Irish Debt Contagion
Research for Online Investors

by John Dalt

11/15/10

The European credit crisis looks to be heating up again.  Ireland is under pressure from other Eurozone countries to seek aid for their sovereign debt.  Irish bonds have been falling in the last week, as investors looked at their ability to refinance in the future.  Ireland’s deficit is expected to hit 32% of gross domestic production this year.  CDO’s insuring Irish sovereign debt hit 6.7% last week!

The Irish government is not in a hurry to take aid as they have elections on Nov. 25th, and the opposition will use any aid request for political advantage.  Ireland does not need to enter the credit markets until next year, but their banks will need additional cash infusions.

Spain and Portugal want to see Dublin agree to an aid package quickly, as the prospect of Irish debt problems has bled over to raise concern about their debt.  Spain’s borrowing costs have spiraled higher.

Ireland may need up to $123 billion dollars in aid from the European Financial Stability Facility (EFSF) that was set up after Greece was forced to seek aid in May.  This high number includes money for their banks and the country’s sovereign debt.

According to Reuters, the Irish government has pledged to pump up to $68 billion into the banks and publicize a four year debt-cutting plan before the end of the year (after the elections).

Bloomberg reports that Germany’s Chancellor, Angela Merkel, is pushing a plan for bond holders to take principal write-offs on debt issued after 2013, if the issuer takes aid.  European finance ministers are supposed to draft a permanent mechanism that would take effect in 2013 before the end of this year.

This would provide some protection to the European banks that guarantee sovereign debt, of which Germany’s bank is a large participant.  Jean-Claude Trichet, European Central Bank President believes this is a bad idea because it will lead to loss of confidence by investors.

Our take on the present situation is to be very cautious in the market.  We are through 90% of the earnings reports and the market is susceptible to bad news grabbing headlines.  The Eurozone credit problems seem to be a redo of April/May, and we know how the market acted then.

To the mailbag:
Have you seen anything about the movie “Inside Job?”  It is about the meltdown on Wall Street.  Is our system as corrupt and run by thieves as this “documentary” portrays?

John’s reply:  The big bankers are corrupt.  They are in bed with the regulators, and especially the politicians.  I don’t vilify the people that work at these banks, but the Rockefellers, Morgans, Rothchilds,   Complete A?/*holes  Soros same.  They will destroy our country, or any other to make a buck.

Quote:
There may be a conflict here between the interests of the financial world and the interest of politicians.---German Chancellor Angela Merkel at the G-20 conference last week.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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