The bailout rejected, what's next for Cyprus? Open Europe suggests the EU will allow a few days...


The bailout rejected, what's next for Cyprus? Open Europe suggests the EU will allow a few days for Cypriot MPs to get their minds right before the ECB thinks about cutting off funding for the country's banks (which would lead to their collapse). Or not. Reuters' Anatole Kaletsky notes the ECB needs two-thirds of its board to cut off ELA funding, and the Germans don't have the votes. "Time to get bullish ... German U-turn ahead!"

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Comments (126)
  • volosgirl
    , contributor
    Comments (20) | Send Message
     
    I'm proud of Cyprus finally a small nation of 1 mil stood there ground and told the Eurogroup NO NO NO .!
    19 Mar 2013, 03:29 PM Reply Like
  • schatzl
    , contributor
    Comments (391) | Send Message
     
    Ok, great, so you say no. Cyprus and their banks will be bankrupt in 2 weeks tops and most savers will lose all their deposits. If you're lucky you could be the new Iceland. Good luck!
    19 Mar 2013, 05:04 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    The ECB will provide liquidity.
    19 Mar 2013, 06:51 PM Reply Like
  • Joseph Stuber
    , contributor
    Comments (1740) | Send Message
     
    You are proud of them but they are stuck. Hell of a price to pay for standing their ground.

     

    Here's how this goes down. ECB ships euros to banks to the extent of their reserves - probably about 10% of deposits - which is what they meant by "provide liquidity". Banks liquidate assets at market that was purchased with depositor money. Depositors get that money on some sort of pro-rata distribution. The banks close down.

     

    This deal was orchstrated and the outcome calculated. This doesn't end well for Cyprus. They end up being the sacrificial lamb that tanks the euro - exactly what the plan was.

     

    So next question - is Bernanke in on the fix. Probably. Could see some hawkish statements tomorrow after FOMC meeting. We'll see.
    19 Mar 2013, 07:47 PM Reply Like
  • Teutonic Knight
    , contributor
    Comments (3362) | Send Message
     
    What if there is a bank run? I mean, if I am a Cypriot depositor, domestic or foreign, wouldn't I want to take everything out as early as this coming Friday?

     

    Shoot first, ask questions later.
    19 Mar 2013, 07:54 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    Joseph, Please. Germany doesn't want the Euro to collapse. It just wants to dominate all countries that use the Euro as currency. Now Cyprus has called Germany's bluff, and in the next couple of days we will see two things happening.

     

    1) Germany runs away with its tail between its legs
    2) Russia steps in to fill the power and financial gap

     

    As a result of these two developments, we will see a third one.

     

    3) A great bailout deal for Cyprus will emerge. There will be no liquidity crises. There will be no unfair punishment of non-Germans. The Euro will stay intact. The markets would rally.

     

    I give it at most a week for this to happen.
    19 Mar 2013, 07:54 PM Reply Like
  • Teutonic Knight
    , contributor
    Comments (3362) | Send Message
     
    Yeah, MI, great postulations. But wait a minute, if I were a depositor, do I trust anyone anymore? Do I not to take everything out when the two banks come open this Friday(hopefully)? Hey, who wants to be the last one jumping ship? You, MI?
    19 Mar 2013, 07:57 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    Oh sure, there will be capital flights. I expect about 15-20% of capital to leave the country. The ECB and Germany, of course, will have to pay for that too. Will serve them well.

     

    Ordinary Cypriots will need banks to lead their day to day lives. So they just won't be able to take all the money out, and keep it where? Mattresses?

     

    You know, this will be a great showcase for the limits of German power. Once Germany is snubbed thoroughly and still has to pay for the Cyprus bailout, that will embolden other Club Med countries, and we will start to get far better bailout deals. This actually may end up restoring financial stability in Europe.

     

    Look, Europe's problems are not complex. They just need QEternity like the USA, and also needs to follow some Keynesian economics of borrowing and spending. But Germany won't allow that, and Germany is way too powerful in EU now. Once German power subsides, things will get better.
    19 Mar 2013, 08:12 PM Reply Like
  • Stephen Aniston
    , contributor
    Comments (3476) | Send Message
     
    Germany is only 20% of the euro economy. France + Italy + Spain = 45%. In 2011, 2012 France was in Germany's camp. No more. Their economy is too weak and they can't support others anymore. Germany is in election year, which means no more bailouts. The non Germans now hold most of the cards and the ECB head is Italian. LTRO Maximus is coming to Europe this summer, Macro. Markets will rally, the euro will tank. Why do you think the French market has been defying gravity all this time?
    19 Mar 2013, 09:05 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    Damn straight, Stephen.
    19 Mar 2013, 09:15 PM Reply Like
  • jakurtz
    , contributor
    Comments (1959) | Send Message
     
    What good does it do Germany to "dominate" countries that are insolvent? Perhaps, they just don't want to keep bailing countries out, and they see no end to the situation as Italy is next in line. You are right, it is very simple, if the insolvent countries would like to stay in the Euro their people will pay part of the bailout through a taxation of deposits, if they wish to exit the Euro...good luck. Cyprus will be the first to exit and the other insolvents will follow. Germany does not need the current Euro zone make-up to continue borrowing money at 1%. The can kicking is about to end.
    19 Mar 2013, 09:26 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    I don't know, think about 20th century history. What good did it do Germany to try to dominate Europe then?
    19 Mar 2013, 09:55 PM Reply Like
  • TAS
    , contributor
    Comments (3700) | Send Message
     
    Must be easy to say no when you have spent OPM in a drunken orgy of corruption and unlimited welfare checks.
    19 Mar 2013, 10:59 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    Talking point of the day, eh?
    19 Mar 2013, 11:09 PM Reply Like
  • filipo
    , contributor
    Comments (4635) | Send Message
     
    Stephen,
    Indeed, Germany represents only €3,577 bn of GDP while Italy, France, Spain and Greece represent €4,233 bn.
    To pretend Germany is trying to dominate Europe as part of a deliberate plan is simply preposterous. Who says so has watched too many WWII movies.
    To put things into perspective, here's an interesting BBC article on the origin of Cyprus' astonishly rich banking accounts:
    http://bbc.in/11cUQQx
    What puzzles me is how they will put Putin aside now that his attention is arisen on the vast riches of some of his compatriots stashed abroad.
    LTRO is also what I think will be the tool they'll try out.
    19 Mar 2013, 11:26 PM Reply Like
  • filipo
    , contributor
    Comments (4635) | Send Message
     
    Macro, you definitely watched too many WWII movies.
    Which one is your favourite ?
    "The Battle of Britain" ?
    19 Mar 2013, 11:28 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    filipo, You really believe that Germany is not calling the shots in the EU?

     

    Seriously?

     

    I can quote 10 independent news sources that will corroborate that the whole Cyprus BS was the brainchild of Germany. Can you quote one - just one! - independent news source that says that Germany had nothing to do with the Cyprus BS?

