What is going on in Europe is as significant as the outcome is uncertain. Think about it: the European governments have agreed to simply confiscate 7-10% of their citizens’ savings in order to avoid another unpopular bailout.

How this will play out in coming days, weeks or months is anybody’s guess. Super Mario does not have whatever it takes to prevent people from taking care of their savings. I don’t know what will happen next. All I know is that the risk/reward equation as per the Rule of 20 is about even if the downside is limited to the 200-day m.a.. However, if we return to 15 on the Rule of 20 scale, that is a 19% slide to 1260.


Better be safe than sorry. Don’t forget, earnings have stalled which means that this market is essentially fueled by P/Es. Investor confidence is very fickle, especially when few can really comprehend what is going on. Ambrose Evans-Pritchard paints the current picture:

One’s first reflex is to gasp at the stupidity of the EU policy elites, but truth is that most EU officials handling the Cyprus crisis know perfectly well that their masters have just set the slow fuse on a powder keg – and they can only pray that it is slow.

The decision to expropriate Cypriot savers – even the poorest – was imposed by Germany, Holland, Finland, Austria, and Slovakia, whose only care at this stage is to assuage bail-out fatigue at home and avoid their own political crises. (…)

The EU creditor states have at a single stroke violated the principle that insured EU bank deposits of up $100,000 will be guaranteed come what may, and in doing so they have more or less thrown Portugal under a bus.

They appear poised to seize large sums from Russian banks – €1.3bn from state-owned VTB alone, and therefore from the Kremlin – prompting the condign riposte from Vladimir Putin that the action is “unfair, unprofessional and dangerous.”

They have demonstrated that the rhetoric of EMU solidarity is just hot air, that they will not force their own taxpayers to share a single cent of clean-up costs for the great joint venture of monetary union – in which northern banks, insurers, pension funds, and indeed governments, were complicit. (…)

What is clear is that Angela Merkel will not risk defeat in the elections in September by ceding a single vote to Social Democrats determined to hold her feet to the fire over a bail-out for “Russian oligarchs, money-launderers, and tax evaders” in Cyprus, or by ceding votes to the new anti-euro party Alternative fur Deutschland. She will look after her own political interests, and all the rest is humbug. (…)

It is far from clear that the ECB backstop for Italy still exists, given that there is no compliant government in Rome able to meet the rescue conditions.

Portugal is not safely out of the woods. Its slump has been deeper than expected. Its debt dynamics are nearing the danger zone faster than feared. Citigroup, Nomura, and many others think it almost certain that Portugal will need a second rescue, and probably debt-restructuring. What happens then? Are savers going to wait patiently for their own scalping as this becomes clearer?

As for Spain, we learn from leaks in the Spanish press that officials from the ECB and the Commission warned Eurogroup ministers that the raid on Cypriot savers posed a grave contagion risk to Spanish banks, threatening to set off deposit runs. (…)



  1. Spot on. Thanks Denis. The markets have cried wolf many times to the point that there is hardly any reaction. One of these times (maybe not this one?) the wolf really will show up.

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