The Eurogroup agreed on Monday night to allow Cyprus to change the make up of its controversial deposit tax and President Nicos Anastasiades is now proposing that bank customers with deposits under 20,000 euros should not be taxed at all, while keeping the levy the same for the remaining depositors. However, what’s happened over the past few days and what’s likely to happen in the days and weeks to come has little to do with numbers. It is much more about perceptions. Even if capital flight from Cyprus as a result of this decision is less severe than many fear, even if Cypriot banks survive this real stress test, even if the island’s economy is not set back many years, even if savers in Greece, Spain, Portugal and Italy don’t panic, the idea of a deposit tax and the way it was adopted has released something poisonous in the air. It is difficult to see how these citizens will be able to trust the system - be it their governments, banks or eurozone partners - in the weeks to come. Belief in countries where the economy is contracting and unemployment growing is already vitreous and planting fears about a possible deposits grab in the future could shatter it completely.
This deal relies heavily on individuals not being able to count, read, write or spell...
Can Natural Gas Save America?
While this kind of 'wealth tax' has been predicted, as we noted yesterday, this stunning move in Cyprus is likely only the beginning of this process (which seems only stoppable by social unrest now). To get a sense of both what just happened and what its implications are, RBS has put together an excellent summary of everything you need to know about what the Europeans did, why they did it, what the short- and medium-term market reaction is likely to be, and the big picture of this "toxic policy error." As RBS summarizes, "the deal to effectively haircut Cypriot deposits is an unprecedented move in the Euro crisis and highlights the limits of solidarity and the raw economics that somebody has to pay. It is also the most dangerous gambit that EMU leaders have made to date." And so we await Europe's open and what to expect as the rest of the PIIGSy Banks get plundered.
Russia Sending Permanent Warship Fleet To Mediterranean: Is A Russian Naval Base In Cyprus Coming Next?Submitted by Tyler Durden on 03/17/2013 20:13 -0400
That Russia has previously threatened, and followed through with, sending ships to the Mediterranean is nothing new. In the past, every such episode was related to the protection of what Putin considered vital geopolitical interests in the region: whether defending the Syrian port of Tartus, various crude and natural gas pipelines in the region threatened by NATO expansion in Turkey, or offsetting heightened US presence around Gaza and Israel (and of course Iran). Which is why with the legacy conflicts in the region dormant, and the only news of any relevance being the European intervention in Cyprus against Russian oligarch interests, it is surprising we learn today that the Russian Navy will dispatch a permanent fleet of five or six combat ships to the Mediterranean Sea, with frigates and cruisers making up the core of the fleet... How soon until we read that Russia is willing to invest even more unguaranteed loans into the Cypriot financial system.... in exchange for one little tiny naval and/or military base?
The incredible reality that so many Cypriots woke up to this weekend (after the late Friday NY time announcement of their deposits taking a haircut to save their precious banking system) has spurred the citizenry to take to Twitter to vent their anger and frustration. As we asked just as few days ago - has the European Spring begun, perhaps it is time for someone to launch social media guillotines as the 'elites' seem happy to say "let them eat Lokmades (Cyprus Cake)"...
Europe Does It Again: Cyprus Depositor Haircut "Bailout" Turns Into Saver "Panic", Frozen Assets, Bank Runs, Broken ATMsSubmitted by Tyler Durden on 03/16/2013 10:33 -0400
Late last night, after markets closed for the weekend, following an extended discussion the European finance ministers announced their "bailout" solution for Russian oligarch depositor-haven Cyprus: a €13 billion bailout (Europe's fifth) with a huge twist: the implementation of what has been the biggest taboo in European bailouts to date - the impairment of depositors, and a fresh, full blown escalation in the status quo's war against savers everywhere. Specifically, Cyprus will impose a levy of 6.75% on deposits of less than €100,000 - the ceiling for European Union account insurance, which is now effectively gone following this case study - and 9.9% above that. The measures will raise €5.8 billion, Dutch Finance Minister Jeroen Dijsselbloem, who leads the group of euro-area ministers, said. But it doesn't stop there: a partial "bail-in" of junior bondholders is also possible, as for the first time ever the entire liability structure of a European bank - even if it is a Cypriot bank - is open season for impairments. The logical question: why here, and why now? And what happens when the Cypriot bank run that has taken the country by storm this morning spreads everywhere else, now that the scab over Europe's biggest festering wound is torn throughout the periphery as all the other PIIGS realize they too are expendable on the altar of mollifying voters and investors in the other countries that make up Europe's disunion.
Following Part 1's discussion of America's Dangerous Drift, and Part 2's succincy summation of why America needs a Grand Strategy, today's Part 3 concludes with a discussion of the 'choice' American leaders have: "A decline in America’s leadership role and the emergence of a highly unstable world is a serious possibility. In reality, decline is not a foregone conclusion but a deliberate political choice that builds from a failure to define what matters most to the nation." When we step back from the language and imperatives of grand strategy, the case for the United States to rethink its grand strategy is fundamentally simple. It is designed to meet serious threats while creating and taking advantage of strategic opportunities. To continue on the present course of "drifting" from crisis to crisis effectively invites powers to believe that America is in decline. Worse, Americans, too, might believe wrongly that the nation’s decline is inevitable. If we are to assure America’s future security and prosperity, we need a new national grand strategy that harnesses America’s spirit, sense of optimism, and perseverance to help the nation meet the challenges and grasp the opportunities of this era. When we think about the alternatives, the United States simply has no choice.
