Words of Wisdom from Wayne: Cypriot Strategy Puts Markets on Alarm

Wayne Ellis

Cypriot Strategy Puts World Markets on Alarm (YahooFinance)

The European Union’s (EU) tough love policy for the island of Cypress has roiled markets worldwide today. Instead of simply flooding Greece, Spain and Italy with European Union bailout bucks in exchange for significant austerity measures, the EU decided Cypress’ depositors themselves should contribute to bailout funds by taxing existing accounts. Therefore, a one-time tax has been imposed at a rate o 6.75 percent for accounts up to $100,000 euros and 9.95 percent on larger accounts. Global markets are reacting to this with many investors seeking to sell off risk (equities) in fear that this move marks a new era in the European credit crisis, and global financial scene.

Far East Markets First to React to Cypress Mess (Bloomberg)

East Asian markets reacted swiftly this morning to the EU’s new Cypriot “bailout” strategy. And investor reaction to the new “tax depositors to fund their own bailout” idea is a resounding raspberry — with funds fleeing the markets in droves. A quick look at the big three Asian indicators, Japan’s Nikkei 225, Hong Kong’s Hang Seng and Shanghai’s Composite Index show losses of 2.71 percent, 2 percent and 1.68 percent, respectively.  And red is also the color du jour on European markets, with England’s FTSE 100, Germany’s DAX and France’s CAC 40 all down, as well.  Finally, U.S. equity markets fell today, too, stopping a streak of ten consecutive days of gains. Ugh.

Fed’s Meeting Next Week to Calm the Herd? (MarketWatch)

The Federal Reserve’s policy meeting next week has an extra item on the agenda: quell investor fears ignited by Fed Chairman Ben Bernanke’s comments about slowing down Quantitative Easing. Despite investors’ alarmed reactions, many analysts discounted what came out of Bernanke’s mouth, almost as quickly as it happened. “Talk of tapering in the near term is nuts,” according to Ian Shepherdson, Pantheon Macroeconomic Advisors’ chief economist. Analysts are taking the wait-and-see approach as the U.S. economy has come out of the gates hot in recent years, only to cool off.  So, to get a real indication of economic performance, more time is needed… Until a realistic appraisal is reached, investors and analysts alike can count on QE purchasing $85 billion in debt each quarter… and the economy reacting accordingly.

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A levy to be imposed on banks in the European island of Cyprus renewed fears on the euro zone's debt crisis, causing investors some concern and triggering falling stocks in the United States today.


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