Liams Last Post : Ireland equities defy the ratings agencies and rally.

Good Afternoon ,

 

Amazingly Markets seem to have tired of the Irish sovereign debt story for the time being …. There was no reaction in the equity market to the news that Fitch had downgraded Ireland by another notch. Interestingly the markets did not panic either in reaction to the comments by Matthew Elderfield that a liquidity management exercise is not off the agenda in relation to Anglo and Irish nationwide Senior bonds. A liquidity management exercise is a tender to buy the stock at market value which is a discount to par. I think that the real world understands that somehow the irish tax payer does not have the resources to front up and pay back all the money which was blown and the guys who bought the bonds from Anglo and Irish Nationwide were duped themselves by the silky tongued investment thesis woven by the Anglo management and the famous Michael Fingleton of Irish Nationwide. The scale of the problem is so huge that I believe that the average investor now recognises that Burden sharing is the most equitable solution and I get the impression that while the state has no wish to default , that some form of burden sharing that takes some of the pressure off will be very well received in equity markets. There is a real politik moment approaching and I have no idea how it is resolved given the legal status of the Bond holders and the Depositors.

 

My Colleague Sebastian made some good points though when he suggested that If the Senior Bnd holders take a haircut perhaps in return for an extended duration and acceptance of new paper that Ireland will just pay a higher rate for longer.  This according to Sebastian is the point the pro defaulters are missing –the solution does nothing to address the structural deficit except puts the duration off for some time .  Plus Ireland could forever be labelled a defaulter...

 

In terms of the market the news that AIB is to place the M&T stake did see the stock give up -3% whereas Bank of Ireland and Irish Life continue to track better.  You know my preferences here…

 

Fitch down graded CRH bond rating last night but this news was absorbed well as the stock recovered +3.4% today. The larger EUroipena materials stocks also had good days with Lafarge +3.4% and St.Gobain +2.3%

 

EasyJet Plc triggered a run in the airline sector after it reported full-year profits which were ahead of guidance with lower-than-expected losses from the Icelandic ash cloud.  Revenue  per seat increased about 6 %. Ryanair was +1.4% and Aer Lingus whise Impact cabin crew served strike notice closed effectively flat after outperforming the airline sector significant ly over the last few weeks.

 

Good that the world is in more bullish form… even shrugging off poor US employment data today.

 

Have a good evening

 

Liam

 

 

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Liam Boggan

　

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