Tower Private Advisors
- Big trouble in little Cyprus
- Markets yawn
- Mixed economics
Capital Markets Recap
Surely, by now, you’ve heard that there’s something afoot in Cyprus–and it’s not in Florida; that’s Cypress. This is Cypress.
If you go to Google and enter “cyprus economy size,” the first thing you come across will tell you that Shreveport, Louisiana’s economy is larger. That’s why what’s happening in Cyprus shouldn’t matter to you…shouldn’t. It’s a million people on a rock in the middle of the Mediterranean…who cares.
Lemme tell you what you need to know about Cyprus, and, as usual, very little of this is original thinking; rather, it’s my synopsis.
- German chief Angela Merkel wants to get elected
- Cyprus is a profligate little peripheral southern-Europe country (keywords: profligate, little, peripheral, southern)
- Germans–and others (keywords: prudent, big, core, northern) are tired of giving money away
- Nasty Russians have lots of money deposited in Cypriot banks, not all of it obtained by legal means (no!)
- Cypriot banks were invested in Greek bonds; Greek bonds were given haircuts (i.e. marked down) in that bailout
- Cypriot banks had balance sheets that were multiples of its GDP;
- If Cyprus wants a bailout it has to accept onerous terms, like the depositors are going to be…uh…taxed at some rate; big ones more; smaller ones less
- The risk in all this is that it rewrites the rules for the other countries that remain in trouble; think Italy, Spain, Greece, and others.
- It means that the IMF and the EU can impose their will on sovereign nations
- Judging from the markets’ reactions on the week (Cyprus news hit a week ago), its verdict is that it doesn’t matter
Here is a selection of headlines featured in this week’s daily CFA Financial Newsbriefs
- Cyprus plans to overhaul banks, subject big depositors to levy
- Congress–both parts–approved legislation to fund the government through September
- TIPS negative-yield streak continues. Pictured below is the Bloomberg new and when-issued Treasuries. That little 1/8 circled is the coupon rate on the ’17 and ’23 TIPS. Based on the $107+ price, however, the yield drops to a negative (-)1.73% and (-)0.62%. Clearly, buyers of those are expecting some inflation. In fact, they’re expecting at least 2.34% and 2.55% of annual inflation, otherwise they would buy the so-called Nominal Treasuries, which yield 2.34% and 2.55%, respectively.
- Bernanke hits at his departure, saying, “I don’t think I’m the only person in the world who can manage the exit,” from the Fed’s current policy.
- The reason the Fed will continue its $85 billion/month bond buying spree, according to Gentle Ben, is that there hasn’t been any significant improvement in the labor market, in spite of a lower unemployment rate.
- Builders are caught off guard by demand for houses
- U.S. firms’ stockpile of unused cash reaches record high [and it's doing what, there?]
- [Sigh] America’s lead in R&D narrows
- Russia closes investigation of whistle-blower’s death, concluding there was no evidence of foul play [naturally]; the widow remains unconvinced
- The Economist–along with others–sees the lower shale oil and shale gas prices driving a “revival at U.S. factories”
- Putnam rolls out 6 mutual funds. Big deal, right? It’s the Freudian slip that follows in the story summary…”that aim to meet the needs of financial advisers.”
- AdvisorShares readies actively managed bond ETF. There is some debate over whether this is the wave of the future or a ripple that will quickly dissipate. Anyone who says it’s the latter doesn’t have actively-managed ETFs and vice versa.
Mixed bag. That’s how I call it. The National Association of Home Builders said that its NAHB Housing Market Index cooled off a bit. The Traffic and Future Sales components turned up, while the Present Activity component turned down. Building Permits were 21,000 higher than expected and 42,000 better than in January; Housing Starts were 17,000 better than in January, but only 2,000 better than economists expected. The Federal Reserve met this week and released a press release. Bloomberg still labels the event the FOMC Rate Decision. Of course, there was no decision to make, but they still found something to say about it, as indicated by the word cloud below. Judging by the size of the words, as one should, “inflation” was mentioned more than any other. Importantly, the Fed indicated its $85 billion pace of buying bonds would continue.
In fact, one of our research services which gets all huffy if we mention his–oops–its name, forecasts that the Federal Reserve will buy more Treasury debt than the Treasury will issue in the second quarter.
On Thursday, the Philly Fed index was released. Last month it came in at -12.5 (it ranges from +50 to -50); economists expected -3.0 this month; instead, a positive 2.0 was reported (the passive voice is regretted.) I’m not sure why economists bother trying to cook up forecasts for the series. Here it is with three other regional Federal Reserve series. To say the least, they’re noisy.
Key indicators to watch
- New Home Sales
- Pending Home Sales
- Q4 2013 GDP – third iteration
- Initial Jobless Claims
- Personal Income, Saving, and Spending
- University of Michigan Consumer Confidence
Graig P. Stettner, CFA, CMT
Chief Investment Officer
Tower Private Advisors
Tags: Europe Crisis