A Sign The Apocalypse Is Near!

| March 25, 2013 | 0 Comments

Earlier this week I had the pleasure of sitting down to chat with non-fiction, sci-fi, and fiction writer Frank Fiore.  We were having a casual lunch as he lives near I do, and he was telling me about his latest book which is nearing print.

The conversation turned to politics and world events, and of course we started to discuss what happened in Cyprus this week…

Without divulging Frank’s political position, the gist of what was discussed revolves around how insane the ECB’s €5.8 billion levy on private bank deposits is.

If you’ll recall, news broke earlier this week on a bill that was put before the Cypriot parliament to tax private deposits 6.5% for accounts holding between €20,000 and €100,000.  Accounts over €100,000 would be hit with a whopping 9.9% levy (tax)!

With rioters in the streets, the parliament rejected the bill (wisely)…

But the news that Cyprus is now talking to Russia for a €10 billion bailout is downright scary!  If Russia fulfills this request, then Cyprus basically becomes a “property” of Moscow.

So where’s the connection?

Apparently it’s been reported that a number of Russians park “offshore” cash in Cyprus banks- so there may be quite a few folks ringing up Putin as you read this.

Ultimately, this is a really bad move for Cyprus.  I’ll tell you what I told Frank-

“The ECB needs to figure out some sort of a bailout for Cyprus… just like they did for Greece.  The ECB was happy to buy Italian and Spanish bonds to stem the interest rate crisis last year.  For the low, low price tag of €5.8 billion, they can come up with some arrangement to save Cyprus.”

Here’s the biggest problem with this situation… a levy on private depositors was an unwise play- when Cyprus opens their banks again, there’s going to be a mass exodus of cash.  The ECB will end up having to front Cyprus money to facilitate these withdrawals anyway – so in the end, all the ECB will end up doing is create panic and mayhem.

So what does this mean for US equity investors?

Well, as bad as it sounds- it’s not a sign of the apocalypse, and US investors can take a breather. 

The ECB can step in to help, sort of like the Fed does with our banks in times of crisis.  The difference is, there will need to be more sovereign fiscal controls handed over to an ECB-controlled governing body from EuroZone member countries.

And seeing as they have been headed in that direction anyway, it’s eventually going to come to pass- pride and dignity be damned.  “There’s too much at stake,” I told Frank…

“They will all comply and everything will work out.  The ECB will become like the Fed and just print more money- otherwise it will be the end of the EuroZone.   And the end of the EuroZone and the Euro WILL be a start to the apocalypse!”

Until next time,

Brian Walker

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Category: Foreign Markets

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