Archive - Mar 25, 2013

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.

* * * Cue to Diesel-Boom, sitting in his desk, phone ringing: Ring Ring Ring * * *

Diesel-BOOM: "Hello.... Oh Hi Goldman, how are the tentacles hang.."

* * * Interrupted... screaming heard in earpiece * * *

Diesel-BOOM: "You want me to do what... You want me to RETRACT an on the record interview with two major publications... But...But..."

* * * Interrupted again... Long silence... listening intently.... Beads of sweat forming on forehead * * *

Diesel-BOOM: "Oh.... Dear Lord.... I see.... Ok Then.... Done."

* * * Click, fade to black * * *

That thing Diesel-BOOM very, very clearly said earlier? He did not say it. After all, can't have the market getting any ideas that reality may be slowly coming back to the basket case that is Europe:

• EU DIJSSELBLOEM SPOKESWOMAN: DIJSSELBLOEM DIDN'T SAY CYPRUS A TEMPLATE FOR BANK RESTRUCTURINGS - DOW JONES

So not only are European depositors still impairable, because sadly Dijsselbloem was dead serious in his Reuters interview, but the new Eurogroup head pulled a Juncker and confirmed "it is serious" in the process losing all credibility too.

In other words, the ECB’s balance sheet, which backs up the entire EU banking system it essentially a work of fiction. Unless the ECB officials feel like admitting something is an asset or liability, it doesn’t exist.

It appears the Cypriots (or more clearly the European leaders) do not appreciate the extent to which Russia has propped up the local economy. “When the Russians leave who is going to stay at the Four Seasons for $500 a night? Angela Merkel?” one wealthy Russian asks rhetorically, as The FT reports, they are receiving a deluge of overseas phone calls from helpful Swiss bankers looking to swoop up the deposit transfers. "The locals should understand: as soon as the money leaves, the people who go to restaurants, buy cars and buy property leave too. The Cypriots’ means of living will disappear," and there are signs that the locals are getting how drastic this situation is, as a large billboard has sprung up at Larnaca Airport with a Russian flag and the words "Brat’ya ne predaite nas!" - "Brothers, don’t betray us!" Many Russian businessmen appear to have one foot out of the door already and are considering whih jurisdiction to move to as they await to see if Medvedev follows through on his threat to dismantle the double tax treaty with Cyprus.

While Friday's 'hope' triggered some selling pressure in Bitcoin (in EUR), it appears the dismal reality of Europe's new normal has spurred a 'great rotation' as BTC just hit EUR60 for the first time ever...(from EUR36 before the initial Cyprus news last week).

Who said the circus left town?

This is what the world's "smartest" economist is calling for.

Unfortunately, when we posted this chart showing European bank loan-to-deposit ratios we were about 10 months ahead of the "deposit impairment to grow into non-bad loan assets" curve. Now that Cyprus over the past week, and DieselBOOM in the past hour, has reminded everyone just how critical it is to not be a soon to be impaired uninsured depositor in any European bank encumbered with a massive loan burden, where one "resolution" may (and will) be depositor impairment, it is time to bring this back up front and quite personal. Because when the next insolvent European bank is revealed to be, gasp, insolvent, it just may have saved your money in retrospect.

It was all going so well. TV pundits could proclaim their omnipotence - knowing full well that Cyprus was a storm in a teacup - and then D-Bom hit the wires with some harsh reality speak. European banks plummeted - most of Italy's banking system ended limit down, European bank credit spreads blew to their widest in 4 months and bank stocks are playing catch down - as we pointed out recently  (with their biggest 6-day plunge in 8 months) and almost negative YTD. Equity indices across the continent saw their biggest drops in a month (since the Italian elections) but it was Spain and Italy that bore the brunt - rightfully so as fulcrum securities. Bond spreads snapped wider (from opening notably tighter) as rumors of an Italy downgrade and Fitch reconsidering the sovereign/banking link didn't help. Swiss 2Y rates held at 0% and while it dropped notably on the day, Switzerland's SMI was the best performing stock market on the day, as the Russian Ruble saw its best day against the EUR in 6 weeks. "Europe is fixed," indeed.

It is perhaps oddly fitting that Andri Antoniades "an experienced and versatile Senior Executive Banker with a proven track record of success (who lists "travelling [sic], cooking and community work" as his interests") i.e., the "special administrator" just announced by the Cyprus Central Bank to implement last night's announced wind-down of the second largest Cyprus bank, Laiki (which supposedly was the primary money laundering conduit for wealthy Russians and other oligarchs) worked for 25 years in that other titan of alleged global money laundering: HSBC (which has neither admitted nor denied such allegations formally). Because who better to unwind a money laundering operation than one who has (allegedly) two and a half decades of experience winding one.

The by-now infamous Dutch FinMin Jeroen Dijsselblom - and head of the Eurogroup of finance chiefs - made some fascinating comments this morning with Reuters and the FT that are changing the shape of European markets rapidly. From banks need to save themselves to forcing "all financial institutions, as well as investors, to think about the risks they are taking on because they will now have to realize that it may also hurt them," he is making a lot of sense - though we suspect Mr. Draghi will not be amused as his 'promise' looks like being tested. Simply put, Dijsselblom is saying that a balance sheet can be 'normalized' not only by boosting assets (courtesy of the ECB) but by collapsing liabilities (or remarking bad loans to market) - something that no one in power has admitted to date. While this is upsetting to markets - so used to the visible hand of central planning saving themfrom themselves - this is very positive step for 'real people' as taxpayers appear to be 'off the hook' and the responsible parties beginning to be punished.

^{Importantly, Cypriots and other Eurozone citizens who own gold saw the value of their holdings rise 2% in euro terms.}

The demise of gold and the "death of the gold bull market" is "greatly exaggerated" says Mr. O’Byrne.

^{He said that while the risk from Cyprus has abated, in the light of capital controls in EU country and the treatment of Cyprus, there are now huge question marks over the future of the European Union itself.}

This is precisely what I feared would happen: that any basic rules or laws would be tossed out the window during times of extreme crisis. This has unfortunately proven to be the case.