Archive - Mar 2013

With the Cypriot parliament currently going through the motions and debating the proposed deposit levy tax, it appears that the vote which is due in a few minutes, will not pass as 4 of the 6 parties have declared they are against its passage, and even the ruling DISY party is now set to abstain from the vote, barring some last minute miracle. As such the purpose of the vote, which was purposefully not delayed until tomorrow, is a theatrical slap in the face of the Eurozone, as Cyprus calls Merkel's gambit, demanding equal treatment with all the other bailed out Eurozone members, and rightfully so. What happens next is unclear: the Troika has made it well known the deposit levy is the only option to preserve the stability of the local financial system, and only after the €5.8 billion deposit tax levy confiscation passes, will the ECB step in with emergency liquidity assistance. Should the government vote down the European olive branch, all bets are off. There is no Plan B.

"Either Cyprus is going to have to find the money to fund the bailout, or it's going to have to leave the Euro - to default, devalue, and decouple," is the cold hard truth that UK MEP Daniel Hannan explains in this brief clip. Neither of these paths, he goes on to say, is an easy one, but he believes "there is no doubt the second of them is the less painful - allowing Cyprus to price itself back into the market and start exporting its way back to growth again." There are no good outcomes for a country as indebted as Cyprus is, "but if I were a Cypriot member of Parliament, I would vote now to go back to an independent currency as the least painful of the various difficult options." ... he concludes, "the really interesting question is - who's next?" Now that the precedent has been set (that governments can come after what is in your savings account) what country is safe?

For a mere 0.95% handling fee, the friendly German bankers are offering Cypriot depositors the opportunity to "take fast action and secure their deposits" with a rate between 3.0 and 4.5%. As Sigma Live reports, the German Advisory Bureau is approaching Cypriot firms, denouncing the incident and asking them to take responsible actions. While it would be a stretch perhaps to wonder if the plan all along was to strengthen German banks, it is of little doubt that depositors will be quick to move any and every bill of Euros in their bank accounts as soon as their government allows.

Timing couldn’t be worse.

There is a chance that something can be done to stop what looks like a slide into an abyss. Those chance are now well below 50-50.

"An RAF flight left for Cyprus this afternoon with €1M on board as a contingency measure to provide military personnel and their families with emergency loans in the event that cash machines and debit cards stop working completely," the Ministry of Defence said in a statement.

A fiat accompli!

Ze Merkel Moustache?

When you are leveraged at $26 to 1, you only need the assets you’ve invested in to fall 4% before you are totally bankrupt. This 4% drop in asset prices has already happened across Europe, the only reason that we haven’t seen a systemic collapse there is because Mario Draghi, the head of the ECB, said he’d buy unlimited amounts of EU bonds.

$6 Trillion Dollar Mistake Screwed Up the American Economy ...

Things are escalating rather quickly... Treasuries have soared to yesterday's low yields (below 1.90%), S&P 500 futures are cracking lower on heavy volume -10 points (with the cash S&P below yesterday's lows) - after the other indices all went green earlier. The FX market is in a mini-crisis with EURUSD dumping and JPY strengthening considerably and rapidly. In Europe, it is worse as Portuguese, Spanish , and Italian bond spreads are snapping wider to post Cyprus wides; Spanish and Italian equity markets are tanking down 3-4% on the week; and GGBs are back under EUR50 - their lowest in 3 months. Gold and Silver are rising as Copper and Oil slide. Swiss 2Y rates are negative at their lowest in over 2 months. VIX is up 33% from Thursday's lows and back above 15% - biggest 2-day jump since Nov 11.

It appears that Cyprus is now ready to escalate, following news now coming fast and furious, that the Parliament will go ahead and vote after all, but not in a good way as even the Cypriot ruling party, formerly the only party willing to vote Yes on the Bail-In, would abstain according to Dow Jones, which means there is no support at all in the Cypriot parliament for the deposit haircut proposal.

We can only pray that Bob Pisani explains what happens next because neither we, nor anyone else, has any idea what comes now.

Update: President Anastasiades rejects FinMin Sarris' resignation. Unclear what happens next.

Things just took a turn for the much worse following this news from Market News:

• CYPRUS FINANCE MINISTER SUBMITS RESIGNATION - SOURCES
• MARKET NEWS CITES SOURCES ON CYPRUS FINANCE MINISTER

Unclear if German FinMin Schauble will promptly step in to fill this latest sovereign vacancy.

In a brief 30-second clip during a Bloomberg TV interview, none other than Anthanasios Orphanides, the former Central Bank of Cyprus Governor, explains the terrible reality of what just happened in Europe: "What we have seen in the last few days is a very serious blunder by the European governments that are essentially blackmailing the government of Cyprus to confiscate the money that belongs rightfully to the depositors in the banking system in Cyprus." He then concludes quite clearly, "It is not clear how this can affect in a positive manner the European project going forward." The Cypriot then goes on to explain how the EU is making a mockery of the idea of a banking union...

When you have a few good bureaucratic central planners preserving a broke monetary regime, what can possibly go wrong? Perhaps headlines such as these:

• Senior German Official - No Idea When Or If Cypriot Parliament Will Vote On Proposed Bailout Programme
• Senior German Official - Situation In Cyprus Is Bad, Reasons For This Lie In Cyprus
• Senior German Official - With No Programme, Liquidity To Cypriot Banks Is In Danger And They Cannot Open

And then Schrodinger Schauble himself:

• SCHAEUBLE SAID TO TELL LAWMAKERS FEELS SORRY FOR CYPRIOT PEOPLE
• SCHAEUBLE SAID TO SAY CYPRUS LONG HAD WRONG BUSINESS MODEL

Wait, being a participant in a monetary cul-de-sac, whose eventual end leads to a very painful and often times lethal, hyperinflationary outcome, is a wrong business model? Who could have known. Naturally, with well-wishers like these, who needs bond vigilantes?