Nobelist Paul Krugman has a propensity to spin and conceal. This allows for deception – the type of thing that hoodwinks some readers of his New York Times column. While deception doesn’t qualify as lying, it also fails to qualify as truth-telling. Prof. Krugman’s New York Times column, “Hot Money Blues” (25 March 2013) is a case in point. Prof. Krugman sprinkles holy water on the capital controls that will be imposed in Cyprus. He further praises to the sky the post-1980 capital controls that were introduced in a number of other countries.
With news this evening that the Cypriot banks will not now be re-opening tomorrow (as perhaps - as we noted earlier - a little more of those precious deposits leaked away during the closures than expected):
CYPRUS BANKS TO REMAIN CLOSED THROUGH MARCH 27: CENTRAL BANK
We thought it useful to consider Cyprus in relation to the longest bank closures in history. Cyprus has now shutdown its banking system longer than Argentina, Ecuador, and Uruguay and as far as President Anastasiades comments that capital controls are temporary - we can only hope for the depositors sake - that it's not as temporary as Argentina's 120 month 'restrictions' starting in 2001.
Self-admitted 'crazy-guy-at-every-cocktail-party', Santiago Capital's Brent Johnson believes there is something really wrong in the world today. But as he notes as an introduction to his presentation, "while I am not naive to the way the world works, I at least want to try to make it better." Rather than tell us what we should do, he tells us what he believes in the hope that just maybe, we may believe in many of the same things... for instance, that despite the S&P 500 returning to its all-time highs, the real economy has not recovered; that holding interest rates at less than 1% for 5 years is an indicator of a recession if not a depression and that the fact that that middle class jobs have not returned is indicative of an economy in trouble. This brief but full presentation is a litany of all that is wrong today - see how many of his 'beliefs' you agree with...
After the strongest 4-day surge in 11 months, it would appear that the BoJ is on full-court-press tonight to jawbone the world back to the new normal. The sad truth is though, they can't even make up their own punchlines anymore:
*KURODA: BOJ WILL DO WHATEVER IT TAKES TO END DEFLATION.
Well, why not, it worked for Draghi for a few months? Of course JPY is leaking back lower a little as they talk up their devaluation strategy (and all their various shiny new options - that have never been tried before) - even as: *KURODA: UNCERTAINTIES ARE HIGH FOR JAPAN'S ECONOMY. Between Dijsselbloem's slip of truth (and rapid retraction) and now this 'copycat-ism' by a desparate BoJ, it appears, simply put, we are being taken for fools.
While hosting his weekly radio show this past Friday, Your Royal Highness Mayor Michael Bloomberg explained to the serfs of NYC that privacy is dead and that you just "can't keep the tide" of the surveillance state from coming in. His quotes perfectly demonstrate the attitude he takes toward his subjects and are quite revealing. For instance: "Everybody wants their privacy, but I don’t know how you’re going to maintain it. It’s just we’re going into a different world, uncharted, and, like it or not, what people can do, what governments can do, is different." This whole thing comes across as a gigantic Jedi mind trick to me. ”It’s inevitable you will lose your freedoms. Resistance is futile. Just accept it.” Sadly, unlike the proud citizens of Seattle, New Yorkers are still too traumatized from 9/11 to get off their knees.
It was only yesterday that we wrote about comparable problems to those which Russian depositors may (or may not be?) suffering in Cyprus right, this time impacting wealthy Americans and their Swiss bank accounts, where as a result of unprecedented DOJ pressure the local banks will soon breach all client confidentiality and expose all US citizens who still have cash in the former tax haven under the assumption that they are all tax evaders and violators. And in the continuum of creeping wealth taxes which first started in Switzerland, then Cyprus, and soon who knows where else, there was just one question: "The question then is: how many of the oligarchs, Russian or otherwise, who avoided a complete wipe out and total capital controls in Cyprus, will wait to find out if the same fate will befall them in Switzerland? Or Luxembourg? Or Lichtenstein? Or Singapore?" Today we got the answer, and yes it was one of the abovementioned usual suspects. The winner is.... Lichtenstein.
Presented with little comment but to note the somewhat exponential exuberance in US cyclical stocks (relative to defensives) that has gradually accelerated since the Fed launched QE3. If ever there was a chart of 'hope' or 'faith', this is it.
Through the centuries – in historic cultures like that of Yap Island who used giant, immovable stone disks for commerce, to today's United States, whose Dollar fiat currency exists primarily in digital form – "money" is able to be exchanged for goods and services because society agrees to accept it (at a certain rate of exchange). But what happens when a society starts doubting the value of its money? Perhaps the Fed has just the right talent and tools we need to finesse our way out of the challenges we face. Unlikely. The reality is, the Federal Reserve is like any other organization. Human. And fallible. For those who want to argue that the Fed, with its cadre of hyper-degreed academics and its insider access, has superior information and thus the ability to predict the future with unparalleled accuracy; we humbly ask you to watch the following...