     

    Look, I respect you, but I can't continue to respect someone who just wouldn't own up to the very simple fact that Germany is trying to force its will on the rest of the EU countries.
    19 Mar 2013, 11:57 PM Reply Like
  • Aristiphones
    , contributor
    Comments (1325) | Send Message
     
    i for one hope they are actually. "even better. They can claim it was an accident this time."
    20 Mar 2013, 12:13 AM Reply Like
  • Aristiphones
    , contributor
    Comments (1325) | Send Message
     
    "Germany will exit. The end!" roll the credits, "it was great while it lasted."
    20 Mar 2013, 12:13 AM Reply Like
  • Aristiphones
    , contributor
    Comments (1325) | Send Message
     
    REALLY? wow. hmmm. "and Germany with it's massive..." is it 6 percent unemployment?" looks like it's going the way of Spain and Italy! NOT.
    20 Mar 2013, 12:14 AM Reply Like
  • Aristiphones
    , contributor
    Comments (1325) | Send Message
     
    that's provided the banks ever open actually...
    20 Mar 2013, 12:14 AM Reply Like
  • pbppbp
    , contributor
    Comments (134) | Send Message
     
    Iceland bailed out the people and not the banks.
    20 Mar 2013, 01:14 AM Reply Like
  • pbppbp
    , contributor
    Comments (134) | Send Message
     
    Yes, Germany backs down.
    20 Mar 2013, 01:15 AM Reply Like
  • Whitehawk
    , contributor
    Comments (3121) | Send Message
     
    Sounds like Ms. Lagarde may have been sent a gift basket by IMF bailout friendly stakeholders. Beats a dead horse.
    19 Mar 2013, 03:36 PM Reply Like
  • RSI Raistlin
    , contributor
    Comments (466) | Send Message
     
    welcome to throwing money down cold dark black holes ECB.....collateral? Ha! Never heard of it!
    19 Mar 2013, 04:06 PM Reply Like
  • minecanary
    , contributor
    Comments (1205) | Send Message
     
    Who has loans outstanding to the 2 Cyprus banks that are going to fold? They will be driving the next step.
    19 Mar 2013, 04:08 PM Reply Like
  • Russ Winter
    , contributor
    Comments (690) | Send Message
     
    Germany Choking on Zombie Bailout Economics:

     

    http://bit.ly/ZQZQYr
    19 Mar 2013, 04:12 PM Reply Like
  • Nolesince87
    , contributor
    Comments (259) | Send Message
     
    "to get their minds right"? The dumbification of America continues.. thank-you RAP MUSIC!
    19 Mar 2013, 04:32 PM Reply Like
  • Hyrcania
    , contributor
    Comments (48) | Send Message
     
    I actually heard that first in Cool Hand Luke.
    19 Mar 2013, 05:30 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    Germans respect force. They will do an about turn now. All bullies do. In fact, Germany has a century of history indicating that they would bully others but bail when pushed back.
    19 Mar 2013, 04:34 PM Reply Like
  • filipo
    , contributor
    Comments (4635) | Send Message
     
    There are different possible scenarios :
    http://bit.ly/139kFG4#

     

    However, whatever the outcome, the main drive and goal seems to be harmonization of EU taxes, call it fiscal unification :
    http://bit.ly/YTbh4n
    Sorry to my American friends, you'll have to learn a few words "de la langue de Molière" to understand this very interesting article.
    19 Mar 2013, 05:35 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    filipo, The Northern European countries will blink. This is the first time they are asked to shove it, and shove it they will. This will also set a great precedence for Greece, Italy, Spain, etc., and may finally break the German hegemony. That will be good for EU at large. As I have told you many times, the only way for an union to work is for the rich countries to subsidize the poor countries, just as in the USA the rich states subsidize the poor states. There is no other way.
    19 Mar 2013, 06:54 PM Reply Like
  • pollyserial
    , contributor
    Comments (1113) | Send Message
     
    I agree here. But the big difference, Macro, is that they are not in any way shape or form member states of a union. They have bad blood that goes back centuries. The Euro zone was great in good times but in bad times they will crucify each other. The bad times are here.
    This will be very interesting for the Italian discussion, which is ongoing and is the real substance behind this negotiation. No one gives a rat's ass about Cyprus. But the terms for Cyprus will define the terms for Italy, and that is a very big deal.
    19 Mar 2013, 07:52 PM Reply Like
  • filipo
    , contributor
    Comments (4635) | Send Message
     
    Macro,
    Not sure it will turn out that way: it's a German election year and bailouts of profligate states aren't so popular these days in Germany anymore. They know if they bailout Cyprus now, they'll have to do it tomorrow for Italy, Spain, France....
    I told you before, look at the numbers: German GDP simply isn't powerful enough to keep on subsidizing all those with current account deficits.
    Besides, what will the Russians do ? That is the only question that still worries me. The Russians never gave up their interests in the Mediterranean and now that this Cyprus-goose comes flying into their open mouth, it could be very attractive for them to catch that bird.
    The more some people criticize the Germans for wanting to dominate Europe, the more they add to the probability of the Russian fleet to be the triumphant third dog who robs the bone. Be careful what you wish for: American interests are at stake.
    19 Mar 2013, 11:41 PM Reply Like
  • filipo
    , contributor
    Comments (4635) | Send Message
     
    polly,
    You're right. It all started going terribly wrong when they implemented this damn euro-business.
    19 Mar 2013, 11:46 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    filipo, First it was morality, then it was punishing the Russian mafia, and now it is in US interest to rob ordinary Cypriots? Come on, this is getting a bit ridiculous don't you think?

     

    Anyway, so you think now German politicians will have to face the challenge of passing a deeply unpopular financial measure? Ho, ho, ho! The shoe should fit well on the other foot, no?

     

    Germany knows very well that it needs the Euro and the EU. So the politicians will ultimately do the "right thing" and pass a deeply unpopular financial measure. If they have trouble doing that, they should take some lessons from Greece. After all, Germany gave the Greeks a lot of practice in passing unpopular measures, no?

     

    The irony, of course, is that Germany doesn't have to bail anyone out. All Germany has to do is to drop the austerity dogma and give OK to the ECB to print, print, and print to buy sovereign bonds all over the EU. Of course, Draghi is already doing that despite Germany's complaints.

     

    What EU needs is a good, old-fashioned QEternity. The main issue in the EU is lack of Keynesian style pumping. The whole dogma of only spending what you can raise in taxes is old and wrong.
    20 Mar 2013, 12:31 AM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    pollyserial, I completely agree. Europeans are not ready for one country till they stop thinking of themselves as Germans and Italians and start to take care of each other. Thank goodness I am an American.
    20 Mar 2013, 12:33 AM Reply Like
  • schatzl
    , contributor
    Comments (391) | Send Message
     
    Where to even begin....

     

    This is probably one of the most ignorant and dumb posts I've read on here.

     

    Let me see... since you feel so comfortable with prejudiced bigotry: Americans are fat and ignorant? English have bad teeth and their birds are ugly? French are lazy and their birds don't shave?

     

    This is a serious economic website. Please keep your ignorant drivelling psycho-babble to yourself in future. Thank you.
    20 Mar 2013, 03:45 AM Reply Like
  • Stephen Aniston
    , contributor
    Comments (3476) | Send Message
     
    Macro, thank goodness you are not a Texan!
    20 Mar 2013, 05:20 AM Reply Like
  • filipo
    , contributor
    Comments (4635) | Send Message
     
    Macro,
    "Of course, Draghi is already doing that despite Germany's complaints."
    So what are YOU complaining about then ?
    You are an absolute master in altering other people's words. I did not say it is in the US interest to rob ordinary Cypriots. I said be careful not to bash the Germans too much or the Cypriots might think it's safer to seek shelter under the Russian umbrella.
    BTW, it appears they practice austerity in your US paradise as well. Didn't they raise taxes ? Not very Keynesian if you ask me.
    20 Mar 2013, 08:56 AM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    "I said be careful not to bash the Germans too much or the Cypriots might think it's safer to seek shelter under the Russian umbrella."

     

    You think the Cypriots would seek help from the Russians not because of what Germany dished out to them, but because of the international reaction to it?

     

    This is like saying an abused spouse would call the cops not because his/her SO is beating him/her up, but because the neighbors disapprove of the beating.

