Could Cyprus really KO stocks?
by Peter Switzer
I have been saying for some time that it was going to be a left field event that might create the circumstances for a pullback on stocks, and you couldn’t get much more left-field than Cyprus, which is only around 0.2 per cent of the European economy.
Our market followed the Asian lead and dropped around two per cent yesterday. Overnight Europe started panicky and then on Wall Street, the Dow lost 62.05 points or 0.43 per cent to 14,452.06 while the S&P 500 was 8.6 points or 0.55 per cent lower to 1552.1.
In case you’re not up with it, European officials came up with a 10.6 billion euro bailout for Cyprus with its debt-laden banks, but the really big sting in the tail was a one-off 6.75 per cent or 9.9 per cent tax slug onto the Cypriots people’s bank savings. Also, it’s not restricted to locals – it’s anyone with their dough in a bank domiciled in Cyprus, and this includes some wealthy Russians!
Needless to say, there are a lot of cheesed off savers linked to Cypriot banks and the country’s parliament is set to vote on the measure put forward by the smarties in Brussels. If it’s rejected, the country would have to default and then the locals would have to cop massive austerity measures, so they’re caught between the devil and the deep blue Mediterranean sea!
But if Cyprus is so small in the economic scheme of things, why are financial markets spooked?
Well, the fear is that European officials dealing with the likes of Spain, Italy, Ireland, etc. could try to spring this kind of tax on them in the future, and this has rattled some professional players.
Mind you, I think it’s a beat up — that is, the market reaction — but let’s face it, there are lots of share players who have been nearly praying for a pullback.
I wouldn’t be surprised to see a market turnaround with dip buyers prepared to gamble that this is a buying opportunity. I also would bet if European officials seriously believe that their deal will rattle the foundations of the current market recovery, placating overtures to the markets would come out of Brussels.
Of course, these guys have been stupid in the past in handling market insecurity, so this will be a work-in-progress affair this week, but as someone who has been expecting a pullback, I will take any reason — good or bad — to buy some of the stocks I want in my portfolio.
Clearly I’m gambling on the unknown, but I do know the weight of good economic data out there looks more persuasive for me to stick to stocks than a possible tax on Spanish and Italian savers some time in the future.
Hope I’m guessing right on this one!
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Published on: Tuesday, March 19, 2013
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