The First Tipping Point


Ambac may go bankrupt soon

The bond insurer may file for Chapter 11 bankruptcy protection this year after missing a debt interest payment. Ambac (ABK) is in talks with senior debt holders for a "prepackaged" bankruptcy. It previously has warned about bankruptcy but said money wouldn't run out until early 2011. If Ambac fails to make the missed payment within 30 days, bond holders may demand repayment on all principal. Shares fell 50% to 41 cents.


Ambac is a company I have been watching for a long time. In May 2007 it was a $90 stock. Now it is worth 41 cents per share as bankruptcy plans begin to materialize.

It makes one wonder how sound Ambac's companion stocks MBIA and AIG are?

Will a high profile bankruptcy like Ambac lead the market correction as QE2 disappoints?

From Bloomberg:

Ireland May Have One Month to Stave Off Bailout: Euro Credit

Irish Finance Minister Brian Lenihan may have just one month to stave off an international bailout.

The extra yield that investors demand to hold Irish 10-year bonds over German bunds surged to a record today as Lenihan tries to put together a 2011 budget by Dec. 7 that convinces investors he can get the country’s finances in order.

“The behavior of international bond markets suggests the government’s various announcements haven’t convinced markets that we are on a credible, stable path,” said Karl Whelan, an economics professor at University College Dublin and a former economist at the Federal Reserve. “The budget is going to be crucial in determining if we can change that attitude.”

The premium on Irish bonds has doubled since August and is now wider than the spread on Greek debt four days before it sought a European Union-led bailout in April.

Irish Consumer Sentiment Falls on `Fear Factor'

Irish consumer confidence fell in October to its lowest level in 17 months as the mounting cost of bailing out banks and government spending cuts created a “fear factor” among households.

The consumer sentiment index declined to 48.1 from 52.4 in September, KBC Ireland and the Economic & Social Research Institute in Dublin said today in an e-mailed statement. That’s a fourth straight decline and leaves the index at its lowest since May 2009. A measure of households’ expectations fell to the lowest in 14 months.

Ireland may have to spend 50 billion euros ($70 billion) -- about one-third of gross domestic product -- to save lenders including Anglo Irish Bank Corp. Confidence may drop further this month after Finance Minister Brian Lenihan said he needs savings of 15 billion euros through higher taxes and spending cuts over the next four years to reduce the budget deficit


Fear is beginning to return to the markets.
Irish bond yields are in nosebleed territory.
Yet the Irish government insists on bailing out failed lenders.
If the European Union comes to Ireland's rescue, which seems likely, I would expect that the Euro will begin to fall as it did before and during the Greek bailout.
During the same period the US dollar index rose from 75 to 88!
A repeat performance of this appears to be on the horizon.
My own target for the dollar index is 90 to 92.
What will be most interesting to watch is the performance of gold during this period, as it appears to be gradually decoupling from the dollar.
Is it possible that we will see both the dollar and gold rise at the same time?