     

    Please, filipo, your position is getting more absurd by the minute.

     

    Raising taxes on the rich who save most of their money is fine. To stimulate demand you have to shovel money into the hands of the poor.
    20 Mar 2013, 09:06 AM Reply Like
  • filipo
    , contributor
    Comments (4635) | Send Message
     
    Macro,
    The Cypriotic attitude is meant to take the best of two worlds. One cannot blame them therefore, on the contrary.
    They try to get credits from Russia and they try to do the same from the EU to save their Laiki-bank. Iceland did the same: they even offered Russia a seaport to their submarines in exchange for credits. The US (rightly) intervened and the party did not substantiate.
    Now if YOU give the Cypriots the feeling that Germans are but bullies seeking to enlarge their influence to the detriment of other European nations, you give the Cypriots a convincing argument to go look for their happiness in Russia, moreover you probably wouldn't care if they did.
    I do not hold you personnaly responsable for this eventuality, and the fact that you utter these nonsense indeed probably do not affect Cypriotic judgment. But that doesn't mean one hasn't the duty of having a clear judgment oneself.
    Especially since the Germans don't have that expansionist goal you claim they would have at all. All they want is states in the EZ behaving in a financially orderly way, now that they are stuck with them in a currency union (a thing they deplore). For the Germans being bullied at by you isn't pretty either: it's like the Jews in WWII: first they had to give their money to the indebted state and then they were bullied at (and killed).

     

    "Raising taxes on the rich who save most of their money is fine. To stimulate demand you have to shovel money into the hands of the poor."
    Well, that's exactly what the EU wanted to do: 9.9% tax on the very rich (accounts of +100,000) and 0% tax on accounts -20,000 to stimulate demand.
    Since the Cypriotic state is very poor, this scheme that you propose is precisely what the EU wants.
    It's not the first time you contradict yourself.
    20 Mar 2013, 11:55 AM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    filipo, I contradict myself? I was talking of **income** taxes as you raised the topic yourself. Bank deposits should never, ever be taxed. Period. Perhaps in a dictatorship - but not in a democracy. Of course, no wonder Germany is playing the role of dictator.

     

    Now, as for Russians having a port in Cyprus, if Germany is worried about that they should simply bail Cyprus out without asking any questions.

     

    As for Germans not wanting to dominate any country - are you kidding me? Merkel threw out Berlusconi - I showed you the news reports and you never responded. According to you, all the Germans want is for all other EU countrie to just act like Germans. And that is not dominating all the other countries?

     

    I think you are super biased here and simply ignoring facts.
    20 Mar 2013, 03:17 PM Reply Like
  • Teutonic Knight
    , contributor
    Comments (3362) | Send Message
     
    This is just a head flake and an orchestrated drama. Go all in now if you have not done so. Extremely bullish; the wonder boy is strong, and in firm control. Go now!
    19 Mar 2013, 04:42 PM Reply Like
  • pollyserial
    , contributor
    Comments (1113) | Send Message
     
    You are mad and drunk on QE, sir. I did go mildly long today at 1540 but only using calls. Anyone all in and un-hedged at this juncture has a vastly different relationship to capital preservation than I do. I see a good chance that we hit 1575 for no particularly good reason except that shorts need to get crucified and big longs need to unwind, but that is IMO the edge of the cliff.
    19 Mar 2013, 07:53 PM Reply Like
  • schatzl
    , contributor
    Comments (391) | Send Message
     
    What some here don't understand, is the corroding willingness to play the paymaster. Politicians may make the U-turn IF they are willing to risk getting voted out. Germany will play the paymaster even to Russian tax dodgers and criminals only as long as its voters are willing. There is a rising undercurrent of resentment and frustration amongst Germany's voters. Don't expect the political landscape to remain stable in Germany - especially after a scenario where Germany bails out Russian oligarchs. If Germany ever decides to leave, all those in the periphery will be in for a nasty surprise. And no, a weak currency will not solve 60% youth unemployment.
    19 Mar 2013, 05:19 PM Reply Like
  • filipo
    , contributor
    Comments (4635) | Send Message
     
    You are absolutely right, Schatzl:
    Only idiots don't understand that endless bailouts of tax dodgers and criminals eventually get very frustrating.
    Even the French have some sympathies for the German paymaster:
    http://bit.ly/139m1AT
    19 Mar 2013, 05:44 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    filipo, Don't make an economic argument into a moral argument.
    19 Mar 2013, 06:55 PM Reply Like
  • Ray Lopez
    , contributor
    Comments (1816) | Send Message
     
    But economics and morality are intertwined. After all, slavery is economically efficient, as it pays for itself. As for Cyprus, this shows that people are either irrational, or prefer a disorderly default or hyperinflation to a deflationary 'tax on deposits'. Should be interesting. I'm neutral personally as I just pulled out all my money from Greece--and it took several months to do so due to legal hurdles set up by Greek banks. Close call but I got out just in time.
    19 Mar 2013, 07:58 PM Reply Like
  • Teutonic Knight
    , contributor
    Comments (3362) | Send Message
     
    Yeah, re: "...After all, slavery is economically efficient, as it pays for itself.."

     

    Lo and behold, we must first recognize the beauty of slavery.

     

    Let us pray for a Dream Act to re-enacting slavery here now; make it open to all skin colors, Equal Opportunity if you will.

     

    Yeah, Amen and Amen.
    19 Mar 2013, 08:08 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    Slavery is hardly economically efficient. It creates no incremental demand for goods and services as slaves have no money, and hence can't increase the velocity of money. Come one guys, this is basic monetary economics.

     

    Of course people prefer inflation to deflation. Inflation increases standard of living while deflation destroys it. This is because inflation increases demand while deflation reduces demand. You think it is irrational to want a better standard of living?

     

    I don't.
    19 Mar 2013, 08:15 PM Reply Like
  • june1234
    , contributor
    Comments (4262) | Send Message
     
    5 yrs. ago Iceland did say no and today they have a 5.4% unemployment rate better then the US. This scene is playing out all over Europe. As one restaurant worker in Rome said during their elections the "comedian" is just saying what most in Italy are thinking. These deals are zombie deals for all these countries.They wont put up with it forever. Ben, Dragi and co will be putting the screws to them as they have with every other PIGS country.
    19 Mar 2013, 05:21 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    What does Ben have to do with this?
    19 Mar 2013, 06:56 PM Reply Like
  • scchan.2009
    , contributor
    Comments (215) | Send Message
     
    Ben is probably face-palming in what is happening, while Krugman and Soros showing a nasty smirk.
    19 Mar 2013, 07:08 PM Reply Like
  • pollyserial
    , contributor
    Comments (1113) | Send Message
     
    Well in the sense that he owns a significant portion of the EU debt at this point...... (that would be the 'other' category on the fed balance sheet)
    19 Mar 2013, 07:56 PM Reply Like
  • scchan.2009
    , contributor
    Comments (215) | Send Message
     
    I would have voted no.

