Eurozone

Q1 2012 Deja Vu: Pension Fund Rebalancing Suggests Window Un-Dressing Could Hurt Stocks

As we previously expected, 2013 has started in a strikingly similar vein to 2012 and 2011 and we are nearing that deja-vu turning point once again. However, the extreme relative outperformance of stocks to bonds in Q1 suggests very sizable quarter-end pension-fund rebalancing flows - and perhaps today's ramp was perfectly presented to enable that into the next two days. UBS expects US defined benefit funds to do sizable Q1 quarter-end rebalancing - anticipating $29-35 billion of equity outflows and perhaps as much as $15-19 billion of fixed income inflows. Equity outflows should be dominated by domestic stocks, with $22-27 billion of large cap and $10-12 billion of small cap sales. Furthermore, reading through the recent 10K statements of large corporate pension sponsors, they note consistent, and growing, interest in liability-driven strategies and even full-blown de-risking - supporting high grade long and intermediate government and corporate bonds. Not only are the flows pointing in a similar direction but the catalysts are lining up too.

Bob Janjuah Tactical Short But "We Are Not There Yet" For The Big One

Following Nomura's Bob Janjuah's 'wine into water... are we there yet?' note in February, the market has followed his script almost perfectly with a continued push to new highs and a small sell-off that was bought excitedly. While he remains convinced that "in terms of positioning and sentiment, we are 'not there yet'," for his 50% S&P 500 plunge; he does believe Q2 will see a 5-10% dip to 1450 as the shambolic policy responses to Cyprus and the 'cat' that #DieselBoom 'let out the bag' add to increasingly weak global growth data. While this dip will also likely be bought, the bearded bear expects the market's comeuppance to arrive late 2013.

Guest Post: The Good, The Bad, And The Extremely Ugly Of The Cyprus Deal

There are some good features of the Cyprus deal and, of course, some bad aspects. However, its repercussions for the Eurozone as a whole are exceptionally ugly and will, we submit, mark a turning point for Europe; a point at which Europe took a nasty turn toward a set of mutually disagreeable outcomes.

What Dijsselbloem Really Said: Full "On The Record" Transcript

Hopefully the memory of the new Eurogroup head, who in a one day lost more credibility than his admittedly lying predecessor Juncker ever had, will be jogged courtesy of this full transcript provided by Reuters and the FT of what he told two reporters - on the record - and for the whole world to read. Because, by now, we are confident everyone has had more than enough with watching the entire Eurozone rapidly and tragically turn itself into a complete and utter mythomaniac, kletpocratic circus.

The Mindset

In all of the tortuous moments that have taken place with the European Union the one thing that has become apparent is a radical change of mindset. In the beginning there was a kind of democratic viewpoint. All nations had a voice and while some were louder than others; all were heard. This is no longer the case. There is but one mindset now and it is decidedly German. It is not that this is good or bad or even someplace in between. That is not the real issue. The Germans will do what is necessary to accomplish their goals. There is nothing inherently bad or evil about this but it is taking its toll on many nations in Europe. It is the occupation of Poland in a very real sense just accomplished without tanks or bloodshed as money is used instead of armaments to dominate and control a nation. Politically you may "Hiss" or you may "Applaud" but there are consequences here for investors that must be understood. First and foremost is that they will not stop.

Cyprus - To Template, Or Not To Template: That Is The Wall Street Question

After one of the most fabulous verbal faux pas in recent history was committed yesterday, in which the truth briefly escaped the lips of the new Eurogroup head who still has to learn from his masterful "when it becomes serious you have to lie" predecessor and ever since both he and all of uber-incompetent Europe have been desperate to put the genie back into the bottle to no avail, everyone has been caught in a great debate: to template, or not to template?  Below is a summary of Wall Street's thinking on this key for so many European (and soon global) depositors.

