Wealthbuilder January 2013 Stock Market Brief

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Wealthbuilder.ie Stock Market Brief January 10th 2013.

Ireland Lobbies to Have Europe Share Banking Risk:Ireland took over the presidency of the European Union on January 2013 for six months. Prime

Minister Enda Kenny is thus in a unique position to try to find a solution to the banking crisisthat has bedeviled Ireland since 2008. However, the job at hand is not going to be an easy one as

reported by Christoph Pauley of Spiegel Online on the 7th. January:

"Ireland's reform policies have been widely praised for helping it emerge from the crisis, butthe truth is bleaker. If the government fails to get European taxpayers to assume some of therisk of its ailing banking sector, the country could soon require another bailout.

In his home country, Irish Prime Minister Enda Kenny, 61, has a reputation for beingsomewhat wooden. But when he meets with German Chancellor Angela Merkel and other topGerman politicians, he's capable of unaccustomed gallantry, as the Irish have noted with

surprise. For instance, Kenny has recently proved that he's a master of the diplomatic artknown as "air kissing."

This Tuesday, the Irishman will have yet another opportunity to demonstrate his skills. Kennyis traveling to the southern German village of Wildbad Kreuth, where the conservativeChristian Social Union (CSU) -- the Bavarian sister party to Merkel's Christian DemocraticUnion (CDU) -- is holding its annual gathering. At it, Kenny hopes to schmooze with HorstSeehofer, the CSU's chairman, and Gerda Hasselfeldt, head of its federal parliamentarygroup. Shortly after breakfast, and before a speech by the chairman of the Bavarian Farmers'Association, Kenny plans to present his country as a model of successful reform policies.

Kenny's charm offensive is not entirely altruistic. For over two years -- and to the delight ofthe Anglo-Saxon media -- the conservative leader has been trying to get European taxpayers tofoot the enormous bill for bailing out Ireland's ailing banking sector. But, taking their cuefrom the Germans, the Europeans have so far balked at the idea.

Instead, Chancellor Merkel has been quick to praise the way Ireland has implementedeconomic reforms and used money from European bailout funds over the past few years toemerge from the crisis: Exports have risen, the country has regained its competitiveness, and ithas even succeeded in getting private creditors to lend it some money.

Unfortunately, this gleaming faade obscures a rather dismal reality. Although Ireland's

economy has stabilized, its debts continue to mount -- despite the fact that the country hasbeen diligently fulfilling all of the demands made by the troika of lenders, which consists ofthe European Commission, the International Monetary Fund (IMF) and the EuropeanCentral Bank (ECB). This year, Ireland's public debt is expected to increase to 122 percent ofits annual gross domestic product (GDP) -- in other words, beyond the limit at which the IMFbelieves long-term debt sustainability can be achieved.


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The 68 billion ($90 billion) in bailout funds are only expected to meet the country's financialneeds until the end of 2013. But Ireland has a trick up its sleeve that it hopes will allow it toavoid a second official aid package: Kenny would like to transfer one-quarter of Ireland'spublic debt -- the amount that was amassed solely from bailing out the country's banks -- tothe EU. "By June, following the decision of the European Council, we expect agreement on

the modalities of reducing the burden that the Irish taxpayer took on from the recapitalizationof the going-concern banks," Kenny reportedly said shortly before Christmas.

Spreading the PainOn Jan. 1, Ireland assumed the presidency of the European Council, which rotates every sixmonths. During this period, Kenny is expected to forge important compromises among theEU's 27 member states. But, more importantly, he intends to use his position to highlight Irishconcerns.

Ireland's demands are very precise -- and could be costly for the Germans. At stake are the31 billion that the country received from the system of European central banks to save two

crisis-ridden Irish financial institutions in 2010. The country is expected to pay this moneyback in installments over the next 10 years.

