Menu Close

If Cyprus Bail-in Triggers Run on European Banks, It May Again Benefit US Markets

In a move that could set off new fears of contagion across the euro zone, anxious depositors drained cash from automated teller machines in Cyprus over the weekend, hours after European officials in Brussels required that part of a new €10 billion bailout be paid for directly from the bank accounts of ordinary savers.

The decision — a first in the three-year-old European financial crisis — raised questions about whether bank runs could be set off elsewhere in the euro zone. Jeroen Dijsselbloem, the president of the group of euro area ministers, declined Saturday to rule out taxes on depositors in countries beyond Cyprus, although he said such a measure was not currently being considered.

A scheduled parliamentary vote on the plan at an emergency meeting Sunday was postponed until Monday. The delay was to give a chance for the newly elected Cypriot president, Nicos Anastasiades, to brief lawmakers, according to the president’s office.

Although banks placed withdrawal limits of €400, or about $520, on A.T.M.’s, most had run out of cash by early evening. People around the country reacted with disbelief and anger.

via Facing Bailout Tax, Cypriots Rush to Get Their Money Out of Banks – NYTimes.com.

Speculation about what will happen next in Europe has been rampant. I won’t add my voice to the cacaphony. I’ll leave it to the “expert” European pundits who have prepared a Chinese menu of options to choose from about the impact of this action.

I will only add what has been my suspicion and then belief since the US bull market began in 2009, and which has been borne out by past deposit flows and market trends. European instability is bullish for the US because it is the Last Ponzi Game Standing. US Treasuries and big cap blue chips are seen by some as safe havens for parking cash. Each renewed wave of instability and fear in the Eurozone brings cascades of capital into the “safe haven” US.

It may seem to be a fools’ game, but even those who are not fools may see no other viable options. It will continue until it doesn’t.

I suspect that those who expect this event to be the catalyst for a big US stock market correction will again be disappointed. The market may tease the bears for a few days, but the Fed’s unprecedented massive support will ultimately continue to rule.  The US market may bend a little, but it probably won’t break, while inflows of European cash may again push Treasury yields down. This is nothing new. It has been the pattern for the past few years.

Join the conversation and have a little fun at Capitalstool.com. If you are a new visitor to the Stool, please register and join in! To post your observations and charts, and snide, but good-natured, comments, click here to register. Be sure to respond to the confirmation email which is sent instantly. If not in your inbox, check your spam filter.

2 Comments

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

RSS
Follow by Email
LinkedIn
Share

Discover more from The Wall Street Examiner

Subscribe now to keep reading and get access to the full archive.

Continue reading