Bill Gross "Man in the Mirror" - What if rates go up, prices go down?

Investors should be judged on their ability to adapt to different epochs, not cycles. An epoch may be 40-50 years in time, perhaps longer.

Bill Miller may in fact be a great investor, but he’ll need 5 or 6 more straight “heads” in a future epoch to confirm it. Peter Lynch is a “party pooper.” Warren is the Oracle, but if an epoch changes will he and others like him be around to adapt to it?

No matter how self-indulgent you think this IO is, I just looked in the mirror and saw at least a 7. You must be blind!

What if an epoch changes? What if perpetual credit expansion and its fertilization of asset prices and returns are substantially altered? What if zero-bound interest rates define the end of a total return epoch that began in the 1970s, accelerated in 1981 and has come to a mathematical dead-end for bonds in 2012/2013 and commonsensically for other conjoined asset classes as well?

http://www.pimco.com/EN/Insights/Pages/A-Man-In-The-Mirror.aspx 

BOJ to pump $1.4 trillion into economy in unprecedented stimulus

(Reuters) - The Bank of Japan unleashed the world's most intense burst of monetary stimulus on Thursday, promising to inject about $1.4 trillion into the economy in less than two years, a radical gamble that sent the yen reeling and bond yields to record lows.

New Governor Haruhiko Kuroda committed the BOJ to open-ended asset buying and said the monetary base would nearly double to 270 trillion yen ($2.9 trillion) by the end of 2014 in a shock therapy to end two decades of stagnation.

The U.S. Federal Reserve may buy more debt under its quantitative easing, but with the Japanese economy about one-third of the size of the United States, the scope of Kuroda's "Quantitative and Qualitative Monetary Easing" is unmatched.

 

"This is an unprecedented degree of monetary easing," a smiling Kuroda told a news conference after his first policy meeting at the helm of the central bank.

http://www.reuters.com/article/2013/04/04/us-japan-economy-boj-idUSBRE93216U20130404

The Four Traits Of Monetary Union Collapse

There are four traits that UBS identified as common trends around the breakup of a monetary union. So has Cyprus (as is tirelessly pointed out, only 0.2% of the Euro area measured by GDP) set a course for the Euro’s destruction? Indeed, with Cyprus having checked the first three items on that list, while it has not left the Euro (yet), UBS concludes, "it may well be occupying a seat very close to the exit."

Via UBS: Is Cyprus Still In The Euro?

The four traits are:

• Monetary union break up is preceded by capital flight from perceived weak from perceived strong parts of the union
• Monetary union break up has tended to be regarded by governments as an opportunity for seizing cash or other assets held by citizens
• Capital controls tend to be imposed early in the break up, and foreigners’ asset holdings are often discriminated against
• Break up of a monetary union is normally associated with civil unrest and authoritarian government in at least some part of the former monetary union.

http://www.zerohedge.com/print/472326

Cyprus Financial Crisis: Deposit Confiscation

http://demonocracy.info/infographics/eu/cyprus_crisis/cyprus_crisis.html

Monte Paschi says lost billions in deposits after February scandal

(Reuters) - Customers' deposits at Italian bank Monte dei Paschi fell by "a few billion euros" after a scandal erupted in February over loss-making derivatives trades at the lender, the bank said in a document posted on its web site on Saturday.

Monte dei Paschi last week reported a higher-than-expected net loss for the whole of 2012 on the back of a rise in provisions for bad loans and 730 million euros in losses on the derivatives trades, which are at the center of a fraud.

http://www.reuters.com/article/2013/03/30/us-monte-dei-paschi-deposits-idUSBRE92T08520130330

Bank of Cyprus big depositors could lose up to 60%

Bank of Cyprus depositors with more than 100,000 euros (£84,300; $128,200) could lose up to 60% of their savings as part of an EU-IMF bailout restructuring move, officials say.

The central bank says 37.5% of holdings over 100,000 euros will become shares.

Up to 22.5% will go into a fund attracting no interest and may be subject to further write-offs.

The other 40% will attract interest - but this will not be paid unless the bank performs well.

