Posts Tagged ‘Cyprus’

Notes From Underground: Gold, Huh, Yeah, What Is It Good For?

April 14, 2013

This is the question investors all over the world are asking after the massive selloff on Friday. I have argued that gold was a tired bull for the last six months and that global equities had replaced gold as investors’ and traders’ haven and store of value. Gold has done yeoman’s work as a store of value in the world of central bank hyperactivity resulting in negative real yields all over the globe. As gold prices have stagnated, investors have sought out other asset classes to supplant the need for increased risk and hopefully positive returns. Multinational corporations with high dividends have become the new store of value and the rush to unload traditional hard assets for productive real assets has gained traction. The Cypriot debacle scared global investors and sent them scurrying from bank deposits to corporate assets, with a higher yield via dividends and possible appreciation. (Especially if the assets are domiciled in a jurisdiction that has a court system that protects property rights.)



March 31, 2013

I make a distinct reference to the CASH HIGH S&Ps versus the S&P FUTURES has made an all-time high. According to the CQG charts, the all-time high in the S&P futures front month is 1586.75 and the high daily close is 1576.25. The CASH high is 1576.09 and the previous high CASH daily close was 1565.15, which was surpassed on Friday’s close. Here is a significant chart that shows the important difference between Friday’s close and the last record high close of October 9, 2007.



Notes From Underground: All of Germany is a “Tea Party”

March 27, 2013

For the last three years, this blog has made the point that a moral drama playing out on the global financial stage. The U.S. Tea Party was based on a concept of liquidating the assets of large debtors and letting the pain be absorbed by the financial system and those who have saved and played by the rules of capitalism will be rewarded. The moral precepts of the “original” Tea Party supporters may have been correct but the timing of favoring system-wide asset liquidation had long passed and the fallout would have led to economic collapse and possible political upheaval. The U.S. could not handle the massive unemployment from a forced deleveraging. While I am opposed to moral hazard in principle, the enforcement of punishing debtors at the expense of the entire system is absurd.


Notes From Underground: #Irony … Carmen Reinhart Says “Do Not Take Size As An Indicator of Importance”; Harry Rheems Dies

March 21, 2013

Okay, you must have some fun amongst the idiocy of the Eurocrats. It seems that the best intentions of last Friday night’s decision to sacrifice the pawns in the game have done exactly what I thought the ill-conceived plans would accomplish. For 10 billion euros of bailout capital the fallout has been large drops in equity values. The capital losses are small compared to embarrassment facing the European policy makers. In a Bloomberg article by James Neuger, “Europe Plays I-Didn’t-Do-It Blame Game on Cypriot Deposit Levy,” it seems that German FM Schaeuble, France’s FM Moscovici, Spain’s FM Guidnos and even Finland’s FM Urpilainen all claim that they were opposed to taxing the guaranteed deposits of under a 100,000 euros. They all seem to point to the ECB and IMF as wanting the “bail-in.” This is a classic example of what my friend Andy Schreiber used to say: “Success Has Many Fathers, Failure Is But An Orphan.” The Cypriot situation is a situation that punches way above its weight. Carmen Reinhart, an economist I cite regularly on financial repression, silenced the talking heads on CNBC  when she claimed that, “Do not take size as an indicator of importance.”


Notes From Underground: There Must Be Some way Out Of Here, Said The Joker to the Thief (Bob Dylan)

March 19, 2013

Yes, another day and the markets had to try to understand the significance of Cyprus. The newswires were filled with analysts claiming this was a “tempest in a teapot” and that the doomsayers were blowing the Cypriot problem into a pseudo crisis. Again, a world that is highly leveraged is subject to a “single spark starting a prairie fire” and the fear of contagion and an electronic bank run are very real if the major policy makers don’t invoke the trust of the electorate and investors. The perceived actions by IMF Director Lagarde (the joker) and the liquidationist mentality being thrust from Berlin and Chancellor Merkel (the thief) have created a situation where European bank depositors are nervous, especially so in the peripheral banks. THE MAIN COMPONENT OF THIS UNCERTAINTY WAS THE MOVE IN THE FRONT MONTH EURIBOR CONTRACTS,AS THE JUNE 2013 FELL 10 TICKS ON A DAY WHEN OTHER INTEREST RATES WERE LOWER. NOTHING SAYS BANK FEARS THEN A COUNTER MOVE IN THE EURIBOR AND LIBOR MARKETS. An increase in bank yields with equity markets falling is a sign about the fear in the bank deposits market. It seems that the policy makers that are leading the previously “revered” TROIKA (IMF,European Commission and ECB) have initiated fear for a mere pittance.


Notes From Underground: Raising The Specter of Secretary Robert Rubin (Turning Back the Hands of Time)

March 18, 2013

It was a very muddled and confusing day in the markets as the news wires carried numerous rumors. The Cypriots were going to approve the lunacy and then they weren’t  as the government couldn’t get the needed votes in parliament. Later in the day there was noise about a new compromise with the depositors with more than 100,000 euros bearing the brunt of the “TAX PLAN” and small depositors paying just 3 percent. The markets did not follow through with last night’s initial selloff and the U.S. equities tried to make a move higher late in the day but late selling pushed the markets down on the day by the close. The U.S. is fulfilling its role as a haven, but instead of bonds being the main recipient of global angst, it appears that frightened money is comfortable buying the asset base of U.S. corporations. Gold did perform as a haven but for all the turbulence in the market its rally was tepid. It seems that investors want an asset with some return rather than the mere store of value.


Notes From Underground: The Europeans and Cyprus … The Idea of 10 Billion Euros = Five Hundred Billion Euros

March 17, 2013

The lunacy of the IMF and German government have pushed the limits of bank bailouts and proceeded to create a need for bank BAIL-INS. The IMF, with German prodding, desired the depositors in Cypriot banks to absorb some of the costs of the long-delayed bailout. It seems at this time that depositor with less than 100,000 Euros will be “taxed” at  6.75 percent while those with holdings MORE THAN 100,000 EUROS will be “taxed” at 9.9 percent. This is wealth confiscation in an effort to  maintain the Cypriot financial system. DEPOSITORS WILL BE FORCED TO ABSORB LOSSES WHILE BONDHOLDERS WILL BE MADE WHOLE. There is no consistency in Europe: Greek depositors were left whole while sovereign bondholders were forced to take large haircuts. The efforts by the IMF and Germany and the ECB to sustain the Cypriot system, an amount of money equal to 10 BILLION EUROS is going to cost the global financial system possibly hundreds of BILLIONS of dollars. The immediate fallout from the weekend lunacy of the Eurocrats is causing large selloffs in global financial markets.


Notes From Underground: The Markets Continue Floating On A Sea Of Liquidity

January 28, 2013

The world’s equity markets continue to float on the continued liquidity provided by the world’s central banks. Last week the European markets saw short-term rise on the announced payback of LTRO (Long Term Refinancing Operation), which was money lent by the ECB to European banks to prevent the wholesale selling of sovereign and commercial debt that had fallen in value. The European Central Bank took the devalued bonds and provided the banks with cash euros. This prevented a total collapse of the sovereign debt markets. Now banks that are flush with liquidity are taking back the debt and paying back the EUROS resulting in a short-term tightening in the EURIBOR RATES. Prior to the last ECB meeting, I advised that the ECB could cut rates for the market had already priced in a rate cut. Last week’s action, while a tightening, is actually a market reversing expectations, which is why the global equity markets had so little reaction.