Cyprus scrambles for 'Plan B' to avert financial meltdown

Banks remain closed, finance minister visits Russia. (UPDATED.) Photo: AP/Petros Giannakouris

WASHINGTON, March 21, 2013 – Lawmakers in Cyprus are continuing their frantic struggle to come up with a plan B to salvage the proposed bailout of their banking system after soundly rejecting an across-the-boards bank account tax on Tuesday. Their latest idea—the nationalization of state-run pension funds coupled with an emergency bond sale—will likely run afoul of affected workers however, and seems only marginally more palatable than their first attempt, which ultimately received zero votes in favor of that move. 

The other problem with Plan B: that confiscatory bank tax is still in there, although much reduced. Deposits in Cyprus banks at or below €100,000 would still get whacked with a 2%, while bigger deposits would get nicked for 5%. 


SEE RELATED: Cyprus debt crisis: Shady Russian, Greek deposits to blame?


Throughout the island, Cypriots continue to be outraged by the situation in which they find themselves. The only way they can obtain cash currently is by hitting ATM machines for daily maximum withdrawals. The government has ordered banks to keep filling the ATMs as long as they’re required to stay closed, according to the New York Times—a situation that may last through at least this weekend. The government has extended closures past the initial period that was supposed to end Friday morning.

The bank “holidays” are intended to prevent a run on Cypriot banks, an almost inevitable consequence of the current financial turmoil. The hope is that the Cypriot government can hammer out an agreement with the “troika” of institutions that, it is hoped, will bail their nation out. The troika consists of the European Commission, the European Central Bank (ECB), and the International Monetary Fun (IMF).

For its part, the ECB says it will keep emergency aid for Cypriot banks in place at least until Monday, but threatens to cut it off after that point unless an international rescue program is finalized. The ECB is keeping the Cypriot banks on life-support by permitting them to draw on emergency funds from the local central bank.

In background, Cyprus’ finance minister traveled to Moscow yesterday to see what support his nation might find in Russia. Huge Russian deposits in Cypriot banks—thought by many to be at least in part tainted by laundered money—are a key issue in the current crisis.


SEE RELATED: Cyprus debt crisis: Shady Russian, Greek deposits to blame?


Rumors abound that the Russians may be willing to do a deal with Cyprus that would involve a substantial presence in the extraction of the rich fossil fuel deposits in the eastern Mediterranean Sea abutting on the island nation, although again, Cypriot citizens seem opposed to effectively losing control over these resources.

Stated one citizen according to CNBC, “we much prefer Russia to be involved than Germany’s Merkel, who has been bluffing all along. The Germans will do whatever they want with us,” he continued, expressing a widespread resentment of what is viewed as German instransigence.

Another Cypriot, however, fears Russia more, asserting that if “Russia makes a bigger investment in Cyprus, we will be like slaves.” Once Cyprus strikes a deal with Russia for a loan in exchange for gas reserves, he said, the country will have to give in to Russia’s demands for years.

In Europe, markets weakened due not only to the ongoing fiscal crisis in Cyprus but also to word from Germany that its business expansion had slowed according to February figures just out.


SEE RELATED: The secret of the “new” stock market: Bad news is now good news!


Stateside, after a bullish day yesterday on Wall Street, markets look toward a mixed open this morning. Fed Chair Ben Bernanke’s remarks cheered bulls Wednesday afternoon after he affirmed the Fed’s intention to continue QE stimulus until unemployment in this country dropped to or below the 6.5% threshold, which is not expected to happen until at least 2015.

The Fed announcement tempered bad numbers from bellwether stock Federal Express (FDX), however. And sentiments soured further when software giant Oracle (ORCL) reported a significant earnings miss which it somewhat lamely blamed largely on a cadre of new salespeople who were not up to speed.

Our latest moves and prognostications appear below.

—AP contributed to this report 

Trading today’s markets:

As we indicated in yesterday’s post, we were considering getting in to the IPO of Aviv REIT (AVIV), an unusual “skilled nursing home” REIT as opposed to the mortgage REITs we frequently invest in and recommend. Mortgage REITs have been weakening a bit lately due to investors leaving them in favor of more volatile “risk on” types of trades, although we still favor some of them for their relatively stable yields.

Aviv, however, is in a different niche without many competitors in that field. So, while REITs have a bad habit of going down, not up, after their IPOs open for trading, we decided to take a chance on Aviv, which initially expects to yield roughly 7.3%, some of which may be a return of capital which will reduce the cost basis of its shares over time.

As always on an offer, we have no idea whether or not we’ll get the shares we requested, so we’ll let you know in tomorrow’s report. Please note that in nearly all cases, we regard IPOs as speculative investments and limit them in our portfolios accordingly.

Also please note that we’re not recommending Aviv as an investment. Like all IPOs, even though this one has been around for a while albeit not publicly traded, Aviv has no public track record. If you’re not in on the IPO, you’ll have to buy the stock on the open market when it opens this morning, likely after 10 a.m. EDT, so travel at your own risk.

For news on other IPOs coming tomorrow, check out our short report in our other column, The Prudent Man.

We’re focusing on IPOs and secondaries today since we plan to mostly sit on our hands otherwise. If the market is kind to us again this morning, we may continue to lighten up today as we did yesterday, getting rid of our investment in Ohio-based refiner Marathon Petroleum (MPC) when it spiked hugely yesterday afternoon, up nearly $3.50 per share at one point. 

We’ve discovered that it’s best to sell on such spikes, particularly when they occur on a strongly bullish day.  Back in the 1980s, when the Maven was actually a stockbroker himself, you could let these spikes continue to run. But in today’s volatile markets, often, after a spike like this one, the stock will retrace most if not all of its move and sometimes more, leaving you feeling foolish and resentful that you didn’t sell when you had the chance. 

Analysts actually expect the torrid MPC to soar over the $100 per share mark (it closed yesterday in the $91 range), so we may get back in again. This is another stock that’s scored consistently high numbers for us, although the game will be over at some point. 

In any event, if anything else spikes for us today, we’ll likely exit such investments as well. In spite of the continued bullish tone, fed by the Fed’s continuing QE efforts, we remain nervous. Cyprus could still get out of control and Euro dominoes could fall. 

Meanwhile, North Korea continues with its nonsense, which now includes bringing down the networks of South Korean banks. And Congress and the White House continue to wrangle over what’s jokingly called a “budget” these days. 

Friday trading and the weekend loom, so caution is still the watchword. Volume on Wall Street remains low. Any perceived crisis that hits this market the wrong way will likely trigger our long-expected correction. So, as they used to say in those old TV safety commercials Boomers remember from the 1950s: “Stay Alert! Stay Alive!” 

Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.

Any positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times. 

Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward. 

References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles. 

Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.

 


This article is the copyrighted property of the writer and Communities @ WashingtonTimes.com. Written permission must be obtained before reprint in online or print media. REPRINTING TWTC CONTENT WITHOUT PERMISSION AND/OR PAYMENT IS THEFT AND PUNISHABLE BY LAW.

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Terry Ponick

Now writing on investing, politics, music, movies and theater for the Washington Times Communities, Terry was formerly the longtime music and culture critic for the Washington Times print edition (1994-2009) before moving online with Communities in 2010.  

 

 

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