WASHINGTON, March 20, 2013 – Cypriot lawmakers have rejected a critical draft bill Tuesday that would have seized part of both citizen and international bank deposits to qualify for a desperately needed EU bank bailout.
Even though the legislation had been amended Tuesday morning to shield small deposit holders from the deposit tax, its passage was definitively rejected with 36 votes against, 19 abstentions and zero votes in favor. One deputy was absent from the proceedings.
“No to new colonial bonds, no to subjugation, no to national dishonor and raw blackmail,” said house speaker Yiannakis Omirou during the debate before the vote.
Nicholas Papadopoulos, the chairman of the parliamentary finance committee, said banks would remain closed “for as long as we need to conclude an agreement” but stressed this would be “in the next few days.” Banks had been ordered to remain shut until Thursday while the bill was debated and amended, to prevent a bank run.
Outside the Cyprus parliament building, hundreds of angry protesters rejoiced at the news, launching into a mass chorus singing the national anthem when they heard the bill had failed.
Next up, Cyprus will be forced to come up—quickly—with a Plan B to escape an effective national bankruptcy. If it doesn’t, it will not be eligible for a package of EU rescue loans, without which its banks will collapse.
In other developments, CNBC reports that “Cyprus’s finance minister, Michal Sarris” says that “Russia has been very supportive about the terms of the 2.5 billion euro ($3.2 billion) loan that Cyprus has already received from Russia and that talks were now ‘looking beyond that,’ adding to speculation that Russia could come to Cyprus’s financial aid.” That speculation includes rumors that Russian energy giant Gazprom may enter into the equation as it looks to establish a position in the politically charged but potentially-energy rich eastern Mediterranean.
Meanwhile, in Washington today, Fed Chair Ben Bernanke will give a press conference this afternoon when the Federal Reserve concludes its current series of meetings. It’s not yet known whether he will address the crisis in Cyprus, but he’s likely to reiterate his firm support for the Fed’s current easy money stance, aka Quantitative Easing (QE).
European Markets were higher this morning, and Wall Street futures are also pointing up before this morning’s 9:30 a.m. EDT opening bell. The markets recovered somewhat from their Tuesday swoon at the close, as word of Russia’s possible involvement in a solution cheered some traders after earlier jitters over the Cypriot vote had sent shares tumbling.
Gold has firmed as the Cyprus story has unfolded, although it has yet to establish a definitive uptrend after a multi-month decline.
This morning’s trading strategies:
We white-knuckled it through yesterday’s mess, adding yet again to our position in refiner Marathon Petroleum (MPC) when it took a dive yet again. This volatile stock can get pinned in either the red or green zones at a moment’s notice, but it’s generally made money for us.
Meanwhile, we’re keeping at least some of our monetary powder dry as we await pricing this evening of AVIV REIT, Inc. (proposed symbol, AVIV), an unusual nursing home REIT that’s scheduled to go public tomorrow. We’ve also put in for shares of West Corporation, Marin Software, and Five Oaks IPOs that are all slated to be priced after Thursday’s market close.
West Corporation is billed as a communications company, while Marin specializes in digital advertising management. Five Oaks is yet another REIT, specializing in Agency (government) and non-Agency backed mortgage securities.
Typically, we try to reserve shares in IPOs before the deadline cutoff even as we conduct last-minute research on them. Information on these brand new soon-to-be-public companies can be sparse, save for the prospectus, unless these offerings have been publicly traded in earlier incarnations. Then, when they’re priced, we have to decide whether that pricing is going to work for us. I.e., is the stock going to pop (preferred outcome) or is it going to crumble. Or, should we plan holding it for awhile to give it a chance?
Our brokerage firm, Charles Schwab, has what we would call a “soft rule” about holding IPO investments for at least a month before selling. For that reason, we also have to decide whether the given IPO will have enough staying power to hold its “pop” (if it gets one) for at least a month. Some of these issues are a flash in the pan which is fine for IPO flippers who’ll dump their allocation the moment the new stock opens. But since we’re effectively barred from doing that, if we determine the stock will quickly decline after its early, opening day excitement, then we just won’t get in.
If your broker doesn’t mind it if you flip, you need have no concerns. But in the end, most IPOs, at least early on, are a bit of a crap shoot. We win more than we lose (and we do occasionally lose), so we take down as many of these as practicable.
From the list above, we have a definite interest in AVIV. As for the others, the two software-tech offerings are tough to call, while we may take a pas on Five Oaks, perhaps coming back to it later. Pure mortgage REIT IPOs have a bad habit of giving you 3-5% instant losses after they open for trading even if they later prove to be reliable investments. That’s at least due in part because their first, generally outsized dividend is usually not payable for at least six months, and no one exactly knows what that dividend or its successors will be.
Again, REIT dividends currently are usually far higher than your average Dow stock dividend. But nothing is guaranteed. So many investors keep a “show me” attitude until the IPO’s track record is later established in the open market.
Aside from this potential action, we’re going to continue to cruise under the caution flag this morning. The market is still overextended, we’re still nervous, the Fed Oracle has yet to speak, and God only knows what Cyprus, the EU, and the Rushkies will do next. That’s a lot of uncertainty for any market to deal with. Add the antics of nuke-happy North Korea and Iran to the news heap, and there’s even more to worry about, including why all this nonsense hasn’t prompted gold to move much higher.
These are all mysteries we expect to remain unresolved beyond this afternoon’s close. So drive safely today. We’ll update this article if necessary during the trading day.
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.
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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 ar500ticle under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.Click here for reuse options!
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