So I hung parliament. Sue me.
as part of our
If Silvio Berlusconi couldn't set off a Eurozone crisis, then
there is little chance that Cyprus will.
Is this reasoning a little on the simplistic side?
Yes. But that doesn't mean it isn't completely true.
For anyone not up to speed on the matter, Cyprus is days away
from national bankruptcy and systematic bank failure unless they
come to an agreement with the "Troika" of the European Commission,
the European Central Bank and the IMF. How did they get into
this mess? Essentially, Cyprus' massive banking sector
borrowed heavily and used the proceeds to buy Greek government
bonds, among other questionable investments. Cyprus also
happens to be a convenient place for wealthy Russians to dodge
taxes and launder money; about 25% of the deposits in Cypriot banks
belong to Russian nationals.
Germany and the rest of the EU has a hard time asking their
taxpayers to guarantee the deposits of shady Russian billionaires,
which is essentially what they would be doing if they bailed out
Cyprus. This is why they demanded that Cyprus fund part of
the bailout with a levy on uninsured bank deposits (i.e. deposits
not covered by Cyprus' equivalent of the FDIC).
The Cypriot parliament vetoed the deal…which brings us to
today. The ECB gave Cyprus an ultimatum to reach a deal with
its lenders by Monday…or the emergency liquidity funds being
provided to its banks would be cut off.
Suffice it to say, it's going to be a long weekend in the
And this brings me back to the opening lines of this post.
The indecisive Italian election last month, in which a resurgent
Silvio Berlusconi prevented the market's preferred center-left
coalition from getting a majority, caused a few days of market
volatility. But it most certainly did not cause the Eurozone
to collapse into crisis again. And likewise, the Cyprus
standoff-which may well result in Cyprus ditching the euro-has
caused a few days of volatility but little else.
Call it the "Draghi put" or call it crisis fatigue, but the
message is clear. A year ago, this would have caused a
massive market crash and fevered speculation that the Eurozone was
coming unwound. But today, the market has stopped reacting to bad
news. And that is unambiguously bullish.
I wouldn't touch Cyprus with a ten-foot pole right now.
The country's banking system will probably be wiped out before all
is said and done, and it's far too early to try your luck at
bargain hunting. But I would take the recent volatility as an
opportunity to accumulate shares of blue chips in Spain and
One stock in particular that I like is Spanish banking giant
Banco Santander (NYSE:$ SAN)
. Santander is a solid bank with an international deposit and
lending base. If you believe, as I do, that the Eurozone is
stable for now, then Santander is a steal.
Action to take: Buy shares of Banco Santander. Plan to
hold for 12-18 months or for total returns of 100% or more.
Set an initial stop loss near the November lows just below
This article first appeared on TraderPlanet.
via e-mail today.
The post If Silvio Berlusconi Couldn't Blow Up Europe, Then
Neither Will Cyprus appeared first on Sizemore Insights.