We present readers with a pop quiz: the chart below show the ratio of total financial assets to host nation GDP. The tragic cases of Cyprus and Iceland are well-known, as per Reuters, and highlighted on the chart. We urge readers to guess what the supposedly very stable countries X and Y are on the chart, whose total financial system assets to GDP are approaching those of Cyprus, especially since depositors in their banking systems may be due for a very unpleasant surprise next if indeed Iceland and now Cyprus are the case studies.
As part of its 2013 budget, the UK announced something quite dramatic - a government-funded housing subsidy. The government will to commit GBP 3.5 billion of capital spending over the next three years to shared equity loans. The Loans will be up to 20% of the value of a new-build home. The government will also offer mortgage guarantee to lenders to help them provide more loans to people who can’t afford big deposits. Guarantees will be sufficient to support GBP130b of mortgages, Osborne says. "These guaranteed mortgages will be available to all homeowners, subject to the usual checks on responsible lending,” Osborne says.
"Having faith in policymakers' ability to provide a perpetual put may yet prove to be a serious error; and, with interest rates stuck at zero, investors' ability to easily earn back losses remains severely impaired," is the not so subtle manner in which, Reuters reports, Brevan Howard, which manages $40 billion (and has never had a losing year) describes the current shambles of a market. "Tail risks, which have haunted the markets for the last five years, appear to have receded for the time being, but have by no means disappeared," they go on to say, noting that while policymakers promise to do "whatever it takes," investors betting that actions by policymakers will prop up financial markets indefinitely will face problems as "policy hyperactivity coupled with investor apathy could lead to significant and persistent price moves in multiple capital markets." But that's just an absolute return $40bn fund manager's view as opposed to a day-trading fast money trend masher or asset-gathering index-tracker.
In a follow-up to investigations over alleged wrongdoing surrounding a EUR285mm payout by the then French finance minister and now IMF head, The Telegraph reports, Christine Lagarde's Paris flat has been raided. The fresh (if you're an orange) faced IMF Chief, of course, denies any wrongdoing in the case of a huge 2008 compensation payment to businessman supporter of ex-President Sarkozy. On the bright side, at least there were no indiscretions in hotel rooms involved (yet it seems she is following in the strong footsteps of her predecessor DSK - how can we not trust these people?)
With Argentina printing pesos to finance itself, the growth of pesos in the economy has rose 38% in the past year, leading analysts to predict that the currency will depreciate 12.9% through year-end, the highest of currencies tracked by Bloomberg. Banco Ciudad is the only bank left that trades in gold after Fernandez banned the purchase of certified 99.99% pure gold for savings in July. The bank sells it at 99.96% purity, according to Carlos Leiza, who oversees the lender’s gold trading. There is a 35% gap in the prices to buy and sell physical gold at Banco Ciudad, while there’s no premium to sell the country’s benchmark 2017 dollar bond in the local market, according to the Buenos Aires-based Open Electronic Market, known as MAE. Gold sold by Banco Ciudad also isn’t recognized internationally, making it more difficult to determine its value, he said. The cost of 100 grams of gold in Argentina as of last week was 36,646 pesos. In New York, the same amount based on the benchmark troy ounce (31 grams) sold for about $5,126. The bank multiplies that price by 0.95 to account for the lower quality of the gold to get a dollar price of $4,870. “Historically, gold has been seen as a store of value, so as long as options for doing that in Argentina are limited, people are going to keep buying it,” Banco Ciudad’s Leiza told Bloomberg.
Blackrocks's Larry Fink "doesn't really care" about Cyprus, "it's really not something of concern," he tells Bloomberg TV. While gesturing that he can't really discuss specifics as Blackrock is an adviser to Cyprus, he then goes to explain how European and US markets have it all wrong and that "It has some symbolism impact on Europe, but it’s not a really major economic issue." This dip is "just clients taking some chips off the table and reaping some gains from the huge rally," he goes on, dismissing the interviewer's question as nonsense, "this is temporary," and adding that he "is hyperbullish on the US economy," and that "global markets will be up 20% this year." However, what is most fun to watch is his arrogant dismissal of the interviewers question over US depositor fears, there are two reasons that is foolish, he notes "a) we have insurance, so that will not happen; [ZH: umm, so did Cyprus]; and b) we have always prioritized the liabilities [ZH: umm, except for GM]." So all good then, storm in a teacup. Carry On - though he has some stern words for the French and for the Russians.
