Cyprus has now been fixed by confiscating up to 40% of the bank accounts that were over $100,000 without touching those that were under and, more importantly, the World did not erupt into chaos in the aftermath of the greatest confiscation of wealth since the French Revolution. If you are reading this and have money in uninsured accounts - this should worry you a lot because the EU, the IMF and the World Bank have now decided your money is not sacrosanct and even the Russians aren't complaining too much and not a peep out of Asia so all this "outrage" here is just in the countries that are under Rupert Murdoch's sphere of media influence.
Bondholders are being completely wiped out as well and GOOD - that's what happens when you try to take advantage of a bank or country with bad credit by lending them money at usurious rates on the expectation that someone will bail them out. That is why these banks get so out of control - the worse they are managed - the more money pours into them chasing higher rates of returns. If this action simply puts a stop to that - the world will be in much better shape going forward.
So the worst has happened and the world did not implode, which is what we told you last Monday would be the case. The problem the top 1% have is there's only 1% of us, so we don't win these little turf wars - especially when we don't have time to buy elections or sway public opinion with media campaigns. The natural, NORMAL, reaction of the bottom 99% to someone taking 40% of our money is "so what?"
This is even more true in the EU, where the people are not convinced that "all they need is a dollar and a dream" to put them into that top 1% category. The less social mobility we have, the more apparent it becomes to those at the bottom that the game is rigged against them and the more you can expect them to wise up and vote for solutions which include confiscating wealth to solve national problems. And the markets are loving it, with the EU up 1.25% this morning (8:15 EST).
Do the math, rich folks, there's $100Tn worth of wealth in this country and the top 20% have $80Tn and we're $16T in debt - what do you think is going to ultimately happen? Cyprus, as I said last week, is a test subject for the EU as they wrestle to find how much the people, both rich and poor, are willing to take to fix their debt issues.
We've already had 20% of our wealth confiscated through Dollar devaluation in the past decade and that's been nothing more than the continuation of a trend that's been a constant in America for the past century. Unfortunately, the rich have learned to game this system so they now profit from the declining dollar (commodity trading, TIPS, stocks in general) and that's led to a massive transfer of wealth from the bottom 80% to the top 20% over the past decade, which has become unhealthy - hence the need for new ways to redress the imbalances.
This is not a bad thing, folks. If you are good at playing the game of capitalism, then what's the harm of giving up 20% of what you have to level the playing field and allow more people to participate? If you delude yourself into thinking the alternative is that the bottom 80% will just bend over and accept their fate forever more - then it sounds unpalatable but, if you think about it as giving up 20% so the bottom 80% don't turn around and kill you - then maybe it doesn't sound so crazy.
Despite the knee-jerk reaction to Cyprus being "fixed," we don't expect the rally to last and we're already playing /NKD Futures (Nikkei) short below the 12,600 line and we'll be shorting oil at $94.50 (/CL Futures) as well as nothing is fixed if all it took to fix it was $10Bn of our $60,000,000,000,000 Global GDP (0.0167%).
Apple (NASDAQ:AAPL) earns more than that in each quarter and it's not enough to interest anyone in their stock, is it? So why would the entire world care one way or another about that being some country with 1M people's national debt? It's only $10,000 per person, US Citizens are $53,051 EACH in debt at the moment - and that's NOT counting unfunded liabilities that bring our total debt load up to $745,482 per family!
How much money can we take from the poor to fix this problem? How much aid can we stop giving them? If we were giving them $745,482 per family, they wouldn't be poor, would they? Out of $123Tn worth of unfunded liabilities, SS is only $16Tn or 13% of the problem. Bush's brilliant prescription drug program all by itself added $21Tn of liabilities in exchange for about $1Bn of campaign contributions to Bush and the GOP by drug companies - probably the best bang for the buck of any lobbying campaign in the history of politics.
Of course, the reason the Healthcare lobby can afford it (and there are 4 Healthcare lobbyists for each Member of Congress) is because that $21Tn INCREASE in forward spending obligations was "only" in addition the $85,000,000,000,000 of unfunded obligations we have already made to healthcare spending.
Is it any wonder they want to stop Obamacare before it starts? If, God of the Conservatives forbid, Obamacare should cut just 1% of our unfunded medical liabilities, it will save US citizens $1 TRILLION dollars (and cost the medical industry $1Tn of future revenues) and that's $3,333 per citizen. Those numbers can get really hard to cover up and, once people get a taste for lower burdens - they tend to want more, right?
Healthcare spending is 20% of our GDP in America - it's our way of life! In other countries, only 8-10% of their GDP goes to healthcare and (funny story!) we have one of the worst overall outcomes in the developed world. Isn't that hilarious? I know all 2,500 Healthcare lobbyists and their pet Congresspeople are laughing - all the way to the bank.
Keep in mind that, if we didn't spend 20% of our GDP on healthcare and instead spent half of it ($1.6Tn) to pay down our national debt, our debt would be paid off in 10 years and we'd have all the money we need to fund all of our unfunded liabilities - that's why Obamacare is important - it can literally save this country forevermore. Not that it's perfect, but it's a first step and boy, do we need to take that first step.
Of course, we could all just sacrifice a few years of life expectancy and go get our healthcare taken care of in Mexico, where it's 1/8th of what we spend today and they still live to be 75 (vs 78.5 US average) so we give up 3.5 years of life to save $7,000 per person (310M) per year (75) or $162,750,000,000,000 over the next 75 years - MORE than all of our unfunded liabilities and current debt combined by a mile!
To put it on a per-person basis, going across the boarder to Mexico for your health care saves EACH member of your family $525,000 over the course of their 5% shortened lives. Of course, the GOP's solution is to deprive the bottom 20% of most of their lives and take an extra couple of years for themselves in our current "free market" system as they sing "Kill, kill, kill, kill, kill the poor" by the very aptly named Dead Kennedys.
By the way, sorry to be on such a philosophical kick lately but I'm turning 50 on Friday (you must know about it, we're having a national holiday and everything!) and I'm reflecting a lot. I'll be taking a top 1% boat trip that week and, when I come back, I'm sure I'll be in a much more capitalistic mood...
Disclosure: I am long AAPL, GDX, TZA, GLD, ALU, DBA, GLW, FCX. 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 neutral mix of long and short positions - see previous posts for other trade ideas). Commodity positions are very short-term and not tradeable by the time you read this.