My “Europe is still in the third inning” theory may be getting validated a little more this morning as Irish banks continue to face challenges. We know that Allied Irish Bank was on the list of possible banks that could fail a few months ago, but so far, they made the cut, contingent on billions that need to be raised by year end.
I said it then, and I will say it again, banks are kicking the can down the road in Europe and here in the United States. Yes, I know, Ireland is only 1% of Europe’s GDP, but Greece is only 2% of Europe’s GDP and look at the ruckus they started.
The latest bank in Ireland tat could flop is Anglo Irish bank. Anglo Irish reports this morning that they will need $32 billion and that number seems to rise by the day. This bank is also 2/3 of Ireland’s tax revenue, amazing when you think about it. S&P says the bailout will be more like $64 billion and that is 1/3 of Ireland’s entire economy. Again, amazing.
Irish bonds are now trading at the same levels when the “Greece” crisis started and the economy, especially the banking side of things, looks like a black hole.
Spain and Italy are no different and I have been saying for a month that the entire European relief rally is over. Most of it was short covering anyway. Many thought the worst, and were heavily short, we all know by now that trades always get crowded at extremes. The story is still developing, but don’t get excited yet, as there is more pain to come from the other side of the pond in the months and years ahead.
On a more cheery note we rallied yesterday off a decent China number and a better than expected ISM number. This market is incapable of follow through days, so the true test of the markets mettle will be today. Yesterday was a short squeeze, but now the all important “follow through day” is needed. Tough request from Mr. Market as the mother of all numbers gets released tomorrow. JOBS
We had more fun than a barrel of Leprechauns on the Premium Site yesterday and dismantled the market yet again: Winners included: BVF +8.0%, COT +9.6%, JPM warrants +6.0%, HGSI +10.7%, ROVI +2.5%