We’ve told subscribers to expect the broad averages to drift lower as long as the Cyprus annoyance persists. The Dow did indeed fall yesterday — by nearly 100 points — raising the question of when a drift would officially become a rout. Not yet, for sure. Nor could it, in our estimation, unless the affair takes the sort of catastrophic turn that few seem to expect. In the meantime, Wall Street pros must be getting anxious about having Cyprus “fixed” as soon as possible so that they can get back to business-as-usual. Pumping stocks full of hot air is what they do, after all, but as long as the dark clouds of a fifth eurobank bailout are hanging over the markets, the psychological conditions that make their ruse possible will perforce remain unfavorable.
If and when Cyprus finally caves to the demands of Germany and Europe’s banking establishment, we’ll probably never know how close to a collapse the global financial system may have come. Suffice it to say, those who will claim that the whole affair never posed a major threat will be dead wrong, although they will be the only ones quoted by the news media as Europe’s ginned-up “solution” takes root. In fact, whatever remedy is spun, it will not allay the suspicions of depositors both large and small that what has happened in Cyprus could happen again elsewhere. Doubts are certain to persist, and to grow, and when policymakers try to mollify the doubters, the unintended effect will be to make the next bank failure even more difficult to manage. For some of us, at least, there is already a sense of foreboding about how the ultimate failure of the Bank of Cyprus will loom large in books about how the financial system came one day to unravel.
After Clouds Have Lifted…
Joe Sixpack understands even now that the €13 billion sum being floated as the cost of the bailout is just a public relations number that the feather merchants have pulled out of thin air. As one commentator pointed out, there are probably more than a few Russian tycoons who have ten times that amount stashed in Cyprus. These are guys with friends in high places, for sure, and that’s why there’s no way that Cyprus’ two largest banks will be allowed to fail. But the Cypriots aren’t making it easy for the workout team, having rejected Europe’s first proposal and gone to the Russians in search of a better deal. Putin to the rescue? He’s never struck us as a soft touch. Europe will have to find its own solution, even if it has to ram it down Cyprus’ throat. Once the clouds have lifted, look for stocks to continue blithely higher, to a summit that long ago surpassed the limits of our imagination.
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Ahhhhhh ! That is a really funny one. And then it will be the turn for Spain, Italy, Portugal, Ireland and yes UK !