Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Euro and Irish Banks Nationalization, Chinese interest rate hike the Grinch for Equities

Stock-Markets / Financial Markets 2010 Dec 28, 2010 - 02:21 AM GMT

By: Bari_Baig

Stock-Markets Almost half of German companies see breakup of Euro region as a real threat and to make things worst Irish High Court has given the go ahead to the government to acquire Allied Irish bank without the consent of the shareholders! Dublin would now be injecting $4.8 billion into Allied Irish bank to raise its stake to 92% from 19% before. This is not the first bank/lender which Ireland has nationalized, it is the 4th lender now and Ireland’s Ministry of Finance had this to say “Allied Irish was Ireland’s largest company by market value in 2007 [which at its peak valued at 21 billion Euros] however, [now] the bank’s market capitalization is at 347 million Euros only and had the government not invested now then there would have been no Allied Irish bank on Jan 1st”.  The stock would be delisted from the stock exchanges it is listed on and would be moved to the junior Irish bourse. So, in simple words the Allied stake holders are wiped clean out.


Should we side Mr. Lenihan the Finance Minister of Ireland who by nationalizing Allied Irish Bank has increased the total losses to the Irish tax payers?  Or with this [Fourth] nationalization we expect the mess in which Irish lenders are to improve materially for the better? Could this be the end then?

There is one simple answer to all the questions raised above which is a resounding [No]. Nationalized Allied Irish Bank would now need several billions of Euros in order to meet the new capital requirements. This raises yet another concern that these lenders which could only find mercy in form of nationalization to save them from default counters, how would they now invigorate enough interest to meet the higher capital targets and that too in just over 2 months. Is nationalization the key to success?

It might help clean up the mess in the short term which too is very necessary keeping in view the mess that Irish banking system is in but, going forward it opens yet another “Pandora” box which is regarding the price at which the banks/lenders are liquidated because the mode of price discovery is not “Dynamic Market” rather Mr. Lenihan and Co are at the centre stage of that.

Had people not believed in dynamic price discovery there wouldn’t have been equity or any other form of market place in the world regardless of the fact that at times stock markets can show exaggerated prices. We do not challenge market’s price and that’s that but the countless examples that we have in the past of a government functionaries liquidating any assets they were always believed to be liquidated much below the real value so, that is one big thorn in all the nationalized lenders/banks of Ireland which as time passes would start to come up one by one.

When the going gets good such occurrences seldom draw any attention and thus they are quietly brushed below the carpet but keeping in view the state in which Euro Zone is at the moment with no concrete steps towards debt crisis and the next big threat of Portugal followed by Spain for debt salvation things are not looking bright.

This is what is happening on the ground and it all boils out on the single European currency.  The bulls of Euro might have to wait a lot longer. For now they’d have to quench their thirst on the corrective rallies which follow through after sharp declines. As we stated on December 22nd here at www.marketprojection.net that Euro bulls are quick to declare victory as Euro has failed to break the bottom and seems to be forging a bottom between 1.3070 and 1.3200. Good enough, if thin volumes and lack of activity in the market means we are forming a bottom then let the bulls cheer on until trading volumes normalize and only then we’d know how much of the bulls claims hold true. Bear would have been the king of the jungle had it not hibernated. It is cold, and the beast hibernates. We mince our words at that.

Would the Chinese interest rate hike double as Equities Grinch: China after surprising many of the economists last time when it opted not to raise the interest rate hasn’t disappointed the lot this time around. The benchmark rate now stands at 5.81% from 5.56%. Everyone is breathing a sigh of relief because everyone believes “inflation indicators” are running wild in China and what we find even more interesting is the fact that everyone’s eyes are towards China and her tightening of the policy. It is interesting because the U.S is providing further easing and developed nations except for Australia all have bench mark interest rates near bottom and at this point in time their focus to tilt towards tightening seems farfetched.

This would certainly help curb inflation in China but this would also put a bid on Renminbi and serve the greater goal of making Renminbi a freely floating currency. This makes commodities cheaper in terms of Renminbi and puts an offer on them. This makes the equities cheaper and thus shall put an offer on equities too. Perhaps this tightening of the policy would help put a lid on the “bubbl’ish” pace at which equities and commodities have sprung up in last few months without any significant or material correction. People’s bank of China is expected to increase the interest rate to 6.56% by the end of 2011 but most of the hikes are expected to take place in the start of 2011. As the street is of the view that more hike in the bench mark interest rates can be expected therefore there’s a growing consensus that markets might have already priced in the plausible hike and thus there might not be much risk aversion and the steady uptrend of stocks and commodities would continue however, this is where we do not share the view with the street.

Investment is essentially a measure of risk versus reward. The optimism of investors right now seems too high, high enough that everyone believes markets can brush aside any news or factor which might have negative consequences and press on regardless. This is what raises a flag of caution for us. All that glitters is not gold, this we say because China’s explosive growth has indirectly managed to pull the rest of the nations which thus far have lagged far behind the curve stand on mildly sturdy feet. As China slows with increased tightening of the policy it would negatively affect “those” slow nations and the sentiment from “overly bullish” gradually shifts to corrective and then bearish sentiment.

As the New Year starts and trading volumes normalize, we feel risk aversion might become more evident. We advocate bullish spells for they are more fun than bear markets but we advocate market’s health even more and at this point, we find global equities to be fast approaching overbought territory. We on December 9th saw Dow breaking away the previous peak and pressing ahead to 11,700 once Dow cleared the jitter zone which stretched from previous peak to 11,550.

Dow seems to be stuck in the jitter zone. The street’s of the view that markets are moving sideways due to lack of “driving” indicators, as this totally contradicts the “speculative” sentiment of being overly bullish. If all is that great, then you do not need “driving” factors. We do see Dow trading 11,700 but after that we see a good correction and a very quiet phase as well.

By Bari Baig

http://www.marketprojection.net

© 2010 Copyright Bari Baig - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in