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Irish Bailout Still Not a Done Deal

8 comments

After a long holiday weekend, U.S. stocks came stumbling out of the gate Monday, unable to determine how, or even whether, they should react to yet more “strength” in the dollar.  We’ve wrapped the word “strength” in quotes because it is only in relationship to a euro enfeebled by financial crisis that the dollar could ever appear to be strong. And so it was yesterday, with the Dollar Index rallying to within 0.66 points of an ambitious, 81.80 target we’d sent out to subscribers the night before.  We had thought the latest eurocrisis had been laid to rest with the imposition last week of a bailout package on Ireland. The country had officially requested help, after all, and one might have thought that the ratification of the deal would have been automatic.  Turns out, the Irish people themselves will have a say, since their parliament will meet on December 7 to pass a budget that may or may not incorporate the provisions of the bailout. 

Those provisions evidently were not buried in fine print, since fully one percent of Ireland’s population marched on Saturday to protest them – to protest the tough strictures that the bailout, worth an estimated €85 billion, would impose.  For starters, any money borrowed would have to be repaid at 6.7%, a return that even the most aggressive hedge funds are not achieving in these deflationary times. And for two, the Irish would have until 2015 to get the budget deficit down under 3% of GDP, in accordance with EU rules. If that’s the best that lenders have to offer, then at least 50,000 to 100,000 Irishmen who marched over the weekend would rather tell the IMF to shove it than accept all the strings that would come attached to the deal.

 And If the Vote Is ‘No’?

What that means in practice is that the euro is likely to remain under pressure till at least December 7. And if Parliament should vote down the package?  Expect the euro to get savaged as never before. Earlier, we’d told traders to buy euro futures aggressively if the December contract fell to 1.2953, a Hidden Pivot target that lies about 1.2% below the current price of 1.3116.  But if the vote on December 7 rejects the IMF package, we’d back off the recommendation and buy euros at our target only with tight stops.  At that point, the euro would be vulnerable to a further fall to at least 1.26, where the “structural” support of some key lows made in late August and early September would be felt.

For the record, although a “strong” dollar over the next couple of weeks would put further pressure on gold and silver, we would expect bullion to hold its own as the Irish crisis peaks. Gold, currently trading around $1367 (basis the Comex March contract) might come down as low as $1300 under the circumstances. But whatever lows in bullion correspond to a euro selloff in the days following a parliamentary “nay!” we’d view them as the buying opportunity of the year.

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  • F. Beard November 30, 2010, 11:54 pm

    Here it is 2010 and the human race still can’t figure out how to do money correctly. I do hope the Irish tell the EU and IMF to stuff it and default on their debt. Ireland might be an ideal country to allow private currencies too afterwards. That would be sweet revenge on the usury cartel.

    • SDavid November 30, 2010, 11:57 pm

      It would show all the people of the world that the “little people” (ie those who REALLY pay the bills) have a say. What a concept.

  • Larry D November 30, 2010, 10:02 pm

    And after the fists fly, it’s back to the pub to smooth over the unpleasantries with a few pints.

    RESTORE the PUNT !
    EIRE out of the EURO !

  • warren November 30, 2010, 3:48 pm

    50 to 100 k Irishmen Can’t all be wrong.

    • Robert November 30, 2010, 7:30 pm

      Well, “wrong” can be such a subjective term..

      I mean, perhaps it it “wrong” that the ECB, which has the power to create an infinite number of Euro’s and to lend them at 0%, is instead trying to squeeze the Irish for nearly 7%.

      Perhaps it is “wrong” for the Irish working class to have to play the part of Peter to the Irish government’s Paul.

      And just maybe, the Irish are so irate about the above that they are willing to stand and fight the EU.

      What’s that? The Irish displaying heated tempers and willing to fight? Who’da thunk it?

  • TC November 30, 2010, 7:05 am

    Rick,

    Love your commentary. Just curious if you see the dollar index crashing eventually then what currency will be strong? To me it seems everyone wants theirs to be weak but they are having a hard time doing it.

    • cosmo November 30, 2010, 8:43 pm

      Hey TC, perhaps it is better to understand that currencies are all relative to each other and if they are all ‘racing to the bottom’ then the US$ index may not crash(although the Chinese have the ability at any time to make it so). That is where gold comes in to play as it is the ‘currency of last resort’. I am in 98% PM(since ’03) and decline to play in the casino known as the financial markets, ergo, I have no worries, nor any risk, IMO. I see the writing on the wall…

      But Rick is always insightful to the current situation and it is wise to follow along from the sidelines. I am continually amazed at how many people just don’t have a clue what is going on with their money and the effects that it is going to have in their lives until it is probably too late.

  • redwilldanaher November 30, 2010, 6:32 am

    Nice piece Rick as was the “Bets against Europe…” essay. Great job summing things up concisely.


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