Wow what a start to the week. Today Ireland takes another plunging step into what I’m sure our children will term “The Depression”. I’m not one for doomsday scenarios but the bleak outlook for Ireland just seems to be spiralling out of control as the government stand idly by dumbfounded by the accelerating momentum.

I’m looking at the complete and utter collapse in confidence in the Irish banking system. Allied Irish Banks (AIB) is trading down 45% at 0.80 cents while Bank Of Ireland are down 35% at 0.49 cents after Goggin steps down early. This is amazing and looks like a run on the banks. I’m not sure if the ban on shorts being lifted has accelerated this but there are many people panicking now. Some of the message boards read “this is a bloodbath”, “I can’t work as the world is in meltdown outside the office”. Others apologise for offering advice “I would like to retract my advice to buy at 11 Euro”. Today is going to be a very interesting day for the government and the Irish banking system.

As I type AIB are down 50%. Carnage is the only word to describe the ensuing sell off. Thankfully I dumped a long, long time ago. So where do we go from here and are AIB and BOI the next to be nationalised as they fail to recapitalise? Interesting times ahead.

How wrong was I when I placed a 2.50 buy bid last night thinking the FTSE 100 wouldn’t open 100 points lower? It turns out I was very, very wrong. Last night Freddie Mac and Fannie Mae drove US shares down (Dow was up 250 and down 250 at various points, amazing) and today it’s the turn of European shares to take an ass kicking. The new concerns are that the two banks will need to raise 75 billion because of accounting changes.

From an Irish point of view the ISEQ is currently down 5% with Bank of Ireland down 12.25% at 4.44 and AIB is down 8.85% at 8.17. Now that’s some drop. The thought of cherry picking the bottom is well out of my mind as we whiz down lower and lower. The truth is who knows 25%, 40% or 50% correction its all just academic and back are the days when your friendly taxi driver gives you his best guess at a market bottom.

As this is the beginning of the earning season could this be the straw that breaks the camels back. I really hope so as we badly need the moment of capitulation that seems to be the word of the day or the big flush out as I like to call it. One big drop of 500 – 600 points and we can get moving onwards, maybe not to the old levels but to new levels more appropriate to our new market conditions.

The big one to look out for this week is General Electric on Friday which could see a big drop if the market doesn’t like what it hears. Unfortunately at moments like these the markets recently seem to become resilient to bad news and ignore it in favour of a rally. I wonder will this happen again or could we truly hit new lows.

No positions open but I will be watching events closely.

The FTSE has reversed its earlier gains and is loitering around 5400. Any attempt from here to push the markets higher will be sold off as the bears have full control. Unfortunately the willingness of the bears to sell doesn’t seem to extend past 5400 which leaves us waiting for the next shoe.

I’m unwilling to buy into this market due to the level of calmness that seems to be around. There is a level of comport at these levels which many believe is simply where the market should be in relation to the underline economy. I tend to agree with this view and whilst a bounce may be on the cards it is in no way certain. What I do believe we can expect is a pick up in volatility. I’m waiting on (1) Volume selling and (2) a pick up in the VIX which measures volatility.

Data out this week includes the Bank of England rate decision which shouldn’t be much surprise and more bad news from the financials as more banks including Credit Suisse and UBS are forced to look for more capital. Oil seems to have backed off as the dollar falls based on a more dovish view from the ECB and that takes me back nicely to our Monday morning blues as the market looks for direction.

In stocks to watch AIB has dropped another 2% at 8.99 as sloppy management and the disposal or important documents comes into question. Paddy Power rises 1.5% to 19.30 after Goldman Sachs raises it to a buy taking it to a drop of 14% for the year. In the UK British Airways makes a rebound after prolonged selling and RBS is down 4% in London.

My dip into AIB seems slightly premature at 11.00 Euro as the share is now trading at 9.70 Euro. I did state I expected it to fall as low as 8.00 Euro where I would continue to trade into my full allocation. That said I hadn’t expected it to trade down to that the week after I bought them. Sodds law.

On the plus side my FTSE trades are now yielding a 40% return on my total takings for the year which it’s too shoddy at all. After having the trade open for two months and being down by an equal amount I am happy I traded with the full force of my conviction. My exit for the trade is 5500 or as close to that as possible. From there I will place very cautions buy positions up to 5600 on FTSE year end futures.

On the economic front the mire seems to be widening and people seem to be facing the harsh reality of what lies ahead. In Ireland the slow realisation of the impending storm is getting a little more press coverage http://www.rte.ie/business/2008/0624/esri.html. If the ECB do proceed with the proposed rate hike which has a lot of merit from a EU stance Ireland will be in serious difficulty. The French consumer spending index increased today which gives Trichet more ammunition to use in his inflation arsenal. We are living in interesting times and the future is a by no means as clear cut as black and white. There are going to be some serious bumps ahead. Thank god for spread betting and short selling.

I have been following the banks and in particular Irish banks for some time now like most market observers. Recently however I have become more than interested in AIB who are trading today at a seven month low of 12.25. I have been interested in the stock for over a year and during the most turbulent times said I would enter at 12. It never reached those lows but looks like it could be heading that way now. As this is a long term three year trade I would look at shares not a spread bet. However even a long spread bet at this price could yield profits on a short term bounce back to 13.

Back to spread betting and my FTSE shorts are a lot healthier now. My procrastination has cost me a lot but this is my fist year of trading and I’m still in baby step mode. My goal still stands at a 10% profit for the year. I have no intention of increasing my shorts now as I lost my chance at 6300. My interim expectations are for the market to move between 5900 and 6000 before heading to the March lows in July/August.