     

    It will be funny that a silly island in the far south east corner showing ECB, IMF, and Berlin the middle finger. Who knows if Cyprus be the first nation to leave Euro zone? It'll be funny.
    19 Mar 2013, 07:12 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    This is what Greece should have done.
    19 Mar 2013, 07:13 PM Reply Like
  • scchan.2009
    , contributor
    Comments (215) | Send Message
     
    Now I really hope this whole mess won't escalate further. Somehow my Dark Side is telling me that this little island at the corner of Europe is the hideout for the next big stock market bear (laugh).
    19 Mar 2013, 07:42 PM Reply Like
  • phdinsuntanning
    , contributor
    Comments (1342) | Send Message
     
    the German European Empire tried to size the money from
    Russia´s Cayman Island, in exchange the natural gas probably
    will be developed by an Israel/Russian joint venture, Syria
    will remain well "protected" from the western influence and
    probably Cyprus will be the first country to leave voluntary
    the Euro and adopt rubles or the Cypriot peso.
    19 Mar 2013, 07:16 PM Reply Like
  • scchan.2009
    , contributor
    Comments (215) | Send Message
     
    The fact there are so much Russian money is stashed in Cyprus is a show how poorly regulated the European banking system is. It furthers the argument that a pan-European banking union and regulatory environment are necessary to make sure Euro is a viable currency. Yet Europe is unwilling to address the elephant in the room, and now opt for a "solution" that is risky.
    19 Mar 2013, 07:48 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    Why is Russian money in Cyprus a problem?
    19 Mar 2013, 07:55 PM Reply Like
  • scchan.2009
    , contributor
    Comments (215) | Send Message
     
    It is not Russian money itself is a problem, the perceived money laundering is the problem. If people have faith in the regulators, no one would care about having Russian money there. However, there is no faith in the regulators, and that mixes up with stereotypes. That leads to an incorrect political response to contain the Cyprus crisis.
    19 Mar 2013, 08:01 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    There is nothing you can do about perceptions of nosy people who are prejudiced against Southern Europeans. But you can't take it seriously and must slap it down whenever you see it.
    19 Mar 2013, 08:17 PM Reply Like
  • Retired User
    , contributor
    Comments (1790) | Send Message
     
    "Russia is a major player in the Cyprus banking scene, with at least one third of all bank deposits being made by Russians. Indeed, Russia has turned the island into its preferred offshore banking center over the past twenty years; Cyprus is today a major foreign investor in Russia, a reflection of the money that transfers in and out from Russia through the Cyprus banking system." [evasive, disingenuous mischaracterization by Time.com]

     

    Cyprus is an English rule of law jurisdiction. Big Russian companies like Norilsk Nickel transact $B sales to Western buyers through Cypriot banks.
    19 Mar 2013, 10:29 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    Big Russian Company means mafia in German.
    19 Mar 2013, 10:35 PM Reply Like
  • tuliptown
    , contributor
    Comments (1561) | Send Message
     
    Doesn't this mean that the printers must print Euro's in Berlin?

     

    US has california and illinois. We would never let them go bankrupt any more than the EU can let a 'state' go bankrupt. They will print a trillion or so euro's and that will cause inflation that will eventually make the debts in PIIG nations look small.
    19 Mar 2013, 07:49 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    That would only work if the Germans allow it. The Germans like pain. So they won't allow it.
    19 Mar 2013, 07:55 PM Reply Like
  • filipo
    , contributor
    Comments (4635) | Send Message
     
    German enthusiasm for this euro-adventure is at the lowest. It's a popular delusion to think Germans like pain. Especially people who have been watching too many SS-videos are susceptible to beleive that bs.
    For the moment Germans want to get rid of those ticks on their skin. They're getting sick and tired of the eurozone.
    20 Mar 2013, 12:04 AM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    Is that why 76% of Germans want to the EU to remain intact?
    20 Mar 2013, 12:09 AM Reply Like
  • thechaser
    , contributor
    Comments (758) | Send Message
     
    sa as usual in your misleading bullish rah-rah mode looking i guess for your tripadvisor style ipo so you can join the msm;

     

    go do your homework and READ IN ENGLISH the details behind the Emergency Liquidity Assistance provisions and you will find two very important facts;

     

    one, it only applies to the particular institution provided said institution has met the criteria necessary to be considered for assistance AS PROVIDED BY THE NCB (national central bank that oversees the specific institution);

     

    two, it only applies in full where there exists defined collateral whose value is ACCEPTED by the ECB

     

    forget whether ELA is available or whether 15 of 23 will vote to rescind it; it cannot and will not be used in an across the board fashion including institutions which do not qualify as being in trouble

     

    a few billion euros is a bloody tip for the trillions so far dished out; this is being pushed for far deeper reasons than any of us can reasonably fathom or know by some reference in some blog
    19 Mar 2013, 07:58 PM Reply Like
  • pollyserial
    , contributor
    Comments (1113) | Send Message
     
    I agree with this.

     

    And, the euro-zone will shrug, publicly, and Draghi will flex, and stability will probably not be far away.

     

    But Italy -- and in particular 5SM -- is watching. That has to scare the bejeezus out of all of the bankers. It scares me, and I don't even own any of the 2 trillion in Italian Debt. Lehman is a gnat next to a voluntary Italian default.
    19 Mar 2013, 08:03 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    Exactly. The ECB needs to make sure that Italy doesn't default. The way to ensure that is to buy as much Italian bonds as it can lay its hands on. EU needs QEternity.
    19 Mar 2013, 08:19 PM Reply Like
  • Tricky
    , contributor
    Comments (2326) | Send Message
     
    Very interesting writeup

     

    http://bit.ly/146zOHq
    19 Mar 2013, 08:34 PM Reply Like
  • Retired User
    , contributor
    Comments (1790) | Send Message
     
    Good link. Thank you.
    19 Mar 2013, 10:38 PM Reply Like
  • filipo
    , contributor
    Comments (4635) | Send Message
     
    Tricky,
    excellent article, thanks for the link.
    20 Mar 2013, 12:22 AM Reply Like
  • Tricky
    , contributor
    Comments (2326) | Send Message
     
    My pleasure.

     

    I wish some of this thread's "comment warriors" would read it.
    20 Mar 2013, 09:45 AM Reply Like
  • Eighthman
    , contributor
    Comments (356) | Send Message
     
    I fully agree with the dominant opinion here. Germany and the ECB will capitulate and Cyprus will get what it wants.

     

    There are other factors at work here involving the Russian Mafia. Even Gartman warns that people could get killed if they don't cooperate.
    This situation will create a degree of moral hazard unseen in all human economic history as Italy, Spain, Ireland and all can do as they wish because of Euro-Cowardice.

     

    With their banks capitalized 1 to 26, They Have No Choice but to print Euros with wild abandon. As Jim Cramer said, "we all know this will not end well". Indeed.
    19 Mar 2013, 08:47 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    I agree. We can't let anybody but North European countries do what they want to do, as long as Germany allows it, of course.
    19 Mar 2013, 08:54 PM Reply Like
  • goomba
    , contributor
    Comment (1) | Send Message
     
    yes germans are bad, very bad but why should cyprus and the greece etc look to germans to bail them out? If u want the money from the bully, u better listen to them. I am sure a 64 yo german is tired paying for the pension plans of 50 yo greek
    19 Mar 2013, 11:54 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    Ever heard of the term riding the tiger? Germany should have thought it through when they decided to introduce the Euro as a way of controlling any country that adopts it.
    20 Mar 2013, 12:34 AM Reply Like
  • filipo
    , contributor
    Comments (4635) | Send Message
     
    Macro,
    you are so ignorant. That beats it all.
    Did you not know it was the French and the Italians (and the Belgians and Dutch) in the first place who were the driving force of that euro-experiment ? Germany was very reluctant because it meant for them they would have to give up their strong currrency.
    It's people like you who are at the start of wars.
    I pity you. I knew the level of historic knowledge in the US was very low, but this is absolutely stunning.
    20 Mar 2013, 09:05 AM Reply Like
  • FTFirst
    , contributor
    Comments (82) | Send Message
     
    It's simpler to look at this from big-picture economic fundamentals than try to predict each movement of the ping-pong ball.

     

    Can the Euro survive long-term? .. Not without miracles. Anyone here expecting miracles? .. QEternity might work medium-term, but it's not miraculous.