It was known that the wealthiest savers at the Bank of Cyprus would take a large hit from the bailout deal - but not to this extent, the BBC's Mark Lowen reports.

http://www.bbc.co.uk/news/business-21982652

Cyprus Bailout Infographic

Bitcoin prices surge post-Cyprus bailout

NEW YORK (CNNMoney)

Shares of the cyber-currency bitcoin have surged in the past week as investors seek safe havens following the unprecedented bailout of Cyprus' banks.

http://money.cnn.com/2013/03/28/investing/bitcoin-cyprus/index.html?iid=Lead

Capital controls in Cyprus remain unclear

http://www.bbc.co.uk/news/business-21936554

In other Cyprus-related developments:

• The Department for Work and Pensions has said British pensions will not be paid into Cypriot bank accounts for the foreseeable future and has advised expats to open UK accounts
• Piraeus, Greece's third-biggest lender, said it has signed an agreement to acquire all of the deposits, loans and branches owned by the Greek subsidiaries of three Cypriot banks - Bank of Cyprus, Laiki, and the Hellenic Bank - for 524m euros (£445m)
• The head of the eurozone group of finance ministers, Jeroen Dijsselbloem, said there were no apparent signs of increased withdrawals of savings from peripheral to core countries in the region as a result of the Cyprus crisis.
• Chancellor George Osborne has said the Treasury is working on a "British solution" for the 13,000 UK customers of Cyprus Popular Bank, part of Laiki Bank, who could lose a proportion of their savings above the 100,000 euros (£85,000) cut-off limit.

Cyprus: The worst is yet to come

FORTUNE -- The banking crisis in Cyprus is far from resolved and will almost certainly morph into a far more serious sovereign debt crisis in the near future, threatening investors around the globe. The revised bailout agreement hatched over the weekend will still leave the island nation's banking-centric economy in ruin, thus limiting the government's ability to meet its future debt payments.

In order to avoid another Greek-style economic meltdown, Eurozone officials would be wise to construct a more practical bailout—one that at the very least avoids nuking the Cypriot economy. Failure to do so will not only condemn Cyprus to years of misery, but it would also put the Eurozone one step closer to a painful breakup.

The markets breathed a sigh of relief on the news that a deal had been struck regarding the Cypriot bailout. European and US markets initially popped in Monday trading, but quickly gave up their gains as investors started to get their heads around the agreement. That is not surprising given how atrocious this deal is for Cyprus.

The hastily put together bailout still forces the nation to come up with 5.8 billion euros to qualify for a badly needed 10 billion euro loan, which will come courtesy of the European Union and the International Monetary Fund. But instead of raising the money by "taxing" bank accounts of all sizes (as what was terribly proposed last week), the plan now calls for taxing only those accounts that exceed the nation's deposit insurance limit of 100,000 euros. It also calls for the wind down of Popular Bank (Laiki, in Greek), one of the nation's largest banks, shoving all the big depositors' cash into a so-called "bad bank" where depositors could possibly lose everything.

Cyprus: The worst is yet to come - The Term Sheet: Fortune's deals blogTerm Sheet

Cyprus a Template For EU

Perhaps the best example of a "word out of place" comes from the new Eurogroup head, Dijsselbloem, also phonetically known as Diesel-BOOM, who just may have ushered in the next, next wave of the Eurozone crisis:

• "Cyprus a Template For EU"

Er... wasn't it a special case, inside a unique case, wrapped in a one-time case? We will ignore the rather hilarious Freudian slip, and focus on what he was explicitly talking about with Reuters [5], which is the resolution model which was just put in place in Cyprus [5]:

Cyprus: The deal that is not a deal but an understanding

Let’s talk about what we do know, which is very different from what the Troika and Cypriot government want us to believe:

• Cyprus will be in a three-year program – The Troika will provide EUR 10 billion which can not be used for recapitalising the two biggest banks.

• Cyprus needs to bring its government debt down to 100 percent of GDP by 2020.

• The banking sector need to be at European average level by 2018.

• Laiki bank will be split in a good and a bad bank. The “good” bank will be folded into Bank of Cyprus including the ELA funding (approximately nine billion EUR). This should raise roughly four billion EUR according to EU Group.

• Bank of Cyprus will need to be capitalised to have a core capital ratio of nine percent which means a serious amount of bail-ins from its equity, bond and depositors with in excess of EUR 100,000 in their accounts. Estimates run from a conservative 20 percent to a draconian 50 depending on the model used and the future impairment of the loan book.

• Time-line: By Mid-April (Note: not this week but by Mid-April) a memorandum of understanding needs to be signed by the Troika and the Cypriot government. Then this MoU needs to ratified by all members of the Eurozone including Germany by late April/early May for the first installment to be paid out by May.

This is the facts as I see them. From now until mid-April is a very long time, especially for a country which just introduced three "firsts" in EU history:

1. Capital controls. One euro in Cyprus is not the same as one euro in Berlin or Paris any more. You cannot move your money off the island.
2. Bail-in of senior bondholders – In Greece it was only junior bondholderss
3. Bail-in of depositors with more than EUR 100,000 in their accounts.

Leaving aside the fact that “capital controls” are only supposed to be for EMERGENCY circumstances, it is, like most solutions from the EU, a direct violation of the bloc's own treaties which enshrine the free movement of capital.

