Forget Cyprus- This Is a MUCH Bigger Threat to Europe

By Chris Hunter,

Investors aren’t exactly thrilled with the breathtakingly shortsighted “bail-in” Europe has imposed on Cyprus.

This is a rescue in name only. In reality, it will gut the Cypriot
economy and set a nasty precedent throughout the rest of the eurozone.

Rather than cough up €5.8 billion ($7.4 billion) to save Cyprus (a
measly 0.05% of EU GDP) European leaders prefer to see the Cypriot
government confiscate 40% of Cypriot bank deposits over €100 thousand.

It will drive Cyprus into a depression, much like the “rescues” of
Greece, Spain, Ireland and Portugal have done. That’s because the deal
utterly destroys the credibility of Cyprus’ banking sector, which makes
up 45% of Cypriot GDP and employs 70% of its workers.

Europe’s mantra is that Cyprus is a “special case” because it is a tax shelter
for Russian oligarchs’ cash. About one-third of Cypriot bank deposits
come from Russian depositors. But the claim that all of this cash is
illicit is pure nonsense. It is widely believed because it plays into a
stereotype of Russians as corrupt gangster types.

Scratch the surface and a different story emerges…

First, Russia has a 13% flat-rate income tax and a 20% corporation tax. So the need to “dodge” taxes isn’t exactly pressing.

Second, about 40,000 Russians call Cyprus home. There may be some
shady types among them. But it’s a stretch to claim that the majority of
them are corrupt oligarchs who deserve to have their savings robbed.
Russia has cold winters. Cyprus sits in the Mediterranean and is warm
all year round.

Third, Cyprus and Russia have a double-taxation treaty. This puts a
5% cap on taxes on interest and means an effective 0% rate on dividends
and royalty payments. So why wouldn’t Russians seek out these terms? You
don’t have to be crooked to want to reduce your tax exposure.

But Merkel, Draghi et al. need a scapegoat. And they have found one in the Russian mob.

But the Cyprus story is a diversion. The real threat to Europe right now is Italy.

To say Italy is on the brink is an understatement.

The big winners of the recent Italian elections were a former Communist, Pier Bersani; a former comedian, Beppe Grillo; and a disgraced former politician, Silvio Berlusconi.

And they utterly rejected the caretaker prime minister, the market-friendly technocrat Mario Monti.

The level of political disarray and disillusion in Italy (where I write to you from today) is hard to believe.

Monti has said that his government “can’t wait to leave office.” And
Bersani has said that “only an insane person” would attempt to rule
Italy in the current environment. Meanwhile, Grillo, who cannot hold
office because of a manslaughter charge against him, has announced that
Italy doesn’t need a new government to pass reforms.

He is also on record as saying that his anti-austerity and
anti-establishment Five Star Movement wants to “destroy everything.” He
will also push through a referendum on leaving the euro if he gets into

If either Berlusconi or Grillo gets into power, the markets will panic.

Already investors are selling Italian and Spanish sovereign bonds and
buying safe haven German bunds and U.S. Treasury bonds. This is a slow
drip right now. But it could easily turn into a torrent, if either
Grillo or Berlusconi seizes the reins of power in Italy.

Bottom line: Another European summer of chaos and crisis is very much
on the cards. This will not only throw European markets into disarray,
but also cause investors in U.S. stocks to run for cover.

U.S. stocks have already more than doubled since their March 2009 lows. Wading in right now could prove to be horrible timing.


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Central Bank News Link List – Apr 1, 2013: Japan just might be set to open a new chapter

By Here’s today’s Central Bank News link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don’t miss any important news.

10 Startling Statistics About the S&P’s Record High


After three weeks of waiting, the S&P 500 Index finally joined the Dow in the record books.

Last Thursday, the most widely tracked Index in the United States closed at 1,569.19 – taking out its previous all-time high of 1,565.15, which was hit on October 9, 2007.

Who cares? After all, it’s just a number, right?

Well, I do!

You’ll recall, I went out on a limb and told you to expect it to happen. So I’d like to say, “I told you so!” (Just being honest.)

In all seriousness, though, the market hitting new records presents an opportunity for reflection. Or as Erik Davidson, Deputy Chief Investment Strategist at Wells Fargo Private Bank, says, “It is a milestone; it does cause you to stop and evaluate where you are and where you come from.”

Indeed! So let’s do just that today. Let’s slice and dice the data on the market’s latest run-up.

By doing so, I promise that we’ll reveal some unexpected insights, as well as some potential investment opportunities.

Here goes…

~Stock Stat #1: Talk of a Tired Bull… is Total Bull

So far we’re four-plus years into a bull market. And the S&P 500 has risen more than 130%.

Even though I told you not to before, it’s only natural to assume that such a sustained and significant rally is close to the longest on record. But it’s not.

In fact, this is only the sixth longest bull market since 1929 (the year the market crashed), according to an analysis by Bank of America (BAC).

~Stock Stat #2: First in, First Out?

It’s often said that the sectors that get us into a mess are the ones that must lead us out. Well, that’s certainly happening.

Since the market bottom, the two top-performing sectors are financials and consumer discretionary. They’re up 192% and 233%, respectively.

In other words, corporate banking and conspicuous consumption have come back in a big way.

Here’s a key observation, though… Financial stocks still have plenty of room to run.

Since the last market peak on October 9, 2007, the financial sector is still down 49%.

And if you’re wondering what the best-performing sector is since October 2007, it’s consumer staples.

Let that serve as a reminder: When this bull market comes to an end, we should load up on defensive names in the sector. That is, if you want to soften the impact of the next downturn. (Hint: You should.)

~Stock Stat #3: Nowhere Near a Record

If we take into account the “thief that robs us all” – inflation – the S&P 500 isn’t even close to a new all-time high.

According to calculations by JP Morgan (JPM), the inflation-adjusted peak for the S&P 500 is 2,065.

To get there, stocks would need to rally another 31.6%. To which I can only respond, “Bring it!”

~Stock Stat #4: Keep Betting on the Frontrunner

If the trend is our friend, we should push some chips in on the best-performing stock since the market hit rock bottom. And that distinction belongs to Wyndham Worldwide (WYN).

Shares are up a mind-boggling 2,130% since March 2009, according to FactSet. What’s more, its momentum has been accelerating over the last three months.

Amazingly, though, the stock is not overly expensive. It trades for 15.4 times forward earnings, which is only about a 10% premium to the S&P 500.

~Stock Stat #5: Don’t Bet Against the United States

I served up a healthy dollop of patriotism on Friday. However, more is warranted today.

Despite analysts downplaying the appeal of U.S. stocks compared to emerging markets stocks, the former is handily outperforming the latter in 2013.

Year-to-date, the S&P 500 Index is up 10.6%.

That compares to a 7.6% decline for Brazil’s Bovespa Index… a 2.9% stumble by India’s SENSEX Index… a 2.7% decline for Russia’s MICEX Index… and a 1.4% drop for China’s Shanghai Index.

The one country that’s giving the United States a run for its money is, go figure, Japan! The Nikkei 225 Index is up more than 15% so far this year. (Once again, I told you so.)

That’s it for today. Stay tuned for tomorrow’s column where I’ll reveal another five startling statistics – including the one stock you should avoid like the plague.

Ahead of the tape,

Louis Basenese

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Original Article: 10 Startling Statistics About the S&P’s Record High