     

    Is Germany smart enought to realize the Euro can't survive long-term, and maybe not even medium-term? .. I think so.

     

    Is Germany smart enought to start planning and executing an exit before chaos descends? .. I hope so. [Germany is promised NY gold in 7 years, maybe they can pay a 10% depositor tax to get express/overnight delivery?]

     

    Is this Cyprus episode "real" or some kind of "charade" or "distraction" or "gaming" while Germany prepares its exit? .. You decide.

     

    What does Russia know, and when did they know it? .. Every story needs a mystery. Bond movie, anyone?
    20 Mar 2013, 02:26 AM Reply Like
  • permanent
    , contributor
    Comments (448) | Send Message
     
    I would not bet on a German U turn. The federal election is coming up in September and a new anti € party is forming in April and already gaining a lot of momentum before it is officially founded. Merkel has to keep that in mind if she does not want to risk new strong competition.
    20 Mar 2013, 05:31 AM Reply Like
  • permanent
    , contributor
    Comments (448) | Send Message
     
    Germans don´t want to start the printing press any faster than it is already running. That is just historically very ingrained. The old Bundesbank system was probably one of the most stable monetary systems in the world. Unfortunately the ECB did not walk on that path for a very long time.
    In the end there was just to much cheap money for to long of a time period. Consumers got tempted to live above their needs.
    In the US it started with Alan G. who just did not want a clearing recession to clean the road for the next period of growth. Instead he threw money at the consumer to keep them running on steroids. Same thing happened in the PIGS countries. After the implementation of the Euro money got cheap, the hunger for consumption grew to be a massive problem.
    The healing process is painful and has to be assisted by the central banks if we don´t want to see a Weimar kind of event to happen.

     

    But keep in mind the German federal elections in September. The outcome may be a game changer.
    20 Mar 2013, 09:33 AM Reply Like
  • Stephen Aniston
    , contributor
    Comments (3476) | Send Message
     
    I just have to laugh when I hear that the Germans are home to a stable monetary system. The Weimar Republic was in Germany, hello! Germans do what they want, if printing is what they want, they will print. The issue Europe has now is that Germans produce premium products marketed to the rich and they can handle a strong euro and premium prices. German economy is relatively unaffected by strong euro. France, Spain and Italy, on the other hand, produce products targeting the mass consumer so they have a much harder time with a strong euro. Germany will lose this monetary standoff in the end as soon as their own economic numbers turn sour in the spring and summer.
    20 Mar 2013, 11:13 AM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    Spot on. Also, the Mark was stronger than the Euro so actually from Germany's perspective Euro is a weaker currency which helps their exports.
    20 Mar 2013, 11:20 AM Reply Like
  • jakurtz
    , contributor
    Comments (1959) | Send Message
     
    "German economy is relatively unaffected by strong euro."

     

    That is right. And they need to be part of the Eurozone now like they need cancer. At the start of the financial crisis it was fine because they received a lot of cheap money but they are all too familiar with hyperinflation as you aptly noted in your reference to the Weimar (but its not the '30's anymore) and so it is time for the insolvent south to get a nice cheap currency with the hardworking french as their leader. It will bring back their tourism economies and pay-off their monstrous debts after the uninsured bondholders get a juicy haircut while the north will get a strong stable currency better for high-end industrial manufacturing. Plus, the southern Europeans will be so pleased with their inflation as long as they are rid of that terrible, terrible country that kept bailing them out of their messes.
    20 Mar 2013, 11:30 AM Reply Like
  • filipo
    , contributor
    Comments (4635) | Send Message
     
    Macro,
    As always, you're completely wrong. The weak euro has never been Germany's goal to help their exports, it's the consequence of the Club Med profligation.
    In fact the Germans would prefer a stronger currency and less exports. You have no idea at what cost the Germans have to work to obtain these exports. Otherwise you wouldn't talk like a headless chicken.
    20 Mar 2013, 12:03 PM Reply Like
  • filipo
    , contributor
    Comments (4635) | Send Message
     
    Stephen,
    permanent was right if he had added "since WWII and the reorganizations of their central banker Schacht."
    The Weimar-debacle has for ever traumatized the Germans in a degree you cannot imagine. It's stuck in their genes. Not willing to understand this and laughing at them like if they were all neo-nazi idiots, is very intolerant and haughty.
    I wish the US would experience a same hyper-inflationary experience, that would teach them. But of course that will never happen as long as the $ is the reference currency. Lucky bastards.
    20 Mar 2013, 12:10 PM Reply Like
  • Stephen Aniston
    , contributor
    Comments (3476) | Send Message
     
    But the US has never experienced hyper inflation like that, did it? And you think it is a coincidence? It is also a coincidence that the US can produce drones while the rest of the world can't. It is also a coincidence the US has the reserve currency of the world in which everything is priced. It is also a coincidence that New York was building skyscrapers while Europeans was digging themselves in ditches to fight for what? Pride? It is also a coincidence that all the software and hardware you use is conceived and sold to you by American companies. It is also a coincidence that the US can make aircraft carriers and heavy machinery and whips the butt of all
    European companies that try to compete. It is also a coincidence that the US economy is 5-6 times larger than unified Germany. It is also a coincidence that the best want to come and excel in America and not Germany. There are a lot of coincidences. If you ever lived in America and dealt with the true hard-working never-sleeping never-taking-a-day-off Americans who make America great, you wouldn't be so confused to think that it is a coincidence, but instead a fine and deliberate achievement that took decades to accomplish.
    20 Mar 2013, 01:36 PM Reply Like
  • Stephen Aniston
    , contributor
    Comments (3476) | Send Message
     
    And at least say thank you that the US Navy is keeping the world's shipping routes free for trade. Last time the Germans did anything in the oceans was to sink ships left and right. Thank god the reserve currency is the dollar and not the mark. Otherwise the world be in one never ending financial crisis like the Eurozone.
    20 Mar 2013, 01:40 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    "In fact the Germans would prefer a stronger currency and less exports."

     

    Of course. That's why the export-oriented economy of Germany keep whining about the export-oriented economy of Japan weakening the Yen deliberately.

     

    But hey, filipo said that Germans actually want less exports. So it must be true. Germans want less jobs and less exports.
    20 Mar 2013, 03:19 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    "The Weimar-debacle has for ever traumatized the Germans in a degree you cannot imagine. It's stuck in their genes. Not willing to understand this and laughing at them like if they were all neo-nazi idiots, is very intolerant and haughty."

     

    Perhaps collective therapy is needed?
    20 Mar 2013, 03:20 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    "If you ever lived in America and dealt with the true hard-working never-sleeping never-taking-a-day-off Americans who make America great, you wouldn't be so confused to think that it is a coincidence, but instead a fine and deliberate achievement that took decades to accomplish. "

     

    Well done Stephen. Two thumbs up.

     

    I thank my lucky stars every day that I am an American and not an European.
    20 Mar 2013, 03:21 PM Reply Like
  • filipo
    , contributor
    Comments (4635) | Send Message
     
    Stephen,
    Indeed, the US never experienced a hyperinflation like the Weimar inflation. Instead, the US experienced a deflationary experience in the 19thirties. The US have been traumatized by deflation. That's why they now apply a different medicine than deflation, f.i. QE. Bernanke explicitly said so.
    Hence, since WWII it's in the US genes to fight crisises with monetary easing.
    So I certainly won't say it's a coincidence, on the contrary, it's the consequence of historical facts.
    I certainly have never questioned (and I never will) the scientific, intellectual, military or economic preponderance of the US over any other country on earth. I take this SA forum as a model. No other language (Spanish, French, German...) offers something of comparable high level.

