Stocks Trade Lower Amid Uncertainty Surrounding Cyprus

Financial market report for Tuesday March 19, 2013

1) … On Tuesday March 19, 2013, stocks began falling at midday, with the S&P 500, SPY, trading 0.6% lower amid continued uncertainty surrounding Cyprus, and its attempt to secure rescue funds from the eurozone. Eurozone officials spoke in favor of a swift parliamentary vote, but that appears less likely with the country’s ruling party planning to abstain from the vote. In addition, the Cypriot finance minister has tendered his resignation, but the country’s president has yet to accept the request. Energy stocks, XLE, seen in this Finviz Screener, traded 1.8% lower on a lower price of oil, USO. As stocks traded in the red, the CBOE Volatility Index , ^VIX, rose suggesting downside protection is being sought.

World Stocks, VT -0.7%

Emerging Markets, EEM -0.7

Nation Investment, EFA -0.3

Small Cap Nation Investment, IFSM, -0.4

Interest bearing sectors trading lower included Mortgage REITS, REM -1.3%. Sectors trading lower included the following:

PICK -3.4%

KOL -2.4

SLX -2.2

COPX -2.2

IEZ -2.2

OIH -2.2

PSCE -1.8

XOP -1.6

XLE -1.1

FLM -1.1

IGV -1.1

XRT -1.0

PSP -0.9

Countries, EFA, and Small Cap Nations, IFSM trading lower included the following

GREK, -4,0%

EPHE -2.7

INP -2.7, SCIN, -3.7

EWA -1.9, KROO, -2.0

TUR -1.7

RSX -1.6, ERUS -1.6

THD -1.0

Banks, IXG, -1.0%, trading lower included the following:

EMFN -2.3%

EUFN -1.8

CHIX -1.1

The financial sensitive US Small Caps, that is the Russell 2000, IWM, was the US Index loss leader of the day for the second day in the row, -0.5%.

Commodities, DBC, -0.7%, trading lower included the following.

LD -3.2%

UGA -2.3

USO -1.7

BNO -1.7

JO -1.1

UNG, 2.2; chart shows natural gas topping out.

GLD 0.5

The chart of the US Dollar, $USD, shows a 0.7% rise; the Euro, FXE, traded 0.3% lower; and the Yen, FXY, traded 0.2% higher.

Volatility, ^VIX, rose, VIXY 2.2% ,VIXM 0.9%.

2) … News of the day features the theme of creeping tyranny.

BBC reports Cyprus warned over parliament’s bailout rejection. Germany’s finance minister has warned Cyprus that its crisis-stricken banks may never be able to reopen if it rejects the terms of a bailout. Wolfgang Schaeuble said major Cypriot banks were “insolvent if there are no emergency funds”.

Bloomberg reports Europe weighs Cyprus’s fate after lawmakers reject bailout deal.

Bloomberg reports Bloomberg confirms in a story EU said to discuss Cyprus capital controls, longer bank holiday.

CNBC Video Interview, Steve Keen relates Cyprus tax amounts to blowing Capitalism’s brains out Steve Keen, professor of economics at the University of Western Sydney, argues that if you destroy the trust depositors have in their bank accounts then you destroy the oil of capitalism.

Charles Hugh Smith Of Two Minds blog writes The deeper meanings of Cyprus.

World News Australia reports Cyprus finance minister heads to Russia amid an explosion of anger over a bank levy that could cost investors billions of euros.

