Hello traders everywhere! Adam Hewison here, co-founder of MarketClub with your mid-day market update for Monday, the 18th of March.
Et Tu, Cyprus?
"Et tu, Cyprus?", meaning "Even you, Cyprus?" (or 'You too, Cyprus?') is Latin, often used poetically as "Et tu, Brute?" to represent the last words of Roman dictator Julius Caesar to his friend Marcus Brutus at the moment of his assassination.
Once again, the problems in Europe resurface not with Greece this time, but with Cyprus, the largest inhabited island in the Mediterranean. Is Cyprus the tip of the iceberg? Cyprus is a very small part of the EU economy, representing only about .5% of total EU output. What is really going on here is not so much what percentage Cyprus represents, but rather the seizure of bank funds and breaking the law to get them. According to law, every bank account in Cyprus is guaranteed or insured for €100,000. Here is the risk as I see it in the Euro equation, it is "PERCEPTION". Europeans must be saying to themselves, if they can do this in Cyprus, why not Greece, why not Spain and why not Italy!! Perception in the marketplace is incredibly important, and if the perception in Europe turns an already shaky alliance negative, things could get very ugly, very quickly.
Last week I wrote an article on "perception", which I recommend that you take a few minutes to read. Perception really is the underlying power that moves the market. If the negative perception of Cyprus is not contained, countries like Greece, Spain and Italy will see unprecedented runs on their banks. In addition to bank runs, we suspect there will be chaos in the streets that no one will be able to stop. Negative events in Europe will not make the US immune to feeling the pain.
Gold on the Move? Or a Knee Jerk Reaction to Today's Headlines?
Gold moved over the psychological $1600 an ounce level this morning on continued concerns about the problems in the banking system in Europe and particularly what's going on in Cyprus. There is probably a good chance that we are putting in a significant bottom in the gold market, yet it is way too early to make that call. For the past year or so, gold has been moving sideways trading between $1,550 on the low side and $1,800 on the upside. We would like to see more confirmation before becoming super bullish on the yellow metal.
IT'S GETTING CLOSER - CHAOS AHEAD
March 27th - Budget Resolution Expires
May 19th - Debt Ceiling Suspension Expires
Have a great trading day,