Futures are looking significantly higher this morning as Ireland appears to be on the verge of a bailout by the EU and IMF. While Irish administration officials insist that no bailout is necessary, their central bank governor, Patrick Honohan, suggests that a bailout worth 'tens of billions' of euros is likely. Mr. Honohan also suggested he believes the rate on such a bailout loan would be 5%.
Why this is positive news I am unsure. Afterall, this goes to show that nothing European officials have been saying for weeks has had even a smidgeon of crediblity. I suppose this also means that Portugal, Spain, et al are soon to follow. The Euro is rallying on the news this morning to 1.3648 (or +0.0117).
GM priced its 'IPO' at the high end of the range at $33 on 478M common and $4.35B of preferred. With the shoe, the deal could come to $18.1B, the second largest IPO in US history. The Treasury sold $11.8B which reduces its stake to less than 37%. Ford shares are also rallying this morning on the announcement that it will sell a large portion of its stake in Japanese car maker, Mazda.
The Fed ordered new stress tests for the top U.S. banks yesterday, with a request that the top 19 banks also submit capital plans by early next year. The Fed also provided guidelines for banks that want to increase their dividends or buybacks which include meeting higher capital requirements and having shown they pass the current (and ongoing stress tests).
On the economic calendar today, we will have another Congressional Hearing on Robo-Signing and Other Mortgage Issues, this time with Citigroup, Wells Fargo, and GMAC in the hot seat. At 7 am we will get an update on the Leading Indicators, the Fed's Warsh, Kocherlakota, and Plosser will all give speeches this afternoon, along with Treasury's Wolin and Warren. Lastly, the Fed Balance Sheet and the Money Supply data will be released after the market close.
What is obviously interesting is that GM's first day of trading was a sure to be manufactured rally-up day. Reviewing the 'positive' news announcements, one sees little that is a concrete positive: Ireland 'might' be bailed out, GM priced well but the government still owns nearly 40% of the company, the banks are seeing more regular 'oversight' and stress tests prove it (right because the first round was very transparent...does anyone remember CAMEL ratings?? The European version was even more spectacular.) At best the stress tests will be taken as a token vote of confidence in the system with its obvious bias still intact. At worst, the stress tests might show the need for the four horsemen of the apocalypse to raise more capital. I can see it now, "BAC and C need to raise an additional $10B. But don't worry this dilution is no biggie. Especially not a big deal when you consider that they just raised the dividend 100 bps!!"
My non-binding advice would be to avoid buying this rally today. Hold some capital back as its unlikely we'll be able to get a borrow on GM until tomorrow or soon thereafter...
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