The Fog of War, Economic Version
It’s all Cyprus all the time now. Maybe we should call it Hype-prus at this point. I mean, I can almost hear Jan Brady whining “Cyprus, Cyprus, Cyprus.”
Let’s do a link fest to get some global perspective on this whole Cyprus thing.
Modern Money: A Study In Confidence and Crisis – “There is one lesson I hope that the people of the world take away from this. And that is to remember that a single currency is not possible without a complete union of monetary policy, and therefore a fiscal and political union that is complete and comprehensive. Otherwise a powerful group will wield monetary policy for their own benefit, and the rest of the currency area be damned. When the single world currency proponents come around again with their proposals, what they are really proposing is a one world government to be established in the ensuing crisis which their actions will eventually provoke. And despite the consistent capping of the precious metal markets, it demonstrates that there is only one money of last resort, that provides for no counterparty risk. And that is gold. And to a lesser extent the reserve currency of the world, which for now is the dollar. ”
YOU ARE ALREADY BEING CYPRUSED, BECAUSE MATH IS HARD – “Suppose grandma has life savings of $100,000 that she needs to live off of to supplement her meager $13,000 of Social Security income. Back in 2007 she could earn $5,000 per year in interest to help her make ends meet. Since December 2008 she has been able to earn a total of $650 in interest at .15% rates. That means she would have $100,650 today. But one problem. The 10.4% inflation has resulted in the $100,650 only having $90,200 of purchasing power today. This means that Ben Bernanke has already stolen 10% of your savings and handed it to his banker buddies. He is much more devious than the Eurocrats. They are being too transparent.”
Cyprus – Oh the Irony!? “Those who think there is little risk of a levy being imposed on other periphery members are missing the point. The seeds of doubt have been planted. As a saver facing zero yields on deposits and a potential haircut, why keep your savings in a bank? Sure it is convenient for electronic transactions, but individuals can adapt easily. As one of my more amusing colleagues put it, ‘mattresses now hold a 10 per cent premium.'”
Cyprus: Will the Mouse That Roared be Gored? (Updated) – “In other words, the Russians could throw a serious monkey wrench into Nato’s plan to stick a base into what Russia regards as its back yard. Whether Russia sees the opportunity and is willing to escalate international tensions to a fever pitch remains to be seen, but it would be a very clever way to exploit the Trokia’s blunder.”
Cyprus Bailout: Stupidity, Short-Sightedness, Something Else? – “Not all the banks are in the same condition. (a) Cyprus has two money-center type banks: Laiki (Popular) Bank and Bank of Cyprus. (b) Laiki was purchased by a Greek vehicle (Marfin Investment Group) backed by Gulf money. Marfin’s purchase of Laiki took Laiki from being a fairly conservative local bank to being highly exposed to Greece. Laiki is definitely insolvent and needs to be restructured. (c) Bank of Cyprus has been more conservative vis-a-vis Greece, but still has meaningful exposure. It is conceivable that, given time, Bank of Cyprus could survive. (d) Beyond the main two banks, there is Hellenic Bank (a much smaller bank with much less Greek exposure), Cyprus Development Bank (no Greek exposure), the Co-ops (no Greek exposure) and the Cyprus subsidiaries of foreign banks (aka, Russian, English, etc banks), also with no Greek exposure.”
Everything you need to know about banking, bailouts, and Cyprus – My own article from earlier this week.
After having rightly bought every single EU-debt-crisis-inspired panic in the markets and the media over the last few years, what I find remarkable about this particular Cyprus development is indeed that the markets and the media are treating this one like hype whereas I’m actually worried about this one.
A few years ago, I watched a movie called “The Fog of War” in a tiny indie theater in NYC (see: YouTube Clips from the Fog of War for a flavor of the movie). You can watch the whole thing on Netflix and I highly recommend every serious investor, trader and US citizen do so.
Anyway, the point of the movie is really that once you start a war, you really don’t know just exactly what your strategies, tactics and life in general are going as you’re doing them.
Today’s Investor and Trader’s Thought of the Day is this:
If we are in an escalating global currency, trade, labor-vs-capital, big monied influence, corporatist war, then do you really think these guys like the US’ Ben Bernanke and Jack Lew or IMF’s Christine Largarde (who’s home in France was raided by authorities accusing her of corruption from when she was France’s finance minister or whatever they call it over there) or Germany’s Angela Merkel know what the affects are with trillion dollar wealth transfers, bailouts, liquidity events, debt crises, currency devaluations and manipulations, quantitative easings, 0% interest rates for years on end, hundreds of trillions of dollars of derivative exposure and are going to “win” this war?
Look, there’s a lot more risk out there right now after these guys have been conducting this wild new type of economic warfare over the last five to ten years or so. Not to mention the ongoing fog in the ongoing wars in Iraq, Afganistan, Syria and elsewhere
Maybe the market and the mainstream media are right that this Cyprus stuff is no big deal. If the markets were down 5-10% in a straight line since this stuff hit over the weekend, and if the mainstream media were as worried about this Cyprus development as I am, I might be tempted to build up long exposure here. But we’ve got to keep on Flipping It, to stay ahead of the curve. Complacency is not an investment strategy. Let’s worry while the rest of the world is complacent. I expect such contrarianism and Flipping It will work out to be the right tactic here once again.
Two housekeeping notes before I go. Anybody know anything about WageWorks (WAGE)? I think it might be setting up to be a great short here. Let me know if any of you have any insights or have done any work on it.
And secondly, don’t forget this week’s Live Q&A Chat at 2pm EST at http://tradingwithcody.com. You can send me your question to support@tradingwithcody.com if you can’t make it to the Live Chat.