     

    When I said "lucky bastards", I meant to say that no other nation on earth can pay itself the luxury of (mis)treating it's currency the way the US do, because they have a reference currency, used by more than half of the world. One would need to print tens of trillions of $$$'s before causing inflation. Hence, the medicine the US adopt to fight their economic downturn is simply not applicable to other countries. It works without inflationary consequence for the US, but it would not work for any other country whose currency evidently is no reference currency.
    I did not mean that the great US accomplishments are the result of coincidence. They indeed are not.
    My best friends emigrated to the US, so I have every reason to acknowledge the vast opportunities that lay in your country.
    By the way, I feel very comfortable under the US military umbrella too. I have no need to question that. My father has fought in the resistance against the Germans during WWII (got his training in Ireland), but that didn't refrain him from being compassionate and acknowledge that the nowadays Germans are other people than those of WWII.
    Actually it was my father who taught me to be compassionate by sending me as an 18 year old to one of his German business relations to learn German.

     

    I'm sorry if what I wrote has been misinterpreted by you. My poor English is probably the cause.
    20 Mar 2013, 03:48 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    You know filipo, One only wishes that Northern Europeans, especially Germany, was that compassionate when it came to Southern Europeans.
    20 Mar 2013, 03:52 PM Reply Like
  • filipo
    , contributor
    Comments (4635) | Send Message
     
    Macro,
    But they are: they just sent a check of €10 bn with the only condition that the Cypriots (and Russians) would pay for the other €7 bn.
    And hardly one year ago did they pay €40 bn to Spain to bailout Bankia, Spain's largest mortgage bank.
    And around the same time they paid €40 bn to Greece to bailout that country.
    20 Mar 2013, 03:58 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    filipo, Not really. They extracted ridiculous amount of concessions in exchange for the money. Compassion doesn't call for concessions.
    20 Mar 2013, 04:08 PM Reply Like
  • Stephen Aniston
    , contributor
    Comments (3476) | Send Message
     
    Ok, cheers, fillipo. Just one more comment. QE is not printing money. It is more of a way to instill financial calm and certainty in the markets since deflationary periods in the past have crippled the economy. Real printing of money is done by the banks (that's why dollar bills are called "bank notes"). Credit creation in the US has been very constrained the past 5 years. In fact, M2 which is the broadest measure of money supply has been growing at 6% a year in line with the historical rate of growth. So nothing unusual has actually occured. Inflation expectations as telegraphed by the rise in gold price have proven to be false positives. Price increases in food and gas over the past 5 years are roughly in line with any comparable 5 year time period in the past when the economy was doing well be it the 80s, 90s or 2000s. In 1980 gas was 50 cents in the US, in 1990 - $1, In 2000 it was $2, in 2010 it is now $4. Wages have gone up accordingly as well. Nothing unusual or historically unprecedented has actually happened.
    20 Mar 2013, 04:09 PM Reply Like
  • jakurtz
    , contributor
    Comments (1959) | Send Message
     
    "They extracted ridiculous amount of concessions"

     

    This is a joke right? Attempting to balance a budget is a ridiculous concession? If you had a sister that spent 100% more than she made and kept coming back to you for more money to pay her bills, would it be too much for you to ask her to cut back a little and attempt to create a sustainable budget.

     

    You have no sense of reality as I have found so many who share your theories lack. Compassion has nothing to do with giving someone else everything you have if all they will do is burn it up. In the end you both are left with nothing. Compassion is giving someone an opportunity to stand on their own two feet, sometimes that involves the much more difficult decision to not give them what they want. With your reasoning it is clear you have never had the experience of being responsible for anyone but yourself, another trait that many who share your perspective have in common.
    20 Mar 2013, 04:44 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    Are we comparing individual economic situations with that of a country again, even though that makes absolutely no sense?

     

    I didn't bring up th topic of compassion, filipo did. Your vision of compassion is obviously different from mine. I believe it is compassionate to provide people both with material help and future success conditions, but not to require them to avail of those conditions.

     

    Otherwise, compassion becomes compassionate conservatism, and we all know that's just a sugar coated way to say that aid to hungry kids should end and instead the kids should be taught to stand on their own two feet.
    20 Mar 2013, 04:48 PM Reply Like
  • jakurtz
    , contributor
    Comments (1959) | Send Message
     
    You have no experience with the real world and basic human behavior. You give someone corn they eat for a day, you show them how to farm they eat for life. Howard Buffett does it quite well in Africa actually, look it up. The idea you just shovel money or whatever into people's hands and thereby end world poverty is insane, likewise shoveling money into the hands of nations that can't demonstrate even a small desire to be fiscally sustainable is not a solution.
    20 Mar 2013, 04:54 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    Is that why QEternity and stimulus spending in helping America as EU languishes from austerity? How is that for the real world?
    20 Mar 2013, 04:56 PM Reply Like
  • Stephen Aniston
    , contributor
    Comments (3476) | Send Message
     
    Macro, in Europe the media tells them that the US is still in bad shape. Out of 10 indicators, they will pick 1 that is bad and beat on it and they'll ignore the other 9 that are very positive. They love to relive 2008; they are totally brainwashed. In fact, last year when I was in Austria there were only 2 US stations in the hotel - Bloomberg and CNN Europe (very different than CNN here). There were however 15 Arab stations on which masked dudes with AK-47s were preaching "hate the usa" moderated by a female host in black burqa. Europe is now culturally moving towards the middle east and away from America. You'll hardly hear a good word about the US from a European nowadays.
    20 Mar 2013, 05:11 PM Reply Like
  • filipo
    , contributor
    Comments (4635) | Send Message
     
    We'll apparently never agree on that, Macro.
    Compassion doesn't equal naivity either.
    The "ridiculous amounts of concessions" is your perception.
    20 Mar 2013, 05:22 PM Reply Like
  • jakurtz
    , contributor
    Comments (1959) | Send Message
     
    Nice dodge.

     

    Of course, inventing $85B dollars a month to pump into the economy is going to have some type of short term benefit or at least effect, but it will not last and it is not sustainable, it will have serious side-effects. If it did not why would anyone worry about fiscal anything anymore? You just print? The EU languishes because of an insane amount of debt, if printing money was a sustainable solution it would have been done long ago and countries wouldn't need to sell debt to pay for all of the lovely social programs, they would just print it more but this is obviously not how economics works. The more you create of something the less valuable it becomes, it is a fact no matter how much you would like to theorize your way out of it.
    20 Mar 2013, 05:24 PM Reply Like
  • Stephen Aniston
    , contributor
    Comments (3476) | Send Message
     
    jakurtz, money is not created until somebody takes a loan. What goes on between the Fed and the banks is none of your business really and that's what QE is. There is a lot of transparency now and people know too much about what is going on and they are getting confused by information that they don't totally understand. Fact of the matter credit standards are tighter and money velocity is down. The actual money supply has been held in check quite nicely.
    20 Mar 2013, 05:29 PM Reply Like
  • jakurtz
    , contributor
    Comments (1959) | Send Message
     
    Until it is not. You have only one dollar in the world and then create a second, it does not matter if both dollars are held in a private vault the existence of the second dollar makes both worth less than single dollar. The velocity of them is when they are introduced for sale and the market realizes the loss of value of the single dollar. The money being printed exists, it will find its way into the economy making what already existed worth less and that will be the realization of inflation in the economy. It is not a question of if, it is a question of when and how fast.
    20 Mar 2013, 05:57 PM Reply Like
  • filipo
    , contributor
    Comments (4635) | Send Message
     
    Stephen,
    Don't think I question the sense of QE Bernanke applies. It is given the circumstances the best solution. I have explained this several times to Macro too.
    Doing nothing (as they did beginning of the 30ties) would have had terrible consequences and simply was no alternative. Bernanke deserves a knighthood therefore, because resistance to that policy was in the beginning very fierce, in the US too. It's only when people started to understand the benefits and the positive mechanisms that they changed their ideas.