We already reported earlier that the only bid in the overnight session, aside from that of central banks of course, was courtesy of hopes that Russia would victoriously step in and gloriously deja vu bail out Cyprus from the clutches of a despotic (for lack of a better word) Germany. This happened moments before Russia explicitly denied any agreement between Russia and Cyprus was reached. So, in the aftermath of a brief glimpse of reality courtesy of FedEx which slashed its economic outlook across the board leading some to expect an outright decline in full year S&P earnings, what is a foundering insolvent status quo regime to do? Why regurgitate the same old already refuted rumor of course. Sure enough: "Kathimerini Cyprus reported that an agreement has been reached in principle for Russian investors to buy Cyprus Popular Bank (Laiki) in a deal that would reduce Cyprus' funding needs by 4 billion euros." Unsourced, unfounded, idiotic (because why would Russia buy a bank which will be promptly rendered insolvent by the deposit bank run that follows moments after it finally reopens). That was enough, however, to send the EURUSD soaring, and for us to comment on this as follows: "Here we go again with the European rumors ramping EUR, denied 20 minutes later." 10 minutes later, just as we predicted, all has been denied: CYPRUS GOVERNMENT SPOKESMAN DENIES REPORTS OF DEAL TO SELL CYPRUS POPULAR BANK CPBC.CY TO RUSSIAN INVESTORS.
Greece was a unique and special case. Cyprus is a unique and special case. One wonders, and with good reason, what or who will be the next unique and special case. The one thing we all know for certain is that when you are tagged with this moniker that it is not good. The other thing we know is that Europe, at any time, is ready to create unique and special cases to further their own interests. Perhaps, to be fair, it might be better to say that Germany will lord over this dynamic because it is generally the German interests which are to be furthered. Therefore when unique and special cases have become the order of the day then the risk factors for investing in Europe have grown dramatically and must be honestly considered. The greater fool theory is expecting different results when performing the same actions again and again. Europe may be fine for hedge funds, for gambling upon events, but for investors; perhaps not so much.
We are lucky that in the new normal earnings, cash flows, news, and broadly reality, are completely irrelevant, and all that matters is the central bank-sponsored S&P multiple expansion (due to monetary dilution), or else the news from moments ago that FedEx once more cut not only its EPS but CapEx (and thus growth spending) may have been negative for stocks, and even mentioned by assorted propaganda networks. And since none of the above will happen, here is the bottom line: FedEx - the bellwether for global trade and logistics - just cut its year EPS from $6.20-$6.60 to $6.00-$6.20, and slashed CapEx from $3.9 billion to $3.6 billion. But at least in keeping with the demands of ZIRP, the company instead of spending on growth, which is obviosuly not there, will instead buy back 10 million shares of stock. This tells you all you need to know about the "recovery."
