Gambling

Elon Musk - "megalomanical promoter". Ben Bernake - "befuddled academic". Janet Yellen - "career policy apparatchik". Paul Krugman - "fibber". Fred Mishkin - "preposterous".

The present confusion is legitimate: it is far too early to be projecting much from Cyprus except a continued erosion of faith in Eurozone banks and leadership, and by default, the euro as a placeholder of purchasing power.

In this past weekend's missive we  showed, in rather excruciating detail in multiple charts, that complacency in the financial markets is at extremely elevated levels. Investors behave much the same way as individuals who addicted to gambling. When they are winning they believe that their success is based on their skill. However, when they began to lose, they keep gambling thinking the next “hand” will be the one that gets them back on track.  Eventually - they leave the table broke. It is true that bull markets are more fun than bear markets. Bull markets elicit euphoria and feelings of psychological superiority. Bear markets bring fear, panic and depression. What is interesting is that no matter how many times we continually repeat these “cycles” – as emotional human beings we always “hope” that somehow this “time will be different.” Unfortunately, it never is, and this time won’t be either.

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 Salvaged After EU Deal Shuts Bank to Get $13B (BBG)
• Last-minute Cyprus deal to close bank, force losses (Reuters)
• Anxious, angry Cypriots face uncertain future (Reuters)
• Spain Brings the Pain to Bank Investors (WSJ)
• First Switzerland now... U.S. Seeks Answers in Liechtenstein on Tax Cheats (BBG)
• Rebel Free Syrian Army founder loses leg in Syria blast (Reuters)
• European Stocks Rise on Cyprus Deal as Italian Bonds, Crude Gain (BBG)
• Michael Dell Likely to Sweeten Buyout Bid to Save Legacy (BBG)
• Bankers’ pay premium is narrowing (FT)
• Surgery Restoring Penis After Prostate Cancer Increasing (BBG)
• Silent or supportive, conservatives give gay marriage momentum (Reuters)

Last November, in an act of sheer monetary desperation, the ECB issued an exhaustive, and quite ridiculous, pamphlet titled "Virtual Currency Schemes" in which it mocked and warned about the "ponziness" of such electronic currencies as BitCoin. Why a central bank would stoop so "low" to even acknowledge what no "self-respecting" (sic) PhD-clad economist would even discuss, drunk and slurring, at cocktail parties, remains a mystery to this day. However, that it did so over fears the official artificial currency of the insolvent continent, the EUR, may be becoming even more "ponzi" than the BitCoins the ECB was warning about, was clear to everyone involved who saw right through the cheap propaganda attempt. Feel free to ask any Cypriot if they would now rather have their money in locked up Euros, or in "ponzi" yet freely transferable, unregulated BitCoins.  And while precious metals have been subject to price manipulation by the legacy establishment, even if ultimately the actual physical currency equivalent asset, its "value" naively expressed in some paper currency, may be in the possession of the beholder, to date no price suppression or regulation schemes of virtual currencies existed. At least until now: it appears that the ever-benevolent, and always knowing what is "in your best interest" Big Brother has decided to finally take a long, hard look at what is going on in the world of BitCoin... and promptly crush it.

Greece was a unique and special case. Cyprus is a unique and special case. One wonders, and with good reason, what or who will be the next unique and special case. The one thing we all know for certain is that when you are tagged with this moniker that it is not good. The other thing we know is that Europe, at any time, is ready to create unique and special cases to further their own interests. Perhaps, to be fair, it might be better to say that Germany will lord over this dynamic because it is generally the German interests which are to be furthered. Therefore when unique and special cases have become the order of the day then the risk factors for investing in Europe have grown dramatically and must be honestly considered. The greater fool theory is expecting different results when performing the same actions again and again. Europe may be fine for hedge funds, for gambling upon events, but for investors; perhaps not so much.

Still in WallStreetPro withdrawal? We may have just the methadone fix for you... "You will lose your f##king money in your bank," is how this English gentleman cabbie begins his caustic diatribe against all that is wrong with European (and in fact) the world of bankers and elites. The so-called 'artist taxi driver' has a spit-flying hand-smashing epic rant while sitting in his taxi. "They did a stress test on the banks in Cyprus 18 months ago and said it's f##king great" and now this; "this is some f##king crooked shit." "They're off their f##king nuts mate," he explains as he asks rhetorically of the bankers getting the bailouts, "how many f##king ponies do their daughters' need?" Insightfully he remarks that, "Cyprus could be the beginning of a bigger and f##king worse financial crisis," and exclaims "[Goldman Sachs and the Bankers] are looking after their own interest - who are they f##king borrowing money to in Cyprus?" His exasperation is one many can empathize with we are sure as he concludes, "We need to shut down the f##king markets... What kind of society allows the rich people to be gambling while the poor people f##king die," ending with a warning, "Wake the f##k up!"

