Ireland Wants to Restructure, too (bac)
Well that didn't take long. Just a day after it was reported that Greece will benefit from a debt restructuring that will require current bond-holders to take a financial hit, Ireland's finance ministry is demanding a similar restructuring for its bonds.
Of course, this is what happens when you open the door to restructuring. In a union, all rules must apply equally. You just can't give preferential treatment to one country and not expect others to demand the same treatment. The European Central Bank should have known this. And its failure to see this one coming is making the situation even more unstable.
The ECB needs to get this situation under control quickly. And that's probably going to mean caving in to restructuring demands from Ireland, and any other EU country that's overwhelmed by debt.
The impact in U.S. banks is not insignificant. U.S. bank exposure to Greek debt is said to be $41 billion, and mostly in the form of credit-default swaps. (Bank of America (NYSE:BAC) was kind enough to detail its $441 million exposure.)
But France alone has the most exposure, at $65 billion.
*****The stock market appears to be pricing in not only Greek restructuring, but Ireland and Spain as well. And that has implications for the U.S. dollar. China, for instance, has been a willing buyer of European bonds as it diversifies its assets. That has helped support the euro against the U.S. dollar.
But if the EU screws up and China ends its support, the euro will crumble and the dollar will rally. Daily Profit readers are well aware of the intimate relationship between the U.S. dollar, the stock market and commodity prices.
******Have you heard that the S&P 500 is targeting support at the 1,250 level? We've heard TradeMaster Daily Stock Alerts' Jason Cimpl discuss this support level. Now, it seem like the entire investment world is watching that level, and expecting stocks to bounce there.
There's enough belief that this level will hold to make me nervous. One thing the stock market doesn't like is a consensus. Anytime the vast majority believes something will happen, they are usually disappointed. After all, you can only fool all of the people some of the time.
*****The housing market showed some more signs of life. After yesterday's jump in new mortgage loan applications (fueled mostly by refis), new building permits and new housing starts showed improvement. And the foreclosure rate continued its decline.
New jobless claims also appear to be stabilizing above 400,000. That's clearly not good, but at least the number isn't rising. The bigger problem is that hiring has slowed just as fast as jobless claims have risen.
The economy remains essentially stagnant.
*****As always, feel free to write me anytime: dailyprofit@wyattresearch.com
