We have seen again that the Eurozone is unable to deal rationally with its problems. This has got to be the most incompetent handling of a Euro crisis event so far, but underlines the hopeless situation the 17 countries that share the common currency are in. The idea of a one-off wealth tax, however, is not new. Several research reports have pointed in recent years to the fact that the desperate need for funding in the public sector could - and probably will - eventually lead to confiscation of wealth in a monumental scale. Boston Consulting Group suggested in a recent report that about 29 percent of ALL private wealth, not just deposits, will eventually be likely to be confiscated to cover the debts already incurred. So we had better get used to seeing our money being appropriated by money-hungry politicians. This is just the beginning. The cat is out of the bag, no matter if this particular deal should fall apart.
If you don’t collapse the system, the system will collapse you.
The simple fact remains that politicians proposed stealing savings deposits from the people in order to fund a bank bailout. You can dress this idea up however you like, calling it a “levy” or “tax” but taking someone’s personal property without their permission is theft plain and simple.
We are lucky that in the new normal earnings, cash flows, news, and broadly reality, are completely irrelevant, and all that matters is the central bank-sponsored S&P multiple expansion (due to monetary dilution), or else the news from moments ago that FedEx once more cut not only its EPS but CapEx (and thus growth spending) may have been negative for stocks, and even mentioned by assorted propaganda networks. And since none of the above will happen, here is the bottom line: FedEx - the bellwether for global trade and logistics - just cut its year EPS from $6.20-$6.60 to $6.00-$6.20, and slashed CapEx from $3.9 billion to $3.6 billion. But at least in keeping with the demands of ZIRP, the company instead of spending on growth, which is obviosuly not there, will instead buy back 10 million shares of stock. This tells you all you need to know about the "recovery."
The Cypriot parliament tonight voted against a bill to introduce a tax on bank deposits, in return for a €10bn bailout offered to the country by Germany and other eurozone governments. Not a single Cypriot MP voted for the deal. The vote leaves Cyprus’ place in the eurozone hanging in the balance and threatens the escalation of the crisis to a new level, though the most likely outcome is that the Cypriot parliament votes a second time, on a revised deal. The governing party (DISY) abstained (with one member absent), while the junior coalition partner (DIKO) voted against – this signifies the huge political divisions at work in Cyprus. Even if a bailout deal is eventually approved the government’s position continues to look untenable. As we have noted before, this has the potential to be a very serious twist in the eurozone crisis. Previously, Germany and the eurozone have stressed that Cyprus has no alternatives to the deposit levy. Now, all eurozone partners are forced back into difficult negotiations. Both sides have some serious decisions to make. Below we outline the potential scenarios...
"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.
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...
Not even the usual monthly futures panacea (which in fact manages to fool the entire centrally-planned market twice every month, all the time), the always rising German ZEW Economic Sentiment survey, which mysteriously did not come at an all time high, but still rose from February's 48.2 to 48.5, despite expectations of a decline to 48.1, has managed to push the EUR higher in overnight trading, as a result keeping a lid on any of the generic no-volume futures levitation we have all grown to love. The reason is not that concurrently with the German data we got abysmal Eurozone Construction Output data, which plunged -7.3% Y/Y, the most in four months, following a slump in French and Spanish activity offsetting the German "confidence-boosting economic miracle" but simply because there continues to be no clarity whatsoever on events in Cyprus, where as noted earlier, the parliament may vote as soon as 6 hours from now to veto the proposed deposit confiscation "bailout/in" plan, which could lead to the first Eurozone banking system collapse, and the first expulsion of a member Eurozone nation, setting the wheels in motion for the unthinkable.
So much for the credibility of Reuters' Greek FinMin "unnamed" source. After the newswire presented the latest Eurogroup statement as if it was one where all deposits under €100,000 will be tax exempt, which was not the case, CNA reported a little while ago that the government has submitted a revised bill according to which only deposits under €20,000 would be exempt, and everything between €20K and €100K would still see the previous 6.75% levy. The parliamentary economic committee would discuss the bill ahead of plenary a debate scheduled for 6 p.m. Cyprus time. However, now as MarketNews reports, that is likely moot.
- CYPRUS PRESIDENT: PARLIAMENT BELIEVES BAILOUT PLAN UNJUST, GOVERNMENT MAKING OTHER PLANS.
- CYPRUS PRESIDENT: PARLIAMENT WILL REJECT BAILOUT PLAN –MNI
Of course, as we said nearly a day ago, if there is no consensus on the term of the bail-in, it is assured that there will be no vote today either, and possibly none tomorrow, and so on, which means that with both banks and stock markets closed through Friday, Cyprus may end up in permanent stasis indefinitely.
Prior to yesterday, if you were trying to handicap how the unelected leaders of the Eurozone were going to react to a tough situation, you only had to refer to the quote "When it becomes serious, you have to lie" from Mr. Junker to understand their mindset. But so long as someone at the ECB was willing to flood the world with free EURs (with significant backup provided the US Federal Reserve) the market closed its eyes, held its breath and took the leap of faith that all was well. However, post the Cyprus decision, the curtain has been pulled back and wizard revealed with all his faults and warts. It would be hard to over-emphasize how significant the Cyprus situation is. The damage done here is not related to the size of the haircut - currently discussed between 3 and 13% - but rather that the legal language which each and every investor on the planet must rely on in order to maintain confidence in the system has been subordinated to the needs of the powerful elite.
The first proposed haircut on Cypriot deposits, which saw deposits under €100,000 haircut by 6.75%, and those €100,000 and larger (i.e., the "Russian oligarch" pool) trimmed by 9.9% appears to be hours away from renegotiation. The reason is that Europe now is convinced the only reason the bailout proposal would not pass parliament is that the tax on the "common man" deposits is too high, which means it will be revised to 3% or perhaps lower, with the possibility of staggered thresholds, such that deposits under €20,000 remain untouched. This will be decided at a conference call at 6:30 pm GMT when Europe will once again confirm its cluelessness, and inability to make concrete, firm decisions. While none of this will restore confidence in the Cypriot and European banking system, the open question is what will be the Russian impairment - i.e., what is the most that whale deposits can be cut by? We now know the answer, courtesy of this interactive widget from Reuters, which allows one to calculate what the haircut on large deposits would be assuming an X% haircut on smaller deposits. It appears that the worst case for Russians will be 15.26% - this is how much of all Cypriot deposits €100K and higher would be taxed by if there is 0% tax on the small deposits.
Four months after we made our call to short the living daylights out of Cable following the announcement that Goldman's Mark Carney is coming and is getting ready to crucify the BOE's balance sheet, we were confused: +1400 pips in our favor, it appeared the profit bonanza could never end and yet we didn't want to get too greedy. And then came none other than the most invaluable analyst on Wall Street, Goldman's Tom Stolper, who made our decision easy. Last Monday, the man who bats between 0.000 and 0.050 boldly went where he had been so many times before, and said to go long EURGBP on "monetary policy and current account differentials" with a stop loss of 85.70. Naturally, we read between the lines. Sure enough, as of this posting, EURGBP is now 85.38, well below the designated stop loss, and over 200 pips in favor of those who, as usual, faded perhaps the worst FX "strategist" of all time. Which, incidentally, is why Stolper may well be the most valuable of his breed on Wall Street: rarely has there been man whose calls have made so much money for so many.
A dispassionate discussion of developments in Cyprus and a few broader implications.
Asia has badly lagged U.S. and European stock markets this year and over the past 12 months. We explain why it's happened and why it may continue.