Yesterday, we first reported on something very disturbing (at least to Cyprus' citizens): despite the closed banks (which will mostly reopen tomorrow, while the two biggest soon to be liquidated banks Laiki and BoC will be shuttered until Thursday) and the capital controls, the local financial system has been leaking cash. Lots and lots of cash. Alas, we did not have much granularity or details on who or where these illegal transfers were conducted with. Today, courtesy of a follow up by Reuters, we do. As it turns out, the Russian oligrachs this whole operation was geared to punish, may have used the one week hiatus period of total chaos in the banking system to transfer the bulk of the cash they had deposited with one of the two main Cypriot banks, in the process making the whole punitive point of collapsing the Cyprus financial system entirely moot.
When it comes to popular finance myths, cash hoarding by corporates may be one of the most perpetuated. It's not that the data is wrong; US companies are holding more cash on their balance sheets than at any time in the past, as a report by Moody's this week notes. What's misguided is the narrative, in Citi's view, in particular among equity investors. What they most take issue with is the implication that corporates have lots of cash to return to shareholders. Indeed, there's plenty of data to the contrary that challenges the prevailing notion that corporates are the picture of good health.
It was so easy. Of course they'd save Cyprus somehow and we could all go back to business as usual - and sure enough that's how we opened, stocks at highs, VIX banging lows, bond yields grabbed higher, but behind the scenes a few things were not playing along (US and EU bank equity and credit for one). 1 point from S&P 500 highs. Then #DieselBoom uttered that word - 'template' - and all was let loose as the realization that risk existed suddenly flooded back into investors' minds. S&P 500 futures dropped over 20 points high to low (with downward volume very heavy), when Jeroen tried to jawbone his statement back we dribbled back up to VWAP but couldn't break it and from there (despite spurious JPY-based headlines once again), risk-on assets drifted to the lows. As carry trades were lifted (and everyone shied away from EUR) so JPY jerked 1.4% higher (and fell back a little into the close) but against every thing else the USD was bid. Treasuries banged back to the low yields of last week and despite USD strength, Oil ended above $94.50 as Copper fell 0.5% and Gold and Silver bounced from an earlier spike lower. VIX opened under 12.5%, soared back over 14.5%, and closed +0.25vols at 13.8%. Meanwhile, the big banks in the US are -7% from Cyprus and still expensive to credit.
In the aftermath of this weekend's earth-shattering developments out of Cyprus, in which countless people lost billions in savings, having forgotten their money is nothing more (or less) than a general unsecured liability of an insolvent banking sector which in the absence of the Bernanke and Draghi moral hazard-put are simply easy confiscation targets, it is difficult to conceive that having a massive surplus of deposits was actually a good thing. Ironically, this was precisely the case as recently as 10 months ago, as this May 2012 presentation from the Bank of Cyprus titled "International Banking Services: Strategic Business Crossroad - A Reliable Financial Center" (don't laugh) makes all too clear.
Like Lehman Brothers before it, Cyprus may well come to be seen not so much as the cause of further crisis but as yet another symptom of the ‘long emergency’ that continues to suffocate the western economies. We would describe this emergency as, fundamentally, an inevitable crisis triggered by an unsustainable explosion of credit; western banks and western governments are now like Macbeth’s “…two spent swimmers, that do cling together / And choke their art.” The prime minister of Luxembourg, Jean-Claude Juncker, has provided two clear insights into this world of deceit: “We all know what to do, we just don’t know how to get re-elected after we have done it.” And, “When it becomes serious, you have to lie.” This is what we now have by way of government: a self-serving elite who cannot be trusted, operating to a timetable defined by, and limited to, the electoral cycle.
With stocks holding near all-time highs, exhibiting similar fear-and-greed driven ebbs and flows (more flow than ebb for now), we thought these three charts would provide some interesting analogs. As Citi's Tom Fitzpatrick notes, the current charts for Gold, The USD Index, and USDJPY have some intriguing similarities to (respectively) 2006/7, 1996/7, and 2000/1. If history rhymes, it appears it is time to buy Gold, buy the USD, and prepare for a hiatus in JPY's collapse. With the USD, it is perhaps worth noting that both the (similar) 1981 and 1997 periods followed housing/credit/banking crises. In both instances the Fed eased rates and kept them too low for too long….in the 70’s period leading to a stagflationary environment.