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Sunday, March 17, 2013

CYPRUS SITUATION UPDATE




When the news broke over the weekend that there was going to be a wealth tax on deposits I think all the BS the politicians have been pedaling about how everything is fine got exposed. I normally would not do a post just to react to something like this, but I figured some people might check in to get my thoughts on this.

Ironically we were trying to buy the Euro tonight in the Swing service at a limit price below the close from Friday, but we opened so low that it cancelled the trade because the open was under the exit stop price. Obviously, I did not see this huge sell off coming. However, I did suspect something might happen when the news broke over the weekend about the wealth tax that we were proposing to apply to bank deposits. It is shocking to say the least that they can just essentially steal almost 10% of your money if you had over 100 large in those banks. If it were me I would take the hit, take the money out and move it out of the country immediately. I have always suspected that at some point when we do hit the wall on this whole situation that things like this would happen.

The question becomes what does this mean for all of us as traders?

One thing we have to keep in mind when news stories like this break is what will the FED do? They are the de facto commercials now. Whether they outright buy the ES or orchestrate the buys of it through intermediaries we will never know. However, what we have to assess in situations like this is whether they will let a short term pullback happen then pounce when the volume dries up, or buy like fiends to try and contain it. I am not sure to be honest, I wish I was. I think we all know the stock rally has been completely created by the FED so deteriorating fundamentals are not necessarily a killer of the rally. If fundamentals mattered the rally would have never happened in the first place. I don't think traditional fundamentals matter.

We were long Bonds in the Bond System from Friday so we got a nice windfall on that trade. By the time I could even click the mouse after making sure we had a profitable opening, prices had already moved up quite a bit from the opening. We are going to be reporting the fills from the Robbins auto trade system for the official results of the system going forward. I trade those signals in 4 accounts and I think the worst fill I got was 142'15 in any of them.

I think the way to play the ES is to wait for a bounce now while maintaining a stop below the last significant pivot for longer term positions in case we don't bounce and we plunge. So far we have not broken anything significant. However, we do know based on recent comments by the President that he sees no problems with our debt or any reason to cut spending. As a result unless he changes his stance what we are seeing in Cyprus is coming here before his second term ends. I wish I knew exactly when but I don't.

I do think it makes sense to get some money into a spot where it is safe and that would mean out of banks. There is no reason to completely panic, that never does anyone any good. However, what we are seeing here is what I think so many people fear.  In a severe crisis all bets are going to be off and your money is not going to be safe in a bank. Having it in T Bills is probably the safest bet. The problem there is whether or not they would be liquid in a severe crisis. I do not know.

For now what we have is a local problem that might ignite an awareness that this could be a bigger problem in other places. There have been historic times of bank runs and they have not been pleasant. I suggest that people create some type of big picture plan, put it in place and then go about your life. You can't go hide in a cave for the rest of your life. Maybe set aside in some secret place, a few months of bills in cash then call it a day. I have always thought this was prudent even before any of this crap over the last several years, so I have not changed my mind about that.

I don't think Gold is the answer but I would be willing to bet we are about to be told that it is once again. The key with Monday is going to be volume, if it is heavy the FED won't be able to stop the initial decline. If it stays light they will probably be able to contain it pretty well. Must see TV tomorrow.

For those who read the Newsletter, you know how to interpret the ADX that is displayed above.

Stay calm

8 comments:

Baby Sun said...
This comment has been removed by the author.
Anonymous said...

Thanks for the post - some interesting comments. This move by the EU is definitely getting plenty of negative comments.

John M said...

It's too late for the sweeping brush that's being applied to the Cyprus situation, but I'll throw in a little reality anyway.

In Cyprus, this isn't quite the 'tax the rich' event you and a lot of other people are making it out to be. In the first place, almost half of the money deposited in Cyprus banks--that's half the total amount of money on deposit--is from foreign depositors taking advantage of the lax regulations and law enforcement regarding. Basically all that money is in the over 100k accounts. There are some other people who have that much money in there, I would think, but it's basically Russians and Ukranians, maybe some other Balkan types.

