Monday, January 19, 2009

Watching a mushroom-shaped cloud rising

Sadly, my quick prediction last night has turned into a reality - bleaker than I could have anticipated. As, at the time of writing, FTSE EUROTOP100 index is trading in the green territory, ISEQ-FINANCIAL is over 34% in the red, with AIB down 41.5%, and BofI and IL&P both down 27%.

We are now safe to assume that the Anglo Irish Bank, taken over by the state last week, was on the verge of becoming a moneyless institution. That despite the tough talk from Mr Lenihan about freezing some deposits, all sizeable corporate deposits have now left the bank's vaults. That the Exchequer downside from the bank 'rescue' is going to be in excess of €10bn, prompting his yesterday's remark that the other banks are now effectively on their own, and in effect admitting that the Exchequer itself may be now out of money, if commitments to date were to be honoured!

All of this has not been lost to international investors, who are currently dumping anything they might still have in the form of Irish banks shares. The surprising thing for now is that Irish bonds yields appear to be holding.

The question, however, is: for how long. If the Black Monday is not reversed, and unless the Government comes out in public with the actually believable statement on its current financial position (including a detailed and credible forecast as to how it plans to manage its exponentially increasing commitments for 2009), Irish yields will rise and prices will fall.

Whatever you do, I would think thrice before switching into Irish bonds... they are far from being a safe harbour...
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