Archive - Mar 2013

It's 2:30am, do you know where your deposits are? Tune in to see the Eurogroup explain how this is in the best interest of the Cypriot people, how the 'deal' illustrates the solidarity of the European people, and how the worst of the crisis is now behind us.

*EU COMMISSION SAYS NO CYPRUS PARLIAMENT VOTE NEEDED: SCHAEUBLE
*SCHAEUBLE SAYS TROIKA TO CONTACT RUSSIAN GOVT ON DEAL :BOCY CY

The European Union finance ministers have just agreed to the terms of the Cyprus-Troika deal (which we fear could mean 100% haircts for the uninsured Laiki depositors as unsecured claims in a Chapter-7-style liquidation). With democracy now a complete farce since not even Parliament will be allowed to vote on deposit confiscation as part of a financial sector bankruptcy deal, here is the island nation's president explaining what just happened:

*ANASTASIADES SAYS AID DEAL IN BEST INTEREST OF CYPRIOT PEOPLE

Three months ago, Yanis Varoufakis explained Europe's bogus growth pact and the papering over the cracks that was being done by the IMF and ECB, "The idea here is that, yet again, the Eurogroup-ECB-IMF alliance is not ready, politically, to reveal the truth to its various constituencies." He was, obviously, correct. This weekend, in a brief BBC Radio interview (below), as Cyprus erupts and brings the European circus back into town, Varoufakis exclaims, "every bailout agreement, beginning with Greece’s in May 2010, seems less logical and more toxic than the previous one." In three minutes, the Greek economist illustrates how the leaders are laying waste to the supposed pillars upon which the European Union was founded.

UPDATE: It appears the 'deal' to default/restructure the banks has been designed to bypass the need for parliamentary votes, since it is theoretically not a tax.

While we have little color on what kind of carnage the President of Cyprus had to accept to his fellow countrymen, the news is that :

*CYPRUS, TROIKA REACH AGREEMENT IN PRINCIPLE, EU OFFICIAL SAYS

The terms, unsurprisingly what zee Germans wanted, are i) Laiki to be wound down; ii) Bank of Cyprus to survive but with deposit haircuts, and iii) deal would see secured deposits in Laiki moved to Bank of Cyprus. In other words, a deal far worse then the original on proposed by the Eurogroup last week - when the banks still existed. The key appears to be the 'saving' of the insured depositors (crucial to avoid a pan-European bank run) and the crushing of the 'whale' depositors. S&P 500 futures and EUR are surging, Gold is dropping modestly. We await final confirmation of the final terms of the final deal once the Cypriot people wake up (and don't forget the ECB 'standard of living' rules). The Cypriot Parliament still has to vote for this - and not one of them voted for it last week.

As liquidity started to come back into FX markets this evening, it is very clear that humans and algos are reacting to every headline, rumor, and bloviation from Europe. In the last two hours, as this chart of EURUSD shows, while the range is small, the reactions are telling. It does appear from the EUR ramps that no-news-is-good-news for now - though evidently, the facts behind that 'no news' paint a different picture. As S&P 500 futures just opened, so EURJPY was ramped 70 pips to hold the only policy tool the Fed has left at unch (for now).

When Cyprus put its banks into lockdown last weekend until... well indefinitely, now that capital controls are established, the main reason was to halt all capital outflows from the henceforth liquidity starved island whose banks will only exist as long as the ECB provides an ever greater dose of liquidity to account for the collapse in deposit funding. Which is why it is surprising, make that shocking, that as Germany FAZ reports, in the past week there has been a surge in cash outflows from Cyprus, even as its financial system has been supposedly ringfenced from the world, which by the way is the only thing preventing the EUR17 billion bailout from soaring by orders of magnitude because should a liquidity leak be discovered, it is all over for the country's financial system.