February Inflation Rises By Most In One Year; Empire Fed Misses Even As Optimism Rises To Highest In 12 MonthsSubmitted by Tyler Durden on 03/15/2013 08:47 -0400
Following last month's surprising surge in the Empire Fed from a deep negative number to 10.04, the March print was less exciting, declining modestly to 9.24, on expectations of an unchanged number. Per the report, the new orders and shipments indexes also remained above zero, though both were somewhat lower than last month’s levels. Price indexes showed that input price increases continued at a steady pace while selling prices were flat. Employment indexes suggested that labor market conditions were sluggish, with little change in employment levels and the length of the average workweek. The Number of Employees index dropped from 8.08 to 3.23, back to September 2012 levels. Naturally, with reality worse than expected, all hopes were put in the future as indexes for the six-month outlook pointed to an increasing level of optimism about future conditions, with the future general business conditions index rising to its highest level in nearly a year. This is only the 4th year in a row in which optimism about the future is orders of magnitude higher than the current reality. Thank the Fed's "wealth channel to support consumer spending." In other economic news, headline inflation came slighlty higher than the expected 0.5%, with the 0.7% sequential print the highest in one year, driven by a surge in the gasoline index which rose 9.1% in February, "to account for almost three-fourths of the seasonally adjusted all items increase. The indexes for electricity, natural gas, and fuel oil also increased, leading to a 5.4 percent rise in the energy index. The food index increased slightly in February, rising 0.1 percent."
- 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)
The United States is expected to lead the pack among non-OPEC members in terms of oil supply growth for 2013. That's the assessment from this month's market report from the Vienna-based cartel. OPEC, in its forecast, said U.S. oil supply growth is projected at 600,000 bpd this year. That figure, however, is 40,000 bpd less than the previous year. The Vienna-based cartel said U.S. oil growth could go either way for 2013, but noted growth from tight oil developments in states like North Dakota is expected to slow down. While improved drilling technology may offset some of that decline, OPEC said that factors like price issues may dampen the oil boom in the United States.
- Dimon’s ‘Harpooned’ Whale Resurfaces With Senate Findings (BBG)
- Greece and lenders fall out over firings (FT) - as predicted 48 hours ago
- Dallas Fed Cap Seen Shrinking U.S. Banking Units by Half (BBG) - which is why it will never happen
- Xi elected Chinese president (Xinhua)
- Russia Bond Auction Bombs as ING Awaits Central Bank Clarity (BBG)
- U.S. and U.K. in Tussle Over Libor-manipulating Trader (WSJ)
- Chinese firm puts millions into U.S. natural gas stations (Reuters)
- In Rare Move, Apple Goes on the Defensive Against Samsung (WSJ)
- Berlin Airport Fiasco Shows Chinks in German Engineering Armor (BBG)
- Ex-PIMCO executive sues firm, says was fired for reporting misdeeds (Reuters)
- Bank of Italy Tells Banks in the Red Not to Pay Bonuses, Dividends (Reuters)
The Biggest Welfare Queens of All ...
- More black smoke over Vatican: No decision on pope in second day (NBC)
- PBOC Chief Says China Should Be on ‘High Alert’ on Inflation (BBG) - just as predicted last fall
- California Seizes Guns as Owners Lose Right to Keep Arms (BBG)
- U.S. Tax Cheats Picked Off After Adviser Mails It In (BBG)
- In 2012, Samsung spent $401 million advertising its phones in the U.S. to Apple's $333 million (WSJ)
- Coca-Cola probed over mapping in China (FT) - accused of ‘illegally collecting classified information’
- Italy's Bond Sale Meets Tepid Demand (WSJ)
- U.S. Steps Up Alarm Over Cyberattacks (WSJ)
- Mugabe takes on Zimbabwe's Generation X (Reuters)
- Mars Rover Finds Conditions Once May Have Supported Life (BBG)
- Oil demand hit by China refinery outages (FT)
- Big Sugar Is Set for a Sweet Bailout (WSJ) DOA to buy 400,000 tons of sugar to stave off a wave of defaults by sugar processors
- Spectre of stagflation haunts UK (FT)
- As Republicans seek identity, conclave highlights divisions (Reuters)
First it was gas prices, then it was food prices, and now it is the turn of basic utilities to see costs surge by double digits. Dow Jones reports that "Japanese utilities, forced to idle their nuclear power plants over the past two years and facing higher fuel costs due to a weak yen, are now looking to push through double-digit rate hikes for their commercial customers." This means less disposable income, less corporate profits, less monetary velocity, less growth and ultimately less "inflation" in other things such as the much desired stock market, which was supposed to be the wealth effect offset to all staples price increases. At least on paper. Of course we explained on various occasions, most recently here, why in Japan a US-style of wealth effect price substitution would never work. Surely nobody could possibly see this coming - "The action comes at a bad time for some Japanese companies that were hoping the fall in the yen and much-trumpeted efforts by the government to turn round the economy would help improve their prospects." Ah hope - the only strategy left.