BACK FROM BIRD DAY

...with a stinking case of bronchitis I maight add.

Well, the Irish got there deal without having to give up their corporate tax rate which on top of feeling miserable gathered me a bucket of, "I told you sos," from my self-proclaimed genius son. The market also got a lecture from the Germans and the IMF (both are very good at that sort of thing) that from now on (well, starting in 2013) there are to be no more "free riders;" that is to say if there are to be any more bail outs the private sector will suffer "haircuts." Stikes me as that is sort of like telling the North Koreans that unless they stop killing South Koreans and any one else that gets in their way, "there will be consequences." Oh well. Anyway, in the mean time why not buy Irish debt for two years and take the carry which is a hell of a lot better that 2 year T-Bills unless you don't like the Euro which brings us to Spain, doesn't it?

I'm bypassing Portugal because nobody really cares and because all eyes are now firmly focused on its far larger and far more important neighbor. Pity. Spain, as I have said before really did all of the right things but there success may well be their undoing. The country, or to be more precise, its banks wallowed in the flood of hot money that entered during the boom years of the last decade and needed a place to be invested which, perhaps not surprisingly, was the property market. Or was it? It certainly was for the Cajas or regional "savings" banks which are chocker-block full of lousy real estate loans but not so much for the very large commercial banks such as Santendare who are quite well diversified not only at home but abroad in place which are today quite hot such as Brazil. Not only that, but they are independently and locally capitalized which gives them a leg up on many of their international competitors. To be sure, there is a huge international exposure to Spanish credits and as we have seen in other cases the Euro do not like to have their banks hanging out there if you will, and whilst the fiscal issues surrounding the Kingdom (yes, Theresa, they do have a King and a very handsome Royal Family) are not deemed to be unsurmountable, the focus remains on the banking sector. So why the problem?

Today, I got the shock of my life as I turned to p.2 of the business section of the Times (Midwest edition) to the highlighted story from REUTERS' Hugo Dixon. Let me quote in part:

"Instead of long term insolvency, running out of cash is what causes financial crises like the one unfolding in Europe...Only four months ago Allied Irish Banks and the Bank of Ireland were given a clean bill of health in the European Union's official stress tests. One weakness of these tests were that they stressed insolvency, not liquidity...

"Sadly, this is an all-too-familiar story. Financing is the Achilles heel of banks that went to the brink in 2008...Death by insolvency is usually a slow one. Death or near-death through lack of liquidity is rapid."

Hats off to Mr. Dixon!!! He got it! Think about Spain in his context. What I have been saying for two years he understands and thanks to him I have a whole weeks work in front of me for he added more, much more, of things I have been saying. See you tomorrow.