Monday, March 18, 2013

Cyprus Plays Hardball With Investors(UPDATED MARCH 19th), Shocks Economic Markets

 (UPDATED , March 19th, 1:00 pm)

Cyprus lawmakers have rejected the plan, depositors and investors get to keep their money, however, this means that Cyprus`s largest bank and the country itself are insolvent, technically bankrupt..
 "Cypriot lawmakers on Tuesday rejected a critical draft bill that would have seized part of people's bank deposits in order to qualify for a vital international bailout, with not a single vote in favor.
The rejection leaves Cyprus's bailout in question. Without external funds, the country's banks face collapse and the government could go bankrupt. Nicosia will now have to come up with an alternative plan to raise the money: the government could try to offer a compromise bill that would be more palatable to lawmakers.
The bill, which had been amended Tuesday morning to shield small deposit holders from the deposit tax, was rejected with 36 votes against and 19 abstentions. One deputy was absent.
"No to new colonial bonds, no to subjugation, no to national dishonor and raw blackmail," said house speaker Yiannakis Omirou during the debate before the vote.
After the vote failed, he said political leaders will have a meeting with the president on Wednesday to discuss the next steps."

I told you the investment class and others would start squealing, Cyprus Government will attempt to fashion another bailout plan, if they go the route of other Euro country bailouts extreme austerity and cuts to workers, cuts to retirees, cuts to healthcare and other services will occur, thus driving down their GDP and also result in higher unemployment and reduced Government income..Let`s call call it short term gain resulting in really long term pain..
I suggest that Cyprus just let their banks fail, of course that will result with investors and depositors losing just about everything.. They should copy what Iceland did)...

However, on a brighter note, this economic upheaval will lead the world one step closer to debt relief for countries, we can carry on down the road od countries borrowing more money than they could ever payback or move onto to something else..

There just isn`t enough money in the world floating around to pay off $150 trillion dollars of Government debt.


Be prepared for a sell-off today in all North American stock markets.

Europe is in dire straits as we all know, unemployment hovering at 30%, Italy requiring bailouts, France has run deficits for decades, Portugal in trouble, Greece in trouble, the UK in big financial stupor..

Yes indeed, and this is all old news, nothing to see here, move along, look the other way, except...

Except something very different has developed this weekend, past bailouts for European countries Greece, Portugal and others resulted in Governments of those bailed out countries being forced to inflict extreme austerity on the masses, on workers, on retirees, on students, healthcare and needed services, these draconian cuts on the masses has resulted in rising unemployment, lowered GDPs and reduced Government revenues, thus making matters worse..

The development this weekend that`s rocked the financial markets worldwide has been caused by the little island nation of Cyprus..???..Say what?

Cyprus requires a $13 billion Euro bailout, seems simple enough only with a twist, all bank depositers, people with savings are having money taken, without a choice, those who have deposits of $100,000 Euros or more are getting a 10% haircut, those deposits under $100,000 Euros are getting a 7% haircut, if you have a $million Euros you have just lost $100,000 Euros..

Cyprus, to get the needed bailout are making depositors pay for over half of it, they have no choice, and anyone thinking of pulling their money out are in for a surprise because.... a RUN-ON-THE-BANKS isn`t possible, the Cyprus banks have no money, it`s all been leveraged...Yes, theoretically a bank run could happen, resulting in Cyprus banks completely collapsing, if that happened most depositors would lose everything..

So what`s the big deal?..Why would little old Cyprus cause such panic, well, Cyprus have offshore bank tentacles, there`s a lot of Asian money in Cyprus banks..
 "After a period of what some experts have called "irrational exuberance" in global markets, the weekend decision by the euro zone to force bank depositors in Cyprus to contribute towards a bailout provided a stark reality check for investors on Monday.....

 Euro zone finance ministers want Cypriots with deposits of over 100,000 euros ($128,950) to fork out 9.9 percent of their savings while those with less than a hundred thousand euros will be hit with a 6.75 percent levy in order to raise 5.8 billion euros so that country will be eligible for an international bailout.
Investors are concerned that taxing depositors will set a dangerous precedent for the euro zone and ultimately risk runs on regional banks. The strategy may also provoke depositors in other debt-ridden nations to shift their money to "safer" European banks....

 ("The madness of this decision about Cyprus is unfathomable. We expect runs on Cypriot banks when they open on Tuesday [Monday being a bank holiday]. No sensible foreign depositor would continue to keep money in a banking system that just took nearly 10 percent of his deposit without any notice,") David. Kotok, chairman and chief investment officer, Cumberland Advisors wrote in a note to clients.

Beware: Euro Weakness Ahead

The Cyprus bailout, which has reignited concerns over the stability of the euro zone, has cast a doubt over the outlook for the single currency.
"The first example of deposit hair-cuts during the entire euro crisis has potential to make depositors in Portugal, Spain and Italy nervous, despite likely assurances from policymakers," wrote Jens Nordvig, global head of G10 Forex Strategy at Nomura."

"Dow Jones cited European officials as saying savers with 100,000 to 500,000 euros would face a 10 percent tax, while those with savings over 500,000 euros would be taxed at 15 percent. 

Under the original plan, every depositor under 100,000 euros would be taxed at 6.75 percent and those over that amount would face a 9.9 percent tax, Dow Jones said. 

European Central Bank board member Joerg Asmussen told reporters on the sidelines of a conference on Monday that it was for the Cypriot government to decide the structure of a levy on depositors, Reuters reported, but the overall volume of its contribution to the bailout had to amount to 5.8 billion euros." 