Already last year, the Irish pushed long and hard until they were allowed to pay back the firstinstallment with the help of a new loan. But that was not a long-term solution. Starting thisyear, the state will explicitly be liable for the debts of Ireland's nationalized banks. This hasprompted the Irish to look for a more creative solution this year. "We would like the paybackperiod for the debts to be extended and the interest rates to be cut to a reasonable level,"European Affairs Minister Lucinda Creighton told SPIEGEL.

This notion has met with resistance from the ECB, however. ECB President Mario Draghi

regularly snubbed Kenny when he broached the topic at the numerous Brussels summits lastyear. The ECB wants to avoid any more accusations of directly financing ailing euro-zonemember states. For Draghi, the simplest solution would be for the European Stability

Mechanism (ESM), the euro zone's 700 billion permanent backstop fund, to step into thebreach and take over the debt.

Kenny would ideally like to use the ESM as a way of getting European taxpayers to shoulderthe risks associated with all the debts of the Irish banking sector. He intends to use the sixmonths of his European presidency to push through a banking union that would also makethe bailout fund responsible for dealing with toxic assets in the European banking system leftover from the financial crisis of 2007-2008.

But to achieve this, Kenny will need the support of Chancellor Merkel and Germany'sparliament, the Bundestag. If he manages to push through his agenda, Europe's taxpayerswill have to absorb a significant portion of the risks of Ireland's banking sector. If theGermans refuse, it will become more likely that Ireland will have to be bailed out a secondtime this autumn.

It looks as if Kenny's newfound talent still has to be put to the test."


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Should Ireland not be able to negotiate a "sharing of the banking pain" and actually require a

second bailout it will not be good news for the Euro. Such an outcome would send to the bond

markets the message that even the "best pupil in the class" cannot successfully emerge from

austerity. This would indicate that Greece, Portugal and Spain, who have far less growth than

Ireland, would have no chance of ever achieving economic independence. Accordingly, the

market would anticipate that Euro-wide austerity would need to go on for at least another 4 yearlending-cycle with no certainty of success. This would spell deep trouble for Euroland which is

why I believe, "come hell or high water" Prime Minister Kenny will get what he needs. The

European Commission sorely wants to be able to announce that Ireland can at last herald the

departure of the hated "troika of austerity". Thus Irish financial sovereignty would finally be at

hand following 4 years of harrowing fiscal deflation. "Where Ireland goes the rest could follow"

will be the Brussels' mantra. What a positive message such a result would spell for the Euro. For

many this would be a most unexpected outcome but they say you can always count on "the luck

of the Irish" even in a year with a "13" numeral.

Stock Distribution Continues:Ostensibly there is strong momentum in the stock market but I am not convinced.

Dow Theory wise we have seen a strong breakout from the 2012 trend in the Transports and the

Industrials are moving relentlessly towards previous all time highs but I still observe that many

stocks, particularly those with high earnings growth stats, are still trading below their 200 daily

moving averages. This is not a good sign and indicates to me that professional distribution is

taking place.

Dow Transports: Weekly


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Dow Industrials: Weekly

Distribution is where fund managers, in anticipation of a future stock market decline, sell into

rally highs thus diminishing their power. Distribution is indicative of an anticipated bear market.

To support this thesis I continue to attach the following charts: AAPL. BIDU, BBBY, MSFT,

BWLD, DLTR, MNST and DG:

Apple Inc: Daily


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Baidu Inc: Daily

Bed, Bath & Beyond Inc: Daily


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Microsoft Corp: Daily

Buffalo Wings Wild Inc: Daily


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Dollar Tree Inc: Daily

Monster Beverage Corp: Daily


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Dollar General Corp: Daily

I await to have my skepticism quashed through more positive price action. Until then I advise the

mitigation of capital risk through the purchase of equities only following strong market pullbacks

and by the protection of any exposure through the disciplined use of stringent stop losses.

Charts: Courtesy of StockCharts.Com.

(C) 10th. January 2013 Christopher M. Quigley. All rights reserved.

Wealthbuilder January 2013 Stock Market Brief

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