- Cyprus works on Plan B to stave off bankruptcy (AP)
- Cyprus seeks Russian bailout aid, EU threatens cutoff (Reuters)
- Freddie Mac Sues Multiple Banks Over Libor Manipulation (BBG)
- Bernanke Seen Keeping Up Pace of QE Until Fourth Quarter (Bloomberg)
- Italian president seeks way out of political stalemate (Reuters)
- Chinese factories struggle to keep staff (FT)
- South Korean banks, media report network crash (CBC)
- BlackBerry Inventor Starts Fund to Make Star Trek Device Reality (Bloomberg)
- Osborne Should Be Fired, Voters Say in Pre-Budget Poll (Bloomberg)
- Obama Begins First Visit to Israel as President (WSJ)
- Anadarko finds ‘potentially giant’ oilfield (FT)
- Britain's Osborne boxed in by austerity on budget day (Reuters)
- MF Global reaches agreement with JPMorgan (FT)
The Cyprus finance minister Michael Sarris may or may not have submitted his resignation after the president formally declined to accept it, but now that he is back on the saddle he is back to spreading hope, cheer and goodwill. Those wondering why both the EURUSD, and its derivative, US stock futures have surged overnight and retraced all of yesterday's losses and then some, it is not due to any anachronistic events such as "good economic news" (especially since the Spanish PM said Spain will have to cut its economic outlook once again, or rather, as usual), but due to the following phrase uttered by Sarris a few hours ago: "We are hoping for a good outcome, but we cannot really predict" regarding his views on talks with Russia. That's right - the entire overnight ramp is based on the hope of one man, who thinks Russia can be blackmailed through deposit haircuts, into bailing out the tiny island which has now said nein to Europe and bet the ranch on a well-meaning Vladimir Putin. What can possibly go wrong: according to the GETCO algos all alone in levitating stocks, absolutely nothing. What is clear is that Cyprus is fully intent on seeing Europe "blink" whether due to Russia's involvement or just because it thinks (correctly) it has all the leverage as the alternative is a breakdown of the Eurozone.
We are currently in an environment where policy makers are intent on devaluing their currencies in an effort to create growth. Real rates continue to stay negative in most of the developed world. Every marginal dollar of debt that is created is producing lower and lower amounts of growth. In a world overwhelmed by mountains of debt and economic growth which is sub-par at best, precious metals and real assets can act as insurance against the stupidity of policy makers. The evidence pointing towards the suppression of the gold price is becoming increasingly apparent. Don’t be the last person to figure this out! The current sell-off in gold should be viewed not with extreme trepidation but as an unbelievable opportunity to buy the metal at an artificially low value.
The Eurogroup agreed on Monday night to allow Cyprus to change the make up of its controversial deposit tax and President Nicos Anastasiades is now proposing that bank customers with deposits under 20,000 euros should not be taxed at all, while keeping the levy the same for the remaining depositors. However, what’s happened over the past few days and what’s likely to happen in the days and weeks to come has little to do with numbers. It is much more about perceptions. Even if capital flight from Cyprus as a result of this decision is less severe than many fear, even if Cypriot banks survive this real stress test, even if the island’s economy is not set back many years, even if savers in Greece, Spain, Portugal and Italy don’t panic, the idea of a deposit tax and the way it was adopted has released something poisonous in the air. It is difficult to see how these citizens will be able to trust the system - be it their governments, banks or eurozone partners - in the weeks to come. Belief in countries where the economy is contracting and unemployment growing is already vitreous and planting fears about a possible deposits grab in the future could shatter it completely.
Years ago we wrote of a not so far off future in which martial law, economic collapse, and the destruction of civil liberties stood imminent. We related our views on the propaganda rhetoric of the SPLC, and how they were using false association to tie liberty groups to any deviant organization they could think of, including racists and domestic terrorists, in order to condition the American public to react to our message with immediate contempt. It became clear to us then that the SPLC, which had become the propaganda wing of the widely reviled Department Of Homeland Security, was helping set the stage for a paradigm shift in the U.S. This shift would obviously include economic and social disruption, as well as political turmoil beyond anything our nation has seen for over 150 years. But most importantly, it would pave the way for certain elements of the American populace, namely those who are awake, aware, and outspoken, to be labeled “enemy combatants” dangerous to the state. The SPLC, of course, has so far utterly failed in their efforts to stop the rise of Constitutional activists. By their own admission, “patriot groups” have expanded exponentially since 2008, and continue to develop freely even in the face of wildly absurd character attacks taken from the amoral (immoral) guidebook of Saul Alinsky himself. The truth, once realized, is difficult if not impossible to stop. Unfortunately, the establishment understands this as well...