Little Cyprus is but a mere preview of coming attractions, the big picture show is, think of all the other European union countries waiting for bailouts, the precedence has been set, for other BIGGER Euro countries requiring BIGGER bailouts will be asked to do the same, to get a bailout those with monies deposited will be forced to pay, meaning the INVESTOR CLASS AND THOSE WITH WEALTH WILL BE PAYING THE PIPER...

To which I say..

It`s about bloody time!..

This is a positive step for average joes and janes and a hit to the investor class, it`s an acknowledgement that continued austerity isn`t working, it`s an admittance that hitting the workers and students, seniors and retirees is having the reverse effect..

Euro countries need bailouts, they have no ability to pay back these bailouts, until now, those who haveth will now payeth..And thus panic has set in..

And the news gets worse, there are reports that China has three big red flags waving, signaling that an economic crash is very close....2014 is China`s D-Day

"Chinese economy is exhibiting the same worrying symptoms that triggered the 2008 financial crisis.

The country's rapid buildup of leverage, decline in potential growth and elevated property prices, are three red flags that should not be downplayed, according to economists at the bank, Zhiwei Zhang and Wendy Chen.
"China faces rising risks of a systemic financial crisis and the government needs to take action quickly to contain such risks. We believe the true extent of financial risks in China is not fully appreciated by investors," Zhang and Chen wrote in a report released over the weekend....

  if China maintains a loose policy stance this year, this would heighten the risk of a financial crisis in 2014. Easy monetary policy risks pushing up inflation and leverage in the economy, making the eventual deleveraging process more disruptive.

"This is clearly a dangerous choice, but we cannot rule it out given political pressures to maintain strong growth," Nomura said in the report.

Leverage, a leading indicator of financial strain and measured as a ratio of domestic credit to gross domestic product (GDP), has reached its highest level since records began in 1978. This ratio was 121 percent before the financial crisis of 2008 and has risen to 155 percent in 2012, as a result of the government's fiscal and monetary policies to support growth.

 China's leverage rose by 34 percent of GDP in five years - a worrying sign given its history," they said, noting leverage in the U.S. rose by around 30 percent of GDP in the five years before entering a crisis.

Property Bubble?
Rapid property price inflation is the final warning sign in the economy, they said, noting that unusually strong increases in asset prices have typically preceded banking crises.

According to official data, housing prices have risen 113 percent from 2004 to 2012 in major Chinese cities. However, they deem the data highly "questionable" and "contradictory" to observations on the ground.

Citing a report by three professors in Tsinghua University and National University of Singapore, Nomura said property prices rose by 250 percent from 2004 to 2009, far outstripping the level of growth in the official index.

This compares to a rise of 84 percent for the Case-Shiller U.S. housing price index from 2001 to its peak in 2006.

Well well well...I can`t help but think about golden unicorns and shiny ponies.

And Christy Clark has been blathering to the world that China is going to provide British Columbia $trillions of dollars, eliminate our sales tax, eliminate our debt, provide $trillions into a BC prosperity fund so future generations can sit back while servants feed them grapes and massage their feet..

Well...Christy Clark might want to watch this...

Can you say Chinese Ghost Cities?

This could finally be a turning point for the better, maybe, just maybe Governments will start making those who caused the problem pay..

Monday March/18th is going to be a painful day for the investor class..

It`s my opinion that what Cyprus is doing is the correct thing to do, when investors and those with lots have to start paying reforms won`t be far behind, this may even lead to the eventual debt forgiveness and a fresh start..

However, you are going to hear the loudest bleating from the corporate and financial sectors, Cyprus we be ostracized, words like socialism and welfare state will be bandied around, investors, economic pundits and Wall Street will fight and snarl and predict doom and gloom.....Good thing there is 6.8 billion of us and only a 0.2 billion of them.....Let the pigs squeal and oink until they`re blue in the face..

Baby steps first.....

British Columbia`s LNG superpower dreams will dashed before our heads even hit the pillow..

The gist of this story is the message being sent, if you need a bailout pony up some cash, countries printing bonds at 6..7..8..% percent interest rates are unsustainable, short term gain for long term pain is insane..

This is a positive step......Regardless of what squealing investors say..

(UPDATED HERE...Yes indeed, the squealing has begun, ..

The Straight Goods

Cheers Eyes Wide Open


Anonymous said...

Thank you.... an insightful account of things to come.

Anonymous said...

That can't be true of Canada? Harper seems to have billions and billions in his coffers.

Harper just AGAIN, gave $60 billion to the wealthy corporations. Meanwhile Flaherty strikes again. He also says, giant wealthy corporations, are sitting on all of the money. So, what about this $60 billion for those giant corporations?

Canadian tax payers are buying homes for Harper's minions. That's how well they do on their expense accounts. However, Harper permits thieving, he does that himself.

I read an article, quite sometime back. Harper gave a speech on, Global Governance for Canada. The $60 billion fits. Harper being a Dictator fits. His lies, deceit, thefts and corruption fits. The idea is to create chaos around the world. We will need a Global Government, to stop wars and hunger. Equality for all, except for the 1%, they take all. Harper is certainly paying to the 1%, with our tax dollars. He has done so, for many years.

I disregarded the article as, far fetched. I am no longer too sure about that article now. The chaos around the globe fits too.

Anonymous said...

Politics, environment, economics, you my friend are never boring