     

    QE does come to printing money. Let there be no misunderstanding about that. Question is though, is it needed or not. It certainly is to compensate for the uncountable effects of deleveraging. The best way of combatting deleveraging is creating new money... until the economy gets track again. US corporates haven't completely understood that yet: today I saw a Reuters report on cash that is being stashed in tax havens by US corporates: over $1T (Apple, Pfizer, Amazon, Microsoft, Google...), double of 2 years ago.
    Meaning, these corporates still don't have incentives to invest rather than to hoard.

     

    OK, having said that, if any other country would adopt the same financial policies of monetary easing, they would face a huge raise in inflation. Britain for instance creates a poor £45 bn of QE (buying Gilts) on average a year and the inflation in the UK is already at +4% yoy.

     

    The US monetize by buying $40 bn of Bonds (Treasuries) a month and another $40 bn mortgage related assets (house loans). That is newly created electronic money that is directly injected in the economy, not to be confounded with the trillions they created to save the banks in 2008-2009.
    The latter indeed never came into the economy because the banks hoarded the money because they saw no investing opportunities or used it to clean up their balance sheets. Hence the subdued growth rate of inflation.

     

    So the fact that the $ is the world reference currency is not the only cause of a subdued US inflation. US financial institutions have been very responsable not to throw their money to whoever was asking for (not to be too compassionate).
    Were it not for the relatively high unemployment, I'd call the US situation a goldilocks economy. That relatively high unemployment is caused by the increase of productivity (automatization) and by delocalization to low salary countries, not to name China.
    Overall, I'm very bullish therefore on US equities and EZ exporters. I saw this bloomberg interview with Larry Fink today. He seems to be of the same opinion. A few weeks ago I posted a comment in which I wrote the SP500 could easily go up another 20%. Today Fink mentioned that very same number , talking of a coincidence.
    20 Mar 2013, 06:05 PM Reply Like
  • filipo
    , contributor
    Comments (4635) | Send Message
     
    Stephen,
    "In Europe the media tells them that the US is still in bad shape."
    I have evidence of the contrary.
    20 Mar 2013, 06:13 PM Reply Like
  • Stephen Aniston
    , contributor
    Comments (3476) | Send Message
     
    I hope so. The cash on corporate balance sheet is a completely different issue. This is a distortion of the concept "increasing shareholder value". One part of this is reducing taxation on earnings. As a result most modern US companies that can get away with it, do it, by moving patents and intellectual property to offshore jurisdictions where they ultimately book the profits. The money is then safely put in US Treasuries via the offshore affiliates. Ultimately this will be addressed via changing of the concept "increasing shareholder value" to the concept "increasing shareholder returns" by investor activism (see Greenhorn vs Apple), stock price devaluations and changes in the corporate tax code where the corp rate is at least the same level as Germany, China, etc or removal of overseas investments exemption. This will eventually come to an end. The unemployment situation is largerly a product of baby-boomers retiring. See graph here http://bit.ly/148sZ8t
    Those born between 1947-1967 are retiring number and there are simply more of them than people since and hence the stats get skewed. On the issue of inflation, Europe's problem is that it doesn't produce its own energy and instead it throws money away in alternative energy. Norway and Sweden are doing pretty well. Why? Because they have their own energy and don't depend on the Russians. If anything you should be cheering for more QE because it makes the dollar cheaper and thereby your oil and copper and other commodities cheaper. Strong dollar will make oil cheap for the US, but not for Europe. If the euro goes down as I think it will, y'all will be paying twice at the pump, and for things you don't produce, a vacation to the US will be a dream. You know nothing about inflation yet. The inflation bomb is about to hit Europe and everybody seems to be blind to it.
    20 Mar 2013, 07:05 PM Reply Like
  • jakurtz
    , contributor
    Comments (1959) | Send Message
     
    Filipo, I agree with everything you said from Bernanke having little other choice on down. In the '70's when the Fed held interest rate below inflation we had the same effect, a depression was averted followed by slow growth followed by inflation, in relation to the current trends of that time the Fed had an easy money policy holding interest rates below inflation which was higher than it is today.

     

    I disagree on equities, equities can't grow beyond their current state without real growth in the economy, which we do not have. We have gotten back to an equilibrium where equities are fairly priced but without economic expansion companies can not grow further no matter how much free money is out there. Check out Walmart, target, Caterpillar and Fedex's guidance for the year, they all lowered guidance and missed forecasts. Check out consumer confidence it can't break out of the 70's and we have never had a bull market with 2/3rds of our economic engine (the consumer) in the doldrums, the mid-to-late 90's the index was in the 100's and in 2007 it was in the 90's. The market has run its course and consumers and investors are anesthetized to any more QE, but they also can't do without it. QE has done all it can to get us back to fair value but it will also have to remain to keep us here, because of a lack of real growth and an optimistic consumer. For the next couple years we will trade sideways at best and most likely go into a final bear turn down, not a steep crash but a gradual step down. We will not get back to a real growth economy until the second half of this decade when employment, jobs and wage growth come back in a meaningful way -- inflation will precede that but after it has hit the economy then equities will begin to rise again. Blackrock and Larry Fink are now in the market of getting people to trade using their fancy new ETF's the only way to get new blood in the market is to say it is going up.
    20 Mar 2013, 07:09 PM Reply Like
  • filipo
    , contributor
    Comments (4635) | Send Message
     
    jakurtz,
    For the benefit of brevity, I concentrate on the points of disagreement between us two.
    First, consumer confidence (cc) depends on a number of factors nobody can evaluate f.i. the weather. There has always been a discrepancy between the real figures and cc. I don't rely on cc therefore unless for trading reasons. But it does not influence my overall strategy. They started publishing cc because they didn't have anything more substantial to talk about.

     

    "companies can not grow further no matter how much free money is out there"
    The point of returning to the markets for me was that shale gas business developing. We should not forget a few years ago we faced oil prices of over $140/barrel. We're at $93 now, quite a difference and I expect the price to slowly grind down further.
    We're (you're) only at the very beginning of the consequences of that, and it is hard to imagine the relevancy now, but I can guarantee you it is huge. Energy prices are very slowly coming down, because the oil (and ng) glut isn't fully used yet because of a lack of refining and storage and transportation capacity (environmental issues also are responsable, probably justifiably).
    A 5% decrease though of energy prices would cause an exponential increase of productivity and investing opportunities. A further decrease of social polarization (I agree with Macro on that topic) is however needed to implement these investing opportunities. That's why I'm favorable to higher taxes, especially on the very wealthy.
    In general I prefer the spring to the summer season. When everything is still pristine and greenshoots are still hard to detect, is for me the best economic condition.
    Walmart is the victim of US social polarization (less consumption), but I understand the Democrats are working on that.
    Fedex is the victim of the strong $ (repatriation costs of FX) and European sluggishness.
    Caterpillar is a wonderful C° (my uncle has spent his whole life working for it) but the victim of fierce Japanese (and soon Chinese ?) competition and of course the European economic downturn.
    But what about:
    http://seekingalpha.co...
    and there are others as well, in IT, electronics, health services...