Since the 1990s, priced in Real GDP the Dow Jones Industrial Average (as well as the S&P500) has been far above their 20th-century norm. There is an unsurprising coincidence - as stock prices (and corporate profits) have soared above their historical norm, wage growth has been very stagnant. The economy has come to be tilted toward bankers, financiers, insurance brokers and away from wage-earners, manufacturers and artisans. Does that mean that as Hassett and Glassman projected in Dow 36,000, stock prices have climbed to a new plateau? Well, while it is impossible to say exactly what prices will do in future (nominal, or otherwise) the “new plateau” has been very much supported by the Federal Reserve, first by lowering rates and keeping them low. Some might take that as a sign that stocks aren’t going to get much cheaper, because the Fed won’t let them get much cheaper; but gravity is against the Fed. Will it be third-time unlucky for the Fed, hell-bent on wealth-effecting and financialising the US economy to prosperity?

Quite a few articles have been written about the importance of owning Gold and other precious metals as a means of maintaining one’s wealth in the face of rampant money printing by the world’s Central Banks.

Based on a letter to clients over the weekend, it appears ABN Amro is changing its precious metals custodian rules and "will no longer allow physical delivery." Have no fear, they reassuringly add, your account will be settled at the bid or offer price in the 'market' and "you need to do nothing" as "we have your investments in precious metals."

The calmness of the financial markets in the face of the deteriorating Cyprus crisis in the past week has been remarkable. Although Cyprus is tiny enough to be completely overlooked in most circumstances, its economy and banking system have characteristics similar to other, much larger, eurozone countries. Cyprus is certainly at the extreme end, but an over-leveraged banking system, with insufficient capital and reliance on foreign funding, is familiar territory in the eurozone. But while Cyprus is at an extreme, four of the features of the reported deal are setting unfortunate precedents for the future. If the reported deal is done to keep Cyprus inside the euro by Monday, we can expect to hear, very loudly, that this is a unique case, and that the unfortunate features of this settlement cannot be extrapolated to any other future circumstances. Let us hope not. If nothing else, it would certainly demonstrate that the eurozone still has much work to do before the crisis is fully under control.

The Cyprus deposit scramble contagion spreads as Reuters reports that "Swiss banks would be required to "motivate" remaining U.S. clients to come clean to U.S. tax officials. If they failed to do so, confidential bank data would be forwarded to U.S. officials. The initial shipment of data from those banks would not include client names but, based on the data, U.S. officials would be able to submit a judicial aid requests to get the names of alleged tax evaders."

Just one Spiderman towel left in stock in Europe... how will they ever attract depositors back now...

Here is a bit of sanity for everyone on this Sunday afternoon

The hallmark of human nature is adaptability.  Faced with a changing environment, the human spirit and its social manifestations change in response.  But once the human endeavor itself creates the environment, how can such adaptation be a simple exercise in instinct?  Simply put, it cannot. Throughout all of this crisis, the global elites have displayed consistently worsening signs of decadence, psychopathic tendencies, and overall detachment from reality.  And who can blame them?  There has been no tap on the shoulder, no knock on the door, no raid on the office to indicate that anything is seriously wrong. Such is the contemporary reality we live in.  People try to live their lives, to avert their eyes, to hide their children from the sight and effect of the monstrous cavorting of the elites. Perhaps a crazed fad for frugality will break out and suppress the urges of the elites.  In the meantime, hide your valuables as well as you can, and treat your children with the sympathy they deserve.  They are among the chief victims of our era’s unholy orgies of risk and corruption.  Frugality or fragility?  The choice is yours, as well as theirs.

A week of closed banks, depositor angst, and economic malaise is creating an increasingly vicious circle for Cyprus (and implicitly the European Union). As Die Welt notes, because the economic data of the tiny 'irrelevant' island could be considerably worse than previously thought (or forecast by Troika) thanks to the distortions created this week by bank closings, several people around the Troika said the exact amount of the bailout remains uncertain and could amount to EUR2bn more than expected. With the Troika capping their handout at EUR10bn of the current EUR17bn needed (and the deposit levy reportedly filling EUR6bn of that EUR7bn hole), the need for a bigger bailout - which seems increasingly likely - will fall on Cyprus banks' depositors (or taxpayers) leading to a hard-to-beat downward spiral. Simply put, the more deposits are pulled, the more deposits need to be confiscated; and with retailer stocks running low ("will last another 2-3 days") and cash-on-delivery demanded, the real economy will "have a problem if this is not resolved by next week."