In Europe, it's been over a generation since anybody who was voted into office on a mandate for change actually came tru on their promise. Yes, the Lady with the handbag, Margaret Thatcher in 1979, but it was also in 1979 that the UK abolished its last capital controls. Have we gone full circle back to the 1970s? If so, let’s hope that somewhere in Europe there's a new Baroness Thatcher waiting in the wings who is willing and able to see beyond the next ECOFIN or EU Council Meeting. With the current rate of policy backsliding and regression the EU is destined only for one thing: decade after decade of lost opportunities and a social fabric that will be hard to sustain in the face of rising unemployment, capital controls and a general attitude that more macro is needed and not less.

The German election can’t come soon enough. We need to break this negative cycle which is spiraling out of control while politicians stands idly by. This weekend's 'deal' has no winners - only losers. And it has left European decision-making bleeding and without hope of recovery as the EU commission and IMF exchanged harsh words all in the name of a power game, never for the sake of future Europeans.

http://www.fxstreet.com/fundamental/analysis-reports/macro/2013/03/25/ 

Cyprus Salvaged After EU Deal Shuts Bank to Get $13B

Cyprus dodged a disorderly default and unprecedented exit from the euro currency by bowing to demands to shrink its banking system in exchange for a 10 billion-euro ($13 billion) bailout.

Cypriot President Nicos Anastasiades agreed to shut the country’s second-largest bank under pressure from a German-led bloc of creditors in a night-time negotiating melodrama that threatened to rekindle the debt crisis and rattle markets.

http://www.bloomberg.com/news/2013-03-25/cyprus-to-chop-banking-system-to-win-aid-avoid-default.html

Eurogroup press conference and statement about new deal

It's 2:30am, do you know where your deposits are? Tune in to see the Eurogroup explain how this is in the best interest of the Cypriot people, how the 'deal' illustrates the solidarity of the European people, and how the worst of the crisis is now behind us.

• *SCHAEUBLE SAYS CYPRIOT DEAL NEEDED BAIL-IN AT BOTH BIG BANKS
• *SCHAEUBLE SAYS MUCH WORK REMAINS TO BE DONE :BOCY CY, CPB CY
• *SCHAEUBLE SAYS TIME LOST ON CYPRUS, SITUATION DIDN'T IMPROVE
• *EU COMMISSION SAYS NO CYPRUS PARLIAMENT VOTE NEEDED: SCHAEUBLE
• *SCHAEUBLE SAYS TROIKA TO CONTACT RUSSIAN GOVT ON DEAL :BOCY CY

Live Webcast here...

Here it is - in all its glory. The full Eurogroup statement explaining how there is no need for the Cypriots to vote on this, how Laiki bank is totally liquidated with equity, debt, and uninsured depositors wiped out, and how they believe in some way that this will not end in a disorderly process...

• *DIJSSELBLOEM SAYS DEPOSITOR LOSSES STILL TO BE DETERMINED
• *REHN SAYS EU TO PERFORM NEW CYPRUS DEBT-SUSTAINABILITY STUDY
• *DIJSSELBLOEM SAYS LAIKI BANK TO BE RESOLVED IMMEDIATELY

http://www.zerohedge.com/print/471852

Russia demanding Cyprus out of Eurozone

Jorgo Hatzimarkakis, the German Euro deputy of Greek origin told Skai television on Sunday morning that Russia did not want Cyprus to stay in the eurozone.

“Cyprus’s alternative plan was only a half-plan that also relied on Moscow’s help. However Russia preferred a Cyprus outside the eurozone, but inside the European Union,” stated Hatzimarkakis.

ekathimerini.com | 'Russia prefers Cyprus out of the euro area'

As has been made abundantly clear on these pages since the breakout of the latest Cyprus crisis, the Russian policy vis-a-vis its now former Mediterranean offshore deposit haven-cum-soon to be naval base, has been a simple one: let the country implode on the heels of the Eurozone's latest humiliating policy faux pas, so that Putin can swoop in, pick up assets (including those of a gaseous nature, much to Turkey's chagrin [7]) for free, while being welcome like the victorious Russian red army saving Cyprus from its slavedriving European overlords (a strategy whose culmination Merkel has very generously assisted with).

Curiously there had been some confusion about Russia's "noble" motives in Cyprus (seemingly forgetting that in Realpolitik, as in love and war, all is fair). We hope all such confusion can now be put to rest following the clarification by Jorgo Hatzimarkakis, the German Euro deputy of Greek origin, who told Skai television on Sunday morning that Russia did not want Cyprus to stay in the eurozone.

http://www.zerohedge.com/print/471836