The Wall Street Journal reports Cyprus Finance Minister to offer new plan in bid for Russian support. Cyprus’s finance minister is set to present a plan to his Russian counterpart in Moscow Wednesday aimed at saving the country’s financial sector, a government official said Tuesday. The official said that Michalis Sarris, who is being accompanied by a delegation of businessmen, is going to propose a deal that includes imposing a 20% to 30% levy on Russian-held deposits in Cypriot banks, which could cost them billions of euros. In exchange, Russia will be given equity in Cyprus’s future national gas company and some additional strategic benefits in the sector, while Russian investors would be given control of the board of directors at Cyprus’s banks. There were unconfirmed reports Tuesday that Mr. Sarris had resigned as finance minister, but officials did say he was on a plane heading for Russia. However, the deal looks like a long shot. Ahead of the visit, Kremlin spokesman Dmitry Peskov said: “It’s practically impossible to talk without knowing the details.” … “The situation is very difficult, unprecedented, and we don’t understand what’s happening,” he said. Mr. Putin hasn’t spoken to his Cypriot counterpart, he added.

Benson Te relates the John Adams Quote “Property is surely a right of mankind as really as liberty” … “The moment the idea is admitted into society, that property is not as sacred as the laws of God, and that there is not a force of law and public justice to protect it, anarchy and tyranny commence. And states,

What has taken place in Cyprus is far less important than the larger issue which is a forfeiture of private property being demanded by the nations on the Continent and by an international organization headquartered in Washington D.C. Right up until the day it happened the President of Cyprus claimed it would never happen. Then, faced with bankruptcy, the fellow folded. I do not take a position here upon his actions, he has been in office for three weeks, but I do take a position upon the tyranny of the governmental bodies in question; they have demanded and forced the forfeiture of private property for their own betterment. I state with authority; if they can do it in Greece and then again in Cyprus they can do it anywhere and under any guise they like. They can wield the army of their pen, of their money, as an effective armament on the battlefield, to change what they like, when they like, all for the good of the State. I quote Herbert Hoover “Every collectivist revolution rides in on a Trojan horse of ‘emergency’. It was the tactic of Lenin, Hitler, and Mussolini. In the collectivist sweep over a dozen minor countries of Europe, it was the cry of men striving to get on horseback. And ‘emergency’ became the justification of the subsequent steps. This technique of creating emergency is the greatest achievement that demagoguery attains.”

Mark J. Grant, author of Out of the Box, writes in Zero Hedge Lesson 1: Greece; Lesson 2: Cyprus – Pay Attention.  Deposit Insurance at a bank, any bank in Europe, is now meaningless. A bond indenture, any clause, any paragraph, any promise or assurance; now meaningless. The notion of private property, land, cash, house; now meaningless. The European Union will take what they want as they deem it necessary and the IMF will follow along. The question has been asked, during the last few days, why the bond holders of Cyprus were not tagged along with the bank deposits. I can answer the question. Virtually all of the Cyprus sovereign debt is governed under British law and so the EU did not pursue this course.

I recall the movie, Casablanca, where the Germans stood up to sing their National Anthem and the French responded with the “Marseilles.” It is too bad that the French have forgotten how to sing this song but then, apparently, all of the nations in the EU have forgotten how to sing their own songs.

Greece came first. Lesson one and “shame on you.” Cyprus comes second and now “shame on me.” What will come next? What will you tell your partners or your shareholders when they say, “You should have known.” You will have no excuse! The Europeans will take what they want and when they want it and to have money invested there now only has one excuse; masochism. Neither you nor I have any idea of what they might do next. When a government changes an indenture retroactively as a condition of funding and then demands that private property be seized as a condition of funding then this government, the European Union, will stop at nothing, find no boundary or fence, to halt its ambitions.

Acting Man writes The banks of Cyprus and their road to bankruptcy. The largest banks in Cyprus have been effectively bankrupt ever since Greece’s sovereign debt received its second ‘haircut’. Readers may recall that neither Greek haircut number one, nor haircut number two were ever suppose to happen.

3) … Exactly what risks accompany the accommodative monetary policy of the US Federal Reserve?

