Fisher Investments Editorial Staff
Media Hype/Myths, Investor Sentiment, Market Risks

Getting Hibernia Out of Hock

By, 11/19/2010
 

Story Highlights:

  • Irish officials admitted for the first time Thursday they are asking for financial aid.
  • Ireland is the latest chapter in the PIIGS saga. But increasingly it's a saga sans excitement.
  • Markets applauded the news—global stocks jumped 1.6% as Irish bailout uncertainty waned. 

 __________________________________________________________

As EU, ECB, and IMF officials arrived in Dublin to examine the country's finances Thursday, Irish officials admitted for the first time they are asking for aid. Details remain sparse, but it appears any aid will seek to recapitalize Ireland's struggling banking system and may include a contribution from the UK (not part of the eurozone, but heavily exposed to Irish debt).  

With a bailout likely, some headlines worried, "Ireland May Be Next Greece." So, what happens if Ireland becomes the next Greece? Not much, in our opinion. Remember, Ireland is a tiny nation of just over 4.5 million people. It's by far the smallest of the PIIGS nations, with roughly half the GDP of Greece—not large enough by itself to open any euro-swallowing economic chasm.

Of course, the real fear is Ireland (or another of the PIIGS) is one in a line of dominoes that topples the eurozone. That was more realistic before the Greek crisis prompted the formation of the €750 billion EU/IMF/ECB bailout fund. Since then, there just isn't much evidence of a sovereign debt contagion. Throughout Irish bailout rumors and contagion fears, other PIIGS country debt attracted investors at auction—Spain on Thursday, Portugal Wednesday, and Spain and Greece on Tuesday. Demand has been reasonably strong, albeit at higher rates. Little sign of contagion there. And even if markets did shut out another PIIGS country—all but Italy (in better shape than the rest) are covered for three years. 

Not so long ago, it was widely presumed the Greek crisis would trigger a string of defaults that would drag the world back into recession. But it turned out what many feared was, in hindsight, less threatening than they originally believed. Ireland is the latest chapter in the PIIGS saga. But increasingly it's a saga sans excitement. Similar news would have sent stocks tanking earlier this year, but Thursday, global stocks jumped 1.6% as Irish bailout uncertainty waned.   

Markets are finding other cud to chew (and always will). And that's key for investors to remember. It's very difficult, when in the thick of it, to say, "This is just one negative, possibly overstated story, in a world where positive drivers outweigh." Instead, our brain wants to say, "We've never experienced a risk this terrifying!" But the truth is, it very rarely works that way and falling markets whipsaw back the way they came—as they have this year.

 

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

Click here to rate this article:



*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

Subscribe

Get a weekly roundup of our market insights.Sign up for the MarketMinder email newsletter. Learn more.