Tuesday, March 26, 2013
In my headline post titled "The Collapse," I speculated that eventually every nation will suffer one of three fates: (1) the fortitude to pay down public debts and allowance for orderly bankruptcies, (2) continued bailouts ending in bond defaults or hyperinflation, or (3) raising taxes to pay for everything until the economy collapses. Now it looks like the trend being set in Cyprus and the European Union is some combination of the above.
It's not exactly clear yet what's going to happen with the Bank of Cyprus, but it appears that the government will freeze all savings accounts over a certain size limit (perhaps 100,000 Euros) and then confiscate some fraction of those accounts (perhaps 40%) to pay down debts. One interpretation is that this is a new property tax on the rich, where your property is now your savings account instead of your home. To wealthy depositors it will also feel like an unfair default that only hurts those who put the greatest amount of faith in the bank.
Sure, it's only in Cyprus for now, and it's only large accounts for now, but there's a lot more debt out there in Europe and around the world, and once this money-confiscating precedent is set, it can be expanded to other banks, and the "large account" threshold can be lowered.
Savings accounts in Spain, Italy and other European countries will be raided if needed to preserve Europe's single currency by propping up failing banks, a senior eurozone official has announced.
If you think that this phenomenon is not coming to a bank near you - and soon - then I've got a bridge I'd like to sell to you. It's time to question whether your "savings" account will really be yours in the near future.
Tuesday, March 05, 2013
This is something to see. As the stock market reaches towards an all-time high, short-term sentiment is becoming more pessimistic. This is an uncommon but not unknown phenomenon sometimes referred to as "climbing the wall of worry," because the negative sentiment actually helps to maintain the rally. Money flow has also recently crossed to the bullish side, so if the S&P 500 and Dow 30 really do rise decisively into record territory, then I'll have no choice but to make a bullish bet with my money.
The idea of betting on a continued rally scares the **** out of me, but it's usually best to bet against one's emotions, so that will be my only reassurance.