Credit Suisse

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Ponzinomics

As Cyprus has shown us, when push comes to shove, rule of law goes out the window. I fully expect that when things get really bad in the financial system the money grabs will come fast and furious. Foreign accounts, including possibly even Gold held aboard, will come under attack. Heck, the US got Switzerland to throw its 300-year-old banking secrecy out the window…

• Deutsche Bank 160K
• HSBC 174K
• Goldman Sachs 175K
• Citi 175K
• Barclays Capital 175K
• UBS 190K
• Bank of America 200K
• JP Morgan 210K

We have shown the endless hockey-stick-like charts of hope that are the coming margin expansion, dramatic earnings growth, and revenue increases (all juxtaposed against the reality of a labor-destroying cost-cutting and growth-disabled global economy) but perhaps nowhere is the 'hope' in the US more evident when compared to the rest of the world. Around the world, analysts and strategists are comfortable marking down expectations for British, European, Asian, and Emerging Market nations but not the good ol' USofA. We cannot help but believe that while momentum in US equity markets dominates all sense and rationality, it would appear the US will struggle to realize these 'hopeful' expectations if the rest of the world is collapsing... unless of course, Mars does indeed start importing Fords and GMs.

Germany, it seems, has had enough with its taxpayers implicitly bearing the burden of the rest of Europe's profligacy as the final solution chosen for Cyprus clearly shows (especially in light of pending German elections). But with all that 'stabilitee' based on one nation's shoulders, the following chart suggests Europe's Atlas is about to shrug. For the last six months, non-German Europe has seen its economies collapse with PMI New Orders pushing new lows now - after some brief episode of hope at the start of the year. Germany, in the meantime has been surging back as expectations of recovery have led sentiment higher and hopes for a European green shoot renaissance. That is until recently. In the last month, Germany's economic momentum has faltered; the green shoots are wilting; and combining real economic weakness with the Europe-wide deposit outflows (hurting the 'financial' economy), Europe is back in the crosshairs.

Was the Real Purpose of the Iraq War to Restrict Oil ... So As to Raise Oil Prices?

When all is said and done, what happened in Cyprus over the past two weeks, is nothing but the culmination of re-marking the "assets" in the country's financial system (which as noted previously, were a preponderance of worthless Greek bonds and countless other non-performing loans), long priced at assorted "myth" levels, to a long overdue reality. As a result of delaying resolving the mismatch between non-performing assets and liabilities for years, the resolution was one which saw some €16 billion of the total asset base impaired, which in turn necessitated the impairment of billions of deposits: the primary liability funding the Cypriot financial system. Furthermore, as a result of the "Freudian Slip" by the Eurogroup's new head earlier this week, we know that Cyprus will be the template for all future bank resolutions, which seek to avoid a government vote and proceed to restructuring the banking sector a la carte, by liquidating bad banks and impairing liabilities to the point where the balance sheet is once again viable (however briefly). The bottom line is that at its core, it is all simply a bad debt problem, and the more the bad debt, the greater the ultimate liability impairments become, including deposits. Which means that the real question in Europe is: how much impairment capacity is there in the various European nations before deposits have to be haircut? Thanks to Credit Suisse we now know the answer.

With the 'temporary' capital controls being imposed in Cyprus, Credit Suisse explains why a Cypriot euro not equal to a euro from any other member country. Furthermore, the clear fabrication of a 'seven-day' period for these controls (when monthly and quarterly limits on spending are also included) is questioned as they ask how such capital controls could eventually be lifted with no obvious cure of the underlying problem, i.e., the risk of a bank run. Since every guarantee is only worth as much as its guarantor, we would expect that in absence of a European wide deposit guarantee (which for political reasons and the aforementioned template look very unlikely) these capital controls are likely to stay for longer than originally planned. Unless this vicious circle is broken, this attempt to save the euro could ironically even become the template of how a member state could leave the currency union.

Russia and South Africa, which together control about 80% of the world’s reserves of platinum group metals, plan to create a trading bloc similar to OPEC to control the flow of exports according to Bloomberg. “Our goal is to coordinate our actions accordingly to expand the markets for realization of these metals,” Russian Natural Resources Minister Sergey Donskoy said yesterday in an interview at a summit of leaders from Brazil, Russia, India and South Africa in Durban. “The price depends on the structure of the market, and we will form the structure of the market.” South Africa mines about 70 percent of the world’s platinum, while Russia leads in palladium, a platinum group metal used in autocatalysts, with about 40% of output, according to a 2012 report by Johnson Matthey Plc. Palladium rose 0.8% yesterday to $763.50 after Donskoy’s comments, reversing declines to reach the highest level since March 18. Platinum, used to make jewelry and autocatalysts, has risen 2.3% this year because of increased demand from the auto industry and after supply disruptions at mines. The price jumped yesterday in the hour after Donskoy’s comments, narrowing yesterday’s decline. South African Mines Minister Susan Shabangu confirmed that the two countries aimed to counter oversupply of platinum, and said possible measures could include taxes and incentives. “We’re not really controlling the market,” she said in an interview in Durban. “We want to contribute without creating a cartel, but we want to influence the markets.”

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.

Presented with little comment but to note the somewhat exponential exuberance in US cyclical stocks (relative to defensives) that has gradually accelerated since the Fed launched QE3. If ever there was a chart of 'hope' or 'faith', this is it.

The Cyprus deposit scramble contagion spreads as Reuters reports that "Swiss banks would be required to "motivate" remaining U.S. clients to come clean to U.S. tax officials. If they failed to do so, confidential bank data would be forwarded to U.S. officials. The initial shipment of data from those banks would not include client names but, based on the data, U.S. officials would be able to submit a judicial aid requests to get the names of alleged tax evaders."

• Cyprus targets big depositors in bank plan  (FT)
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• Russia rebuffs Cyprus, EU awaits bailout "Plan B" (Reuters)
• Russia Rejects Cyprus Bid for Financial Rescue as Deadline Looms (BBG)
• Cyprus unveils shake-up as the clock ticks (FT)
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• Credit Suisse CEO pay jump to fuel banker bonus debate (Reuters)
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