Economist Scott Grannis, who is not an Austrian economist, writes since the Fed’s quantitative easing efforts to date have been only sufficient to satisfy a huge increase in the demand for cash, cash equivalents, and bank reserves, what will happen when the demand for safe and liquid assets declines? When confidence in the future returns? When risk aversion declines? Will the Fed be able to reverse its quantitative easing efforts in a timely fashion, before an excess of reserves and a declining demand for cash pushes inflation higher? As I mentioned in a post last December, … the biggest risk we all face as a result of the Fed’s unprecedented experiment in quantitative easing is the return of confidence and the decline of risk aversion. If there comes a time when banks no longer want to hold trillions of dollars worth of excess bank reserves for whatever reason (e.g., the interest rate the Fed is paying is no longer attractive, or the banks feel comfortable using their reserves to ramp up lending, or the public no longer wants to keep many of trillions of dollars in bank savings deposits), that is when things will get “interesting.”

I reply, that there will never, ever be a return to confidence, as the Steepner ETF, STPP, will be steepening from 35. There will not be a decline of risk aversion, as an increase in risk aversion has already commenced, as is seen in the Risk On ETN, ONN, falling, and the Risk Off ETN, OFF, rising as well as, Volatility, ^VIX, rising with VIXY and VIXM trading higher.  The Proshares 200% ETFs seen in this Finviz Screener are trading higher; and the Direxion 300% ETFs seen in this Finviz Screener are trading higher as well.

The trade lower in the Euro Yen Carry Trade, that is the EUR/JPY, reflects that carry trade investing, ICI, is faltering. Competitive Currency Devaluation is getting underway on a rise in the US Dollar, $USD, UUP, with Major World Currencies, DBV, and Emerging Market Currencies, CEW, now both trading lower.  The currency demand curve, that is the ratio of Small Cap Pure Value Stocks, RZV, relative to Small Cap Growth Stocks, RZG, RZV:RZG, has risen to a rally high, evidencing peak currencies has been attained; look for Small Cap Value Stocks, RZV, to fall more sharply than small cap growth stocks, as the World Banks, IXG, start to trade lower.

Of note, an investment demand for gold has commenced, as can be seen in the chart of the gold ETF, GLD rising.  The Spot Price of Gold, $GOLD, is $1,610, up from $1,560.

Benson Te writes More signs of global pandemic of bubbles.  You just got to love today’s entropic financial conditions that has been edified from the “this time is different” mindset. F rom Central Bank News: (bold mine) Households worldwide have boosted their borrowing since the 1970s and in some countries, such as the United States and Australia, the total amount now exceeds that of companies, the Bank for International Settlements (BIS) said, introducing a new public database for total credit in 40 countries.  In addition to the growth of household borrowing, the data shows how credit has substantially outgrown economic growth in nearly all countries.  Why change when the good times have been rollin’? Central bank policies only provide the incentives of moral hazard to political authorities, thus the reluctance to reform. This shouldn’t be hard to understand. All these “kicking the can down the road” policies have been designed to maintain the status quo of the cartel of the political triumvirate institutions of the welfare-warfare state (notice the “time bomb”), banking system and central banking.

Benson Te adds providing this insight on nation investment, international capital flows, the du jour bogeyman of central banks, are really not the culprit of financial instability or price inflation as these latter two variables belongs to the realm of domestic monetary policies.

As Wall Street financial analyst Kel Kelly explains [15], (bold mine) The notion of capital flows and money crossing borders is misunderstood by most people. Except for physical paper bills belonging to tourists, to drug dealers, or to foreign workers sending cash earnings home to relatives, money does not cross borders. Money generally remains in the country to which it belongs — and merely changes ownership. As this section will show, “speculative” money “flowing across borders” really consists only of the domestic central bank trying to keep its currency artificially priced.

So called “capital” or “hot money” does not “flow” from one country of origin into another country. However, money created in one country can be — and is, to a limited degree — used to buy the currency of another country and direct it into the purchase of asset prices in that country (bidding asset prices higher in the process). If a disproportionate amount of local currency is channeled into asset prices in a country, less currency is being spent on goods and services in the economy, causing consumer prices to fall.