Overnight Market: "It's All Cypriot To Me"

Another session in which the market continues to be "cautiously optimistic" about Europe, but is confused about Cyprus which keeps sending the wrong signals: in the aftermath of the Diesel-Boom fiasco, the announcement that the preciously announced reopening of banks was also subsequently "retracted" and pushed back to at least Thursday, did little to soothe fears that anyone in Europe has any idea what they are doing. Additional confusion comes from the fact that the Chairman of the Bank of Cyprus moments ago submitted his resignation: recall that this is the bank that is supposed to survive, unlike its unluckier Laiki competitor which was made into a sacrificial lamb. This confusion has so far prevented the arrival of the traditional post-Europe open ramp, as the EURUSD is locked in a range below its 200 DMA and it is unclear what if anything can push it higher, despite the Yen increasingly becoming the funding currency of choice.

David Fry's picture

Well, that was a fun day, eh? Spills and thrills the whole day long.

Importantly, it’s the end of the quarter and performance bonuses are on the line. So any excuse to rally is built in to conditions.

 

The "Wealth Tax" Contagion Is Rapidly Spreading: Switzerland, Cyprus And Now ....

It was only yesterday that we wrote about comparable problems to those which Russian depositors may (or may not be?) suffering in Cyprus right, this time impacting wealthy Americans and their Swiss bank accounts, where as a result of unprecedented DOJ pressure the local banks will soon breach all client confidentiality and expose all US citizens who still have cash in the former tax haven under the assumption that they are all tax evaders and violators. And in the continuum of creeping wealth taxes which first started in Switzerland, then Cyprus, and soon who knows where else, there was just one question: "The question then is: how many of the oligarchs, Russian or otherwise, who avoided a complete wipe out and total capital controls in Cyprus, will wait to find out if the same fate will befall them in Switzerland? Or Luxembourg? Or Lichtenstein? Or Singapore?" Today we got the answer, and yes it was one of the abovementioned usual suspects. The winner is.... Lichtenstein.

GoldCore's picture

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.

 

A Word Out Of Place Sends Europe Tumbling

Perhaps the best example of a "word out of place" comes from the new Eurogroup head, Dijsselbloem, also phonetically known as Diesel-BOOM, who just may have ushered in the next, next wave of the Eurozone crisis:

  • "Cyprus a Template For EU"

Er... wasn't it a special case, inside a unique case, wrapped in a one-time case? We will ignore the rather hilarious Freudian slip, and focus on what he was explicitly talking about with Reuters, in what Cyprus allowed was the effective usurpation of democracy - the only reason the Cypriot bailout "passed" (at least so far) is because it was structured as a bank restructuring, a financial system "resolution", not a tax, and thus not in need of a parliamentary, democratic vote. Because as Cyprus also showed, votes to deprive depositors of cash, whether insured or uninsured, simply won't fly. Hence the shift.

Think Tank: Cyprus 'Saved'; But At What Cost?

The most positive aspect of last night’s deal was that a deal was reached at all, and that some steps have been taken to counter moral hazard. However, overall, this is a bad deal for Cyprus and the Cypriot population. Cypriot GDP is likely to collapse in the wake of the deal with the possible capital controls hampering the functioning of the economy. The large loan from the eurozone will push debt up to unsustainable levels while the austerity accompanying it (along with the bank restructuring plan) will increase unemployment and cause social tension. There is a strong chance Cyprus could become a zombie economy – reliant on eurozone and central bank funding, with little hope of economic growth. Meanwhile, the country will remain at the edge of the single currency as tensions increase between members with Germany, the ECB and the IMF now looking intent on a more radical approach to the crisis. The eurozone took this one down to the wire. But late last night, after a week of intense back and forth negotiations, a deal was reached on the Cypriot bailout. Below we lay out the key points of the deal (the ones that are known, there are plenty of grey areas remaining) and our key reactions to the deal.

The Morning After

All eyes should remain focused on Cyprus today, especially since there is no data being reported elsewhere. Financial markets closed Friday on a positive note, as an agreement on Cyprus appeared to be taking shape and a minor relief rally across most asset classes overnight vindicated hopes of a positive outcome as details of the detail were announced overnight. More clarity is still required on some aspects of the agreement (deposit and bondholders) but the fact that the national parliament does not need to vote again should stop the deal from unravelling as it did last week. Whether this is enough to restore confidence and prevent a possible cautionary deposit flight from Cyprus remains to be seen.