At this point a question is in order: while in Cyprus, and soon probably elsewhere, the government will openly confiscate deposits to fund insolvent banking systems, in the US excess deposits are used by the prop desks of banks like JPMorgan to inflate risk assets, corner a bond market (IG9), and to generally create a wealth effect... for the 1%.

• Cypriot Bank Levy Is ‘Ominous’ for Bondholders, Barclays Says (BBG)
• Euro, Stocks Drops; Gold, German Bonds Rally on Cyprus (BBG)
• Total chaos:Cyprus tries to rework divisive bank tax (Reuters)
• More total chaos: Cyprus Prepares New Deposit-Tax Proposal (WSJ)
• Euro Slides Most in 14 Months on Cyprus Turmoil; Yen Strengthens (BBG)
• Osborne to admit fresh blow to debt target (FT)
• Even the Finns are giving up: Finnish Government May Relinquish Deficit Target to Boost Growth (BBG)
• Moody’s Sees Defaults as PBOC Warns on Local Risks (BBG)
• Australia Faces ‘Massive Hit’ to Government Revenue, Swan Says (BBG)
• Inside a Warier Fed, Watch the New Guy (Hilsenrath)
• Obama to Tap Perez for Labor Secretary (WSJ) - and with that the "minorities" quota is full
• Finally, this should be good: BuzzFeed to Launch Business Section (WSJ)

• JPMorgan Report Piles Pressure on Dimon in Too-Big Debate (BBG)
• Employers Blast Fees From New Health Law (WSJ)
• Obama unveils US energy blueprint (FT)
• Obama to Push Advanced-Vehicle Research (WSJ) - here come Solar-powered cars?
• BRICs Abandoned by Locals as Fund Outflows Reach 1996 High (BBG)
• Obama won't trip over Netanyahu's Iran "red line" (Reuters)
• Samsung puts firepower behind Galaxy (FT)
• Boeing sees 787 airborne in weeks with fortified battery (Reuters)
• Greece Counts on Gas, Gambling to Revive Asset Sales Tied to Aid (BBG)
• Goldman’s O’Neill Says S&P 500 Beyond 1,600 Needs Growth (BBG)
• China’s new president in corruption battle (FT)
• Post-Chavez Venezuela as Chilly for Companies From P&G to Coke (BBG)

And the Stock Rally Is Due to Money-Printing

Hedge fund icon Stanley Druckenmiller sat down with Bloomberg TV's Stephanie Ruhle, saying that he’s decided to speak out now because he sees "a storm coming, maybe bigger than the storm we had in 2008, 2010." His fear is that the ballooning costs of Social Security, Medicare and Medicaid (which with unfunded liabilities are as high as $211 trillion) will bankrupt the nation's youth an pose a much greater danger than the debt currently being debated in Congress.  He said, "While everybody is focusing on the here and now, there's a much, much bigger storm that's about to hit... I am not against seniors. What I am against is current seniors stealing from future seniors." While not exactly Maxine Waters' sequestration-based 170 million job loss, this concerning interview is must-see for his clarity and forthrightness from who is to blame, to the consequences of gridlock, our society's short-term thinking, and the concerning demographics the US faces.

Since the Fed is doing all it can to relieve the big banks and all legacy debtors of their debt obligations, it is only fair that those incumbered with student debt - impacting those who can least afford it - and which is at least on the surface nondischargeable, are afforded the same opportunity. So here is a primer for the rest of us - those who don't have $1.8 trillion in very fungible reserves holed up with the Federal Reserve. As Christopher Glazek and Sean Monahan note, discharging student debt is a black-box dilemma. While bankruptcy protocols are always complex, student debt is loaded with its own special brand of illegibility. Debtors are misled by the media into thinking that discharging student loans is impossible and shamed into treating the mere notion of relief as a form of extravagant welfare-queenism - however, there is a way (or 12 ways) to show your future life prospects are characterized by a “certainty of hopelessness.”

The best performing currency year-to-date has no home country, no central banker and no physical scrip; it is the online-only ‘Bitcoin’ and as we noted recently, it is becoming more mainstream.  BTC, as the currency is known, up 130% year to date in dollar terms, thanks to rising demand from a wide variety of adherents, which ConvergEx's Nick Colas notes, includes libertarian activists, small businesses, online drug dealers and gambling sites.  That makes the Bitcoin a controversial subject, to be sure, but Nick notes we can also learn from this unique case study a lesson in global economics.  Bitcoin ‘Money supply’ growth is capped at a slow rate – far below its current levels of demand.  That makes it prone to boom-bust cycles.  It also has no sovereign sponsorship, which means it works outside any nation’s security apparatus.  Lose your bitcoins to hackers?  Tough luck – there is no FDIC in these parts.  Still, Colas concludes, in the creation and growth of the Bitcoin it is not hard to see the online future of currency, especially as real-world alternatives continue to struggle with sluggish economies.