So why is this 30 billion euros being parked in little old Cyprus? Why not in German banks, or Swiss banks, or somewhere else? Well, most countries now have some kind of laws or rules about taking or helping launder money that has been accumulated through crime and corruption. Drugs, white slavery prostitution, official bribery, you may know what the Russian and Balkan mafia are up to more than I do. You don't make millions in these places by coming up with a brilliant (legal) business idea or franchising coffee houses.

What Cyprus, in effect, is saying, is that if mobsters and other sketchy types want their money stashed away from the local authorities, they have to cough up 10% to keep the country solvent. The tax on smaller depositors, who are basically regular Cypriots, was way too high at 6.75%, and that will come down a lot by the time this is over. The government wants it to be very clear who they're gouging and what the cost of hiding and laundering money in Cyprus is.

In a different way, this same kind of dirty money is flowing into a country like Austria. I was just there recently. The real estate market in the cities is going nuts, because the same kind of Easterners are buying expensive apartments hand over fist--the great majority of which will never see their owners' presence, or only a cursory pass-through. Austria is pretty open in this regard, the real estate sellers don't have to care about where the money is coming from, they just have to take it. And they do.

New York has a lot of foreign buyers of very expensive apartments, too, but from what I've been told we're a little more careful about the pedigree of the money being used in order to prevent laundering. I wonder.

Anyway, Cyprus may be setting a sort of dangerous precedent in one sense, but when you realize who is actually involved and where the big money comes from, it's a lot harder to get worked up over the 10%. Obviously, they still want the shady business coming their way or they would be taking a lot more.

Chris Johnston said...

John do you have any proof of this? How would you know that half the deposits are illegal drug money? If that were a known provable fact why wouldn't it all have been confiscated long ago?

However, the point is even if you are right the other half woke up to a big chunk of their money being stolen by the government. For me after PFG the next person who steals any money from me better have life insurance.

If BO gets the House this will happen in the US if the next crisis happens during his second term. If it happens during Hillary's first term I am not sure because I don't think she is as much of an extremist as he is.

The whole point which I think everyone got is that this can happen anywhere. Miami most likely has lots of drug money in banks so why would that be any different?

Anonymous said...

Chris
It makes sense what John is saying. Virtually all the articles about business in Russia.Ukrane refer to the Russian mafia as controlling it all. My brother was there 10 years ago to start a business and can attest to that.
As for the US, the "theft" has already been proposed in a Bill that would force all pension plans, IRA's, 401K's etc to put up to 50% or their assets into government bonds - a governmnet guaranteed annuity. Sure, like that will be worth a lot after their money printing and of course the government has such a stellar record managing things financial.
Don

Chris Johnston said...

My question is why is it still fine according to you guys for those regular people who are not laundering money to have 10% of their money just confiscated when it is their on the premise that it is guaranteed? Are you buys both going to be fine with 10% of your money just being stolen by the banks it is in?

If you are not I fail to see the relevance of whether or not some of the money is drug or otherwise criminals loot. The others who are not falling into that category are getting screwed

jason said...

It's weird to agree with both John and Chris but I think I have to say I mostly agree with Chris. It would be great to steal some drug dealers money. Steal is a bad word..."redistribute" would be better maybe. Anyways, it would be great. So would putting them in jail. But you wouldn't put 1000 people in jail hoping that 700 of them were criminals. you wouldn't want to do that if you were even only sure of 999 of them. If they want to wage a war on organized crime then that's great, but that shouldn't be confused with raising taxes. It'd be like saying "If we take away everyone's money, no one can misuse it". It's too extreme. Action against crime has to be exclusive to the perceived criminals or else it's nothing less than tyranny...which I don't think is the case in Cyprus.

Chris Johnston said...

Jason that is basically my point the last sentence