Monday Market Mayhem: Cyprus Declares 'A Nuclear War On Savings And Wealth'

Includes: FXE, SCO, SPY, TLT, USO
by: Philip Davis

"This is a nuclear war on savings and wealth."

"This is a policy move you expect from a dictatorial regime … not in an EU member state. If the EU governments can clandestinely expropriate 7-10% of their (citizens' savings) after the close of business on Friday night, what else are they capable of doing … Why keep your money at a Spanish or Italian bank when you can jump to Germany or France … Why even keep money in the EU banking system at all?"

Those are the well-worded thoughts of Jefferies' David Zervos (who may be Greek) regarding the Cyprus seizure of up to 10% of the nation's bank deposits over the weekend to pay off some of that pesky debt they've gotten themselves into. I, on the other hand, sent out an early morning (4am) Alert to our Members calling the pre-market drop an over-reaction saying: "What Idiocy:"

You guys do realize that 20% of your own bank deposits were "confiscated" since 2008 (through Dollar devaluation), right? What difference does it make if they take the cash or if they just devalue the currency the cash is based on? The whole problem with the EU is they CAN'T devalue Cyprus' currency so they MUST confiscate the currency to pay debts. There's only 3 possible ways to pay back debt - A) Pay it back B) Pay it back with Devalued Currency C) Default. If you want to avoid C, you must choose either A or B and the Euro makes B impossible for Member States and that leaves A and then you have austerity, higher taxes or confiscation of wealth (and France has a wealth tax now).

For God's sake people (of the world) grow up and stop whining!

It was important enough that I tweeted out the comment as we had great opportunities to go long on the Nasdaq and Nikkei Futures - both of which gave us lovely early-morning gains and we're now just watching and waiting into the close to see how the open goes (we were bearish into the weekend from Friday morning's post anyway, remember?). Just because we don't think something is a big fundamental deal, doesn't mean the sheeple won't be stampeded by the media anyway.

To illustrate how ludicrous this thing is, I pointed out to members that Cyprus' entire 1.2M population of mainly (77%) Greek citizens has a TOTAL GDP of under $25Bn. In other words, 500,000 average American spenders could (at $50,000 per year) buy the whole country. If everyone in America (315M) chipped in $100 each, we could buy the whole country and still have $6.5Bn to make all of this year's debt payments and, for another $200 each - we could own the whole country free and clear! I say let's do it and create a tax haven to avoid paying taxes in our home country. Oh wait, that's what the 1M Greeks who live there already did...

So we've already given Cyprus a lot more time than it deserves this morning but that won't stop the MSM from discussing it to death as if Japan had a 200% debt to GDP ratio or something (oops, they do). There are people whose index funds will lose more money, in pre-market trading, than the ENTIRE debt of Cyprus - I would have to call that a bit of an over-reaction, wouldn't you?

Not that we mind - we told you to go long on gold (back over $1,600) and long on TLT (back over $117), right in our daily posts - it's going to be a very exciting earnings season next month!

Even as I write this, oil touched $93 again in the Futures (/CL) and that's still our favorite shorting line as the NYMEX crooks have just 3 days left to dump about 60,000 of the 74,000 open contract that are left over from the nearly 300,000,000 (at 1,000 per contract) barrels of oil they pretended to have an interest in at the month's peak.

Click for
Current Session Prior Day Opt's
Open High Low Last Time Set Chg Vol Set Op Int
Apr'13 93.26 93.26 92.14 92.44 04:58
Mar 18
- -1.01 17460 93.45 74614 Call Put
May'13 93.62 93.64 92.52 92.80 04:58
Mar 18
- -1.02 14809 93.82 286247 Call Put
Jun'13 94.08 94.08 92.79 93.08 04:58
Mar 18
- -1.01 3224 94.09 164413 Call Put
Jul'13 94.00 94.00 93.00 93.26 04:58
Mar 18
- -0.97 1504 94.23 118674 Call Put

How is it that oil traders (most of whom work for oil companies that sell oil) can PRETEND to want 300,000,000 barrels of oil in a month and then only actually accept delivery on about 15M - AFTER they have driven the prices up on fake demand? Because they don't really care if they LOSE money trading on the NYMEX - this is about the 540M barrels a month they sell to US consumers, as well as the 2.7Bn barrels they sell globally. If they can use the NYMEX and ICE trading to drive the price of each barrel sold by just $5 ($13.5Bn a month), what's a few hundred million, or even a billion lost trading futures to jack up the prices as a "cost of doing business"?

That's why (see Thursday's notes on oil trading) we can jump in there and take their money over and over and over again - we're small potatoes in the grand scheme of things. We know the game is fixed, we know HOW the game is fixed so we place our bets along with the fixers - with the added benefit of also being able to bet against them and take a little of their money - which makes us feel a little like Robin Hood - only without the tights.

These are, of course, confusing days to trade oil contracts as we were trading /CLJ3 on Friday and that dropped from $93.50 (the EXACT spot we said to short!) to $92.47 this morning for $1,000 PER CONTRACT gains (again) but now, the current front-month contract is /CLK3 (May delivery), and that's trading at $92.80 and won't have quite the same selling pressure on it that the April contracts have, which close trading Wednesday at 2:35 - forcing whoever is holding the open contracts (the "hot potato" in this case) to accept delivery of 1,000 barrels full of oil (350 pounds) at Cushing, OK, and then it's up to the buyer to figure out how to store, sell and deliver the physical oil from there.

So no wonder they'd rather take a .50 hit rolling their contracts than accepting delivery, right? What do you think it would cost you to get some guys to carry 1,000 (per contract) barrels of oil off a loading dock and then putting them in a warehouse for you (and how much does that space cost) and then you have to hire a salesman to sell them to others and that's commissions and transaction fees and all sorts of nasty stuff you're on the hook for and then you have to call those burly guys back to go back to your warehouse and load up different trucks and pay those trucks to deliver your oil (insurance at $3,900 per barrel?) to the end customer and, oh yes, I hope he pays you on time...

That's what's happening today, the oil criminals are trying to get out of the 75M barrels worth of obligations they do have and roll them for less than .50 to the May contracts that they don't want either. It doesn't matter that much that they will lose $37M doing the rolls because it benefits their masters by now creating a false demand for May contracts and that helps boost the prices of oil and gasoline set at the pumps because actual physical users have to compete\ with speculators in the daily auction - even though the speculators are only there to drive up the price for the physical users.

In any other kind of auction - this would be illegal and the fake bidders and the money men behind them would be arrested and any auction house that tolerates that sort of behavior would either be shut down by the authorities or, in the very least, would lose its reputation and status in the physical trading community. Not the NYMEX and their den of thieves, however - they get to commit their crimes over and over again - free from prosecution.

Let's bring back the Energy Markets Emergency Act of 2008, which was filibustered by Republicans in 2008, but only narrowly so. One of the greatest things we can do to improve the US economy is to break the backs of the rampant speculation that has taken over the commodity markets.

Please - Write to your Congresspeople today!

Disclosure: I am long AAPL, GDX, TZA, CIM, GLD, BA, ALU, DBA, GLW, SQQQ, SCO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Positions as indicated but subject to change (fairly bearish mix of long and short positions with intention to flip even or bullish if our levels hold up - see previous posts for other trade ideas). Commodity positions are very short-term and not tradeable by the time you read this.