Cyprus and the sell off

Well, I suppose it had to happen, the market needed an excuse for a sell off and events in Cyprus gave them as good a reason as any to pull back a little. The question now is whether we are entering into a period of sustained selling, which to some degree after the recent rise in stock markets would not necessarily be a bad thing. The question as always when a down period starts, if indeed that's the case, is how long will it be for?

The Cyprus financial crisis and the events towards the end of last week tell you a lot about how conspiracies start and you can understand why. The decision to place a tax on savings/bank deposits for everyone is an extreme example of David Cameron's "we are all in it together" mentality, when in reality we are not all in it together. Some of us didn't con the system and don't see why we should pay to bail it out in these ways.

Taxing everyone in this way and giving them in return shares in dodgy banks, treating everyone to a bit of the pain of austerity is not only grossly unfair, but also counter productive. It has brought back the spectre of bank runs, the fear that other countries with much greater problems will try the same, who's next? Greece? Spain? Italy?

The conspiracy side of it comes from the belief that TPTB (The Powers That Be), whoever they are, have deliberately done this to Cyprus to test the water. Cyprus is a small country, where any public revolt against this may be controlled, if necessary by force. The country has a history of military coup, rule by force, so if this turned out a disaster they know how to control things. It would be more difficult to do that in Spain or Italy.

However, if they were to get away with this tax, then a precedent has been set. Financially it might work, but that doesn't take away the fact that it is totally, morally wrong. Politicians have a habit of using precedent to do things again once they see that it "works".

Taxing everyone for the mistakes of a financial elite that took us all up the yellow brick road to their fantasy land of prosperity will only disgust anyone who feels that this is another kick in the balls of justice and what is right and wrong. The people of Cyprus are right to be outraged and the politicians should take note of the potential for trouble that they are unleashing in taking such measures.

But this is also the problem with conspiracies, are they really that stupid? Or perhaps "they" want more bank runs? The start of a new EU crisis? You can go round in circles on this one, but this tax is madness in its attack on Mr and Mrs average, the little guy, the person who was prudent and honest while others conned the system for all they could get pre-financial crash and carry on conning the system today. The former are the people we should be on the side of and its the latter that should be pursued, financially and legally.

Now the fun, or not, begins.

So, perhaps the US markets really did want Romney to win after all?  Obama gets a second term and the markets, after a calm start, have a hissy fit and throw their toys out of the pram. At one stage the Dow was in positive territory, then later hit -300, ending up 312 down. The UK FTSE joined the early celebration party, then caught the bad mood as the day went on.

Was it thoughts of the fiscal cliff ahead or the fact that Europe came in with some less than encouraging economic numbers that gatecrashed the party? Oh, and to top the day off the Greeks, their politicians that is, are voting again on more austerity. Not much of a party going on in Greece right now.

Of the economic numbers, the one that may well have scared the market the most was news that Germany's industrial production contracted at a faster rate than expected in September. Output was down 1.8% month-on-month, instead of the 0.7% fall expected. Now people can probably see why Germany doesn't want to take on the burden of all of Europe's economic woes and why they seem to be standing pretty firm on what others should be doing to clear up their debt mess.

Obama says the best is yet to come, if anything the markets went back to the volatility of the recent past. Fiscal cliff fears will be with the market until the politicians agree on the next cobbled together compromise as surely they must. They probably don't have much of a choice.

Germany on a credit rating "warning"

I commented yesterday on Germany and one of the reasons why they are reluctant to go all in on bailing out the bad debt EU countries.  Today the credit rating agency Moody's has put a negative warning on Germany's AAA credit rating, which means there is a possibility of it being downgraded in the next two years.

A negative outlook posting from Moody's, one of a handful of agencies that assess the creditworthiness of borrowers, reflects a higher risk that the actual rating will be cut at some point in the next two years. 

Moody's said there was an increased chance that Greece could leave the euro zone, which "would set off a chain of financial sector shocks". 

It added that policymakers could only contain these shocks at a very high cost. 

'Burden' 

Moody's warned that Germany and other highly-rated countries may have to increase levels of support for countries such as Spain and Italy, who have not asked for a Greek-style bailout but who are struggling with high debt levels. 