But in reality, consumer prices in countries with booming asset markets do not usually fall while asset prices rise; both usually rise in tandem. This is because the local money supply is increasing, and pushing up both classes of prices (i.e., financial assets and consumer prices), even though one is rising faster than the other. It is therefore local money, not foreign money, inflating assets.

In short, spiralling prices is a function of yield chasing mentality powered by domestic credit and money expansion. Entry of foreign funds only changes the composition of the ownership of asset prices and does not necessarily constitute or equate to rising of asset prices.

And there is no money flows in the asset markets. As I previously wrote [16], Simply said, the presence foreign buyers don’t necessarily extrapolate to higher prices. This would depend on the valuation of every participant, whether the foreigner acts for himself or in behalf of a fiduciary fund from which his/her valuations and preferences would translate into action. If the foreigner is aggressive then he/she may bid up prices. But again since people’s valuations differ, the scale of establishing parameters for each action varies individually.

A foreign participant can also be conservative, who may rather patiently accumulate, than bid up prices.

And speaking of foreign portfolio investments, the BSP reported that for February, registered foreign investments totalled $2.1 billion [17]. This has been 24.6% lower than from $2.8 billion last January. Most of these or 76.4% were directed at the PSE listed companies, particularly holding firms (US$474 million), banks (US$332 million), property companies (US$211 million), telecommunication firms (US$151 million), and utility companies (US$123 million).  One would note that the ranking of foreign buying essentially reflects on the returns of the PSE sectors which has been led by property holding financial industries of which have been the primary objects of today’s credit bubble

As Liberalism falls to Authoritarianism, Liberalism’s investment darlings, such as the Small Cap Value Shares, RZV, and the Leveraged Buyouts, PSP, seen in this Finviz Screener will fall quickly in value, just as COPX, PICK, KWT, LD, JJT, already have.

A see saw destruction of wealth will be getting underway, as Stocks, VT, trade lower, and Bonds, BND, and Aggregate Credit, AGG, which traded lower beginning December 6, 2012, will trade higher for a while, before they fall lower again.

Beginning with QE 1, The Fed stepped in and helped all the “too big to fail” bank, this included JPM,  C,  WFC, BAC, BK, PNC, RF, STI, FITB and others. The Fed is still willing to help any “too big to fail” bank. As seen in news events fulfilling bible prophecy of Revelation 13:1-4, The Beast Regime is rising from  Club Med Sovereign and Banking Insolvency to replace the Banker Regime; where the the Too Big To Fail Banks, RWW, will be integrated into the government as statism develops. Regionalism will be mankind’s economic way of life replacing Crony Capitalism, European Socialism and Greek Socialism, as the dynamos of corporate profit and global trade are winding down, and the dynamos of regional security, stability and security are winding up.

The world stands at Peak Crony Capitalism, Peak European Socialism and Peak Greek Socialism, as Peak Monetary Expansion has been achieved. Destructionism will very soon replace Inflationism. Benson Te writes on France as an example of European Socialism relating How the welfare state bankrupts: French edition.

The Eurozone will serve as a model for regional governance, totalitarian collectivism, and debt servitude, where a monetary pope, the ECB Chairman, and monetary cardinals, the EU Finance ministers, work in conjunction leaders in Berlin, such as Olli Rehn, to establish public private partnerships, where leaders in business, government and labor meet in task groups to oversee the economy and the factors of production. An example is the Ulrich Rippert WSWS report European trade unions oversee auto industry restructuring  Across Europe, trade unions are playing a key role in imposing mass layoffs, wage cuts and the closure of auto plants. Existing public private partnerships such as Macquarie Infrastructure Company, MIC, will be expanded. The EU will be a One Euro Government integrated with a One Euro Economy led by new sovereigns, that is nannycrats, who replace sovereign nation states.


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