     

    I do not know when time will have come to stop QE. Waiting for inflation to pick up might be the wrong strategy because it would mean you're too late (the Titanic-syndrom). I think economic growth is a better indication, but Bernanke is sure smart enough to acknowledge that.
    Economic growth is indeed still anaemic, but, again, I prefer spring to summer season.
    I'm aware Larry Fink is a market-vendor, but that doesn't exclude he can be right.

     

    The only thing I'm lightly afraid of, is the black swan: Iran, North Korea, currency wars (Japanese QE could have a much more devastating effect to other countries' exports than US QE has on other countries' exports)...
    21 Mar 2013, 01:37 AM Reply Like
  • filipo
    , contributor
    Comments (4635) | Send Message
     
    Stephen,
    OK on that US corporates' money stashed away.
    In the meantime it's however a lot of potential not re-entered into the economy.
    I'm not sure how the fact of babyboomers going on retirement can have a causal effect on unemployment. On the contrary, the more people get retired, the more jobs should come available for younger people. So I think you should look for other causes.
    But whatever these causes, the figures are what they are and they still don't look nice.
    I can't agree more with you on the subject of Europe's wrong green energy policies. It's a disaster. Even Germany has to cut on wages to maintain it's high productivity level because of expensive energy costs (due to their decision to end up nuclear energy plants).

     

    "QE because it makes the dollar cheaper"
    I'm not so sure of that bearing in mind the faint amounts of QE Bernanke applies.

     

    "and for things you don't produce, a vacation to the US will be a dream."
    I had a vacation in the US in mind though in the second half of this year (need to visit my friends in CA and NM). I know, life will be tough although, as the saying goes, the soup is never eaten as hot as it is served.
    Right now, I'm more concerned about deflation in Europe.
    21 Mar 2013, 01:57 AM Reply Like
  • Stephen Aniston
    , contributor
    Comments (3476) | Send Message
     
    Filipo you're kind of attuned to 1.30 euro, aren't you. I am not sure you're really understanding what the world would look like if the euro is $1.10. And $1.10 euro is coming within the next calendar year.
    21 Mar 2013, 04:42 AM Reply Like
  • jakurtz
    , contributor
    Comments (1959) | Send Message
     
    Filipo, NG could be the catalyst to decrease energy prices and spur growth in the economy, but it will be a couple years still until those benefits of lower energy prices trickle down to the consumer and in the end it is the happy consumer that is buying stuff that grows the economy. Oil prices will never be below $90 again except for spikes down during recession environments which we were in briefly in Q4 last year and may be in again this summer.

     

    Here is a chart on consumer confidence and the S&P for the past 43 years as you will see there is no bull market with cc in the 70's area, if and when it spikes at least once into the 90's and stays at least in the 80's then I will be looking to get more bullish. If NG and lower energy prices make that happen this year and optimism from the consumer unexpectedly rises this year (I do no expect it at all considering the environment we are in) then I will get more bullish.

     

    http://bit.ly/YkGFGx

     

    Taxes -- it seems like maybe you and macro do not realize that higher taxes has been a major part of the austerity programs he does not like. In fact, Italy's austerity program was 60% higher taxes and only about 40% in budget cuts. Taking more money from the productive parts of our society and giving them to the unproductive government is not a good policy. Government officials with more and more power are just as corrupt or not corrupt as corporatists with more and more power, accept a corporations business is to make money while a governments business is to take money keep some and give the rest out to who and what they like.

     

    http://reut.rs/Zffmwz
    21 Mar 2013, 08:21 AM Reply Like
  • filipo
    , contributor
    Comments (4635) | Send Message
     
    Stephen,
    if you say so....
    21 Mar 2013, 08:50 AM Reply Like
  • filipo
    , contributor
    Comments (4635) | Send Message
     
    jakurtz,
    Have you read this:
    http://bit.ly/WMFunb
    This is the beginning.
    The rest will follow, be sure, and it will be gigantic.

     

    Up till now austerity in my country meant higher taxes on the middle class, the most productive of society. That's asphyxiating the economy.
    It's not that kind of taxes I had in mind though. I meant taxes on the very wealthy, those with +1 bn (or whatever number a statistician might come up with) who use their capital to make bets or speculations on very short time, a thing the economy doesn't profit from.
    Actually, Hollande was not far from understanding that, except he forgot to realise France is such a tiny little country that everyone with a fortune fled to foreign countries as soon as he uttered his first word on high taxing. High taxing to mend current account deficits in a globalized world can only be implemented under mutual agreement of all the world states.
    I know, that's utopic.
    I therefore do not think high taxing has much chances to successfully be implemented and I certainly would not advocate it as a medicine to smaller countries.
    But theoretically, it's the best solution to fight social polarization and enhance growth in an anaemic economic environment. So, in theory I agree with Macro on that topic and under these restrictions.
    21 Mar 2013, 09:15 AM Reply Like
  • jakurtz
    , contributor
    Comments (1959) | Send Message
     
    filipo, Thanks for the link I will look into it. Did you catch the story in the WSJ the other day, "Shale Gas Boom Alone Wont Propel US Industry." I am open to both sides of that argument though.

     

    http://on.wsj.com/102ACrF

     

    Just FYI, there are 1,226 Billionaires in the world. If we straight-up took $2 Billion dollars from each one (completely wiping out well over 90% of them) that would give us about $2.452 trillion dollars. The US government alone spends $3.5Trillion in one year. In the US we have 1 million millionaires, if we wipe out 90% of them by taking $1M from each that gives us another trillion. We can almost cover the US expenses for one year after destroying all private wealth.

     

    The only way to preserve current spending is by raising taxes on the middle class, just like our current president just did.
    21 Mar 2013, 11:28 AM Reply Like
  • filipo
    , contributor
    Comments (4635) | Send Message
     
    jakurtz,
    I finally got time to read that WSJ article that you gave me.
    It's certainly interesting and it comes down to "the US certainly won't become the workshop of the world thanks to the shale gas boom".
    Indeed they won't and I agree with the author that a certain amount of coporates who face to a lesser degree the impact of cheaper energy, won't feel a big difference when energy gets cheaper: taxes, labor costs, credit writedowns... might indeed have a larger share in the overall costs.
    However, for the majority of manufacturing like petrochemicals, equipment makers, exploration, the difference will be huge.
    Railways and trannies will be beneficiary. That's why I bought SAIA a few months ago.

     

    Concerning wiping out all the billionaires, I find that rather rash. You needn't erase completely the Government's debt. A budget deficit of 2-3% would be just fine to keep things under control.
    21 Mar 2013, 04:48 PM Reply Like
  • filipo
    , contributor
    Comments (4635) | Send Message
     
    Macro,
    A therapy for yourself might be useful.
    Before you know the spectre of J.F. Dulles comes back and locks you up for communist sympathies.
    21 Mar 2013, 04:51 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    I have indeed been called a commie before. It's kind of funny, as I am a hard core capitalist.
    21 Mar 2013, 05:07 PM Reply Like
  • Stephen Aniston
    , contributor
    Comments (3476) | Send Message
     
    The potent mixture between communism and capitalism is called crony capitalism. So you're a "hard core crony capitalist" then..
    21 Mar 2013, 05:10 PM Reply Like
  • Teutonic Knight
    , contributor
    Comments (3362) | Send Message
     
    I suggest adding this clause to the description of: "...So you're a "hard core crony capitalist" then.. " :) -

     

    "And a Full-Blown Liberal".

     

    Awesome !!!
    21 Mar 2013, 05:15 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9252) | Send Message
     
    Stephen, I am just a poor boy, though my story's seldom told.
    21 Mar 2013, 08:22 PM Reply Like
  • filipo
    , contributor
    Comments (4635) | Send Message
     
    Simon & Garfunkle
    22 Mar 2013, 03:15 AM Reply Like
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