This is the risk that Germany has to weigh up when deciding on its commitment to the bad debt nations of the EU. Germany cannot afford for itself to be judged as negative by the markets.  It perhaps goes some way to explain why despite numerous summits over the last 2-3 years, the level of full commitment to resolving the crisis that the Markets would like to see Germany give has not been forthcoming.

Source http://www.bbc.co.uk/news/business-18963810

Spain back on the agenda

So, having had a few weeks off from EU worry, the market now seems to be back in fear mode with Spain being at the top of the agenda.  The pattern seems to be to go from one country to another, things seem to be quite with Greece for the moment so look at who is next on the list.  This type of fear is probably better than worrying about all of the potential black spots of debt crisis as a whole, but there is the impression that nothing ever gets resolved and how can it be?  The problem of debt that has built up over the last 20-30 years is so big that there is no overnight solution to it and markets tend to like solutions that resolve crises quickly.

Markets rally on Greece vote

At least for now the markets seem to be happy with the result of the Greek election.  It looks like the pro bailout parties will form a coalition and seek to "re-negotiate" the terms if not the conditions of the debt repayment.  There was talk over the weekend of Greece perhaps being given more time to bring in the austerity and bailout policies, but whether there is any new agreement on this or not, Greece will probably fail to hit its targets in future anyway so the EU may have little choice but to play the long game.

So, disaster and crisis for the markets has at least been avoided for now and those seeking doom and gloom will probably have to look elsewhere.  It will probably be Spain.

Will Greece leave the Euro or the EU?

There has been a lot of talk around the web that it is only a matter of time before Greece exits the Euro and maybe even the EU, especially if this weekend produces another election result with no one with overall control or able to put together a coalition.  The trouble is that despite the popularity within Greece of a further relaxing of the bailout conditions, or not to pay at all and default, other than the Communists, none of the political parties with any chance of power are arguing to leave the Euro let alone the EU.  Thus far the political will is not there within Greece even within the anti-bailout parties to argue for an exit.  There is also no process within the EU to evict a member state.

Greece could have a referendum on whether to stay in the Euro and/or EU, but all polls suggest that the Greek population are reasonably pro-Europe and want the Euro.  So, on the one hand the Greeks pretty much don't like the bailout conditions that have been set, but on the other they want to stay within the EU and keep the Euro.  Whether a compromise will be reached, a further relaxing of the bailout conditions, remains to be seen, but it seems to be a case of both the Greeks and the EU wanting to have their cake and eat it.

Whatever happens on Sunday, it isn't as clear as some are suggesting that it is inevitable that Greece will leave the Euro leading to others following suit.  I fancy that some sort of patched up compromise will eventually be reached, because no one wants the crisis that is likely to follow the alternative of a Greece exit.

What does a Greek earn?

The UK FTSE seems to be heading into the weekend with a reluctance to give back the gains of recent weeks.  Aided by fresh announcements from Government and Central Banks that further "money printing", which may be as much as £140 billion is on the cards to reflate the UK economy, it was only a matter of time given the quantitative easing ( a fancy technical name for money printing) so far has failed to do the job.  They have taken an overnight lead from the US, where expectations of further relaxing of the printing presses, the Bernanke asset bubble, seem to be more in the spotlight than fears of what may come after this weekend.

Fears?

Markets seem fairly relaxed considering that the Greeks go to the polls on Sunday and it looks like the result will be about as inconclusive as the last time.  The markets will no doubt be hoping for a coalition to come out of the election in support of the bailout conditions previously set by the EU.  The alternative is a step into the unknown, or at least an unknown that could either result in another market crash, or at least a fall that gives back all the gains of the last few weeks.  It is reported that traders have been keeping their powder dry awaiting the election result from Greece.  Pretty good advice right now.

Then there's the little matter of Spain touching the uncomfortable 7% interest on Government borrowing.  The Germans are still very much against the proposed Eurobonds, which is basically just another QE type reflationary exercise that the markets would probably be happy to support.  Given this backdrop the market seems to be in one of those play it by ear moods, the more positive approach of the last few weeks could be a distant memory by this time next week.  Maybe the Greeks will surprise us?  Actually, I suspect no surprise, no overall majority, more uncertainty, for both Greece and the markets.