign wealth funds, and there are lots of very large stuff and wealth funds that have very large equity holdings, and we thought, u um, if you look at the Norwegian ex so it is

huge equity holdings. A lot of the Gholft funds have equity holdings, and a lot of those equity holdings are in financial stocks. That there has to be a point where these governments say, okay, rather than putting in our own people, there are too much pressure by cutting our budget too much, We're going to spend some of a rainy day fund and that means liquidation assets out of the raining So basically, during the boom times of oil you had these governments like Norway, Saudi Arabia and others.

They built up tons of cash because oil was so high. They went out and bought all these assets and among the assets that they owned we're financial stocks around the world. Now that oil has been plunging, these government budgets are understrain. These governments are then deciding that it might make sense to sell down some of their assets, as you say, liquid ad part of their rainy day fund. And this

is putting pressure on everything. But because they were so heavy into financials, that could be one aspect driving the selling here, but not even that could be an asset drive.

But also if I'm a bank investor myself and I'm not a SOB wealth fund, I look at these ser wealth funds and I think, Okay, the next thing they're going to do if their financial shares, I'm going to sell mine first to get out of the so even if they're not selling yet, people want to get ahead of the people want to get ahead of that so Lorkan. In addition to the tensions at the Bank's, one thing that we've been seeing lately is some renewed pressure on government.

We've been seeing in the last week Portuguese borrowing costs have been rising. Is this a return to the same problem, the sort of rebuke of austerity ongoing political problems that hasn't really been solved in the Eurozone, I think to an extent it can be seen as that, but I think, as always, this time it's different. Investors are better as

differentiating between different European countries Eurea countries. The way it used to be again in two thousand and ten Stars eleven was you bought German sovereign debt, you sold the periphery that's Portugal, Islands, Italy, Greece, in Spain is on the edge, you sold it. If you look at what happened last week, we has Portuguese tenure deal at four percent, with the Irish government stategency selling ten year debt at point nine yield. So you've a huge spread between two

of the former peripe countries. And that's because the investors saying, okay, let's just let's it's not a euro problem, it's a

problem within these individual countries. In Portugal at the moment, the government, there's socialist government that was elected and there came in on a promise of reversing the spending cuts of the previous administration, which is how all socist governments are elected in European promises of reversing what the bad guys did last time around, and then they find themselves in a position where they have to implement the policies of the previous government anyway, because as a small open

economy in the world, you don't have a huge amount of choice over the policies you implement. You can't go it alone. You can it's not like your United States, who can set policy. You have to be an economy that can exist as an antarchy in order to set policy.

A small, perifer European state doesn't have that autonomy. In Ireland at the moment, there's an election campaign going on the election June twenty six February, and politicians from the entire width of the spectrum of the major parties from left to right, to tell their policies apart is incredibly difficult to an outsider, So there's a lot of consensus that there is not much inclination to change course. The

Socialist Party or closest things aren't. As a socialist party, I have already committed to maintaining arens twelve and a half corporate tax rates. So if you're a socialist and you're committing to maintaining al and a percent corporate tax rate, you're kind of amazing. We can't really have any large policy changes because we're a small, open economy and the market will just wipe the economy out if they don't

like what we do. But in other places, like in Portugal, in Spain, in Greece, there's clearly much sharper ideological divisions between the parties. There are, and if you look, I think Greece is a great example of We look at Theresa being in government now over a year and when they came in they were going to tear up everything

and starting you and would be a socialist paradise. A year in there are strikes in Greece against the policies of the Serisa government which are rather bizarty because of Greece, supported by the Sarisa party against the Sarisa government. But that's Greece. It's a strange face. Well, lorcan thank you very much for joining us from six mile Bridge, Ireland and telling us your story and giving us your perspective on the latest stuff that's been going on. Thanks for

having me, Joe, absolutely, and thank you. That was another edition of the Odd Lots podcast. I'm Joe Wisenthal. You can follow me on Twitter at the Stalwart and if you want to follow Lorcan. You should follow him at on Twitter at Lorcan r K. Thank you very much for listening. We at Bloomberg are proud of our new and growing slate of original content podcasts. They include Benchmark, a jargon free dive into the stories that drive global economy.

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