Archive - Mar 2013 - Story

"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.

"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.

Ze Merkel Moustache?

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?

The no-brainer trade of the year is hitting a wall of reality in the last few days. Greek government bonds (GGBs), levitated on a sea of central bank excess and a plethora of promises, are coming back to earth rapidly as the fears of their Mediterranean brethren spreads contagiously to other bond markets. Spain and Italy are suffering notably today also but it is the almost 7% drop in the price of GGBs instantly removing all 2013 gains that is the most worrisome... This is the largest price drop since the March 2012 bailout 'success'.

Earlier today, the American Banking Association reminded Americans that there is absolutely nothing to worry about when it comes to the sanctity of US deposits: after all there is a whopping $25 billion in the FDIC insurance fund which means "insured depositors are safe and their deposits are protected by a strong FDIC fund....The FDIC insurance fund has over $25 billion in reserves and the banking industry " Obviously supposedly "insured" depositors in Cyprus also though there was nothing to worry about, until they woke up on Saturday with a haircut between 6.75% and 9.9% on their money in the bank. Sadly, it may be the case that the ABA is being just modestly disingenuous in its statement. Why? Instead of explaining it in detail, here is a snapshot that does more than thousands of words ever could.

The average US worker remains concerned about their retirement even as the stock market reaches new all-time highs. The WSJ reports new data that shows the impact of stagnating wage growth and aging demographics is combining to squeeze individuals as a depressing 57% of Americans reported less than $25,000 in household savings and investments. On the bright side, the latest and greatest 'Cyprus' tax limit appears to be €20,000, or roughly the $25K threshold in the US, freeing those 'un'-wealthy citizens to keep their hard-earned private property.

While we explained exactly why there is a possibility of a Europe-style wealth tax in the US, it appears the American Banking Association has decided to put out fires early...

While the crisis in Cyprus is a real concern for depositors in Cypriot’s banks, it has no implication for depositors in U.S. institutions. Depositors in U.S. banks are insured up to $250,000 and no insured depositor has ever lost money in a bank failure...

So, it seems, the basis for not worrying about US deposits is the rule of law and the deposit insurance? Remind us again what Cypriots thought they had?

Today, we got more great news on the housing front as housing starts rose from an upward revised 910K (was 890K) to 917K, modestly beating expectations of a 915K print. This was a blistering number, and as the mainstream media will have you know, was the second highest since early 2008, lower only compared to the very amusing 982K starts recorded in the dead of winter in December of 2012. All of this would be great if it didn't have one rather profound two-word caveat: "seasonally-adjusted." What happens when one strips away the Arima-X-12 seasonal adjustments? We have the answer! As the chart below shows, when one maps the seasonal pattern in the winter, the November-February three month period, one gets the following chart. What one doesn't get, is how a 0.2K increase in not-seasonally adjusted housing starts (from 62.2K to 62.4) manifests itself in a 76K surge in seasonally adjusted house starts.

As we suggested, the ongoing wranglings in Cypriot political quarters has resulted in more changes. The President just proposed the 'levy' on deposits begin at EUR 20,000 just hours ahead of today's planned vote.

• CYPRUS REVISED BILL SEES NO LEVY ON DEPOSITS UP TO EU20,000

However, it is still theft of private property which appears to be the philosophical stumbling block for the parties involved and therefore today's vote appears to be delayed:

• ANASTASIADES TO MEET PARTY LEADERS 9 AM TOMORROW: SPOKESPERSON
• CYPRUS PARLIAMENT BANK-LEVY VOTE MAY HAPPEN TOMORROW, CYBC SAYS

We patiently await news that the stock exchange and banks will be closed the whole week...