Hello traders everywhere! Adam Hewison here, co-founder of MarketClub with your mid-day market update for Wednesday, the 20th of March.
Cyprus, The Mouse That Roared
On Monday, I appeared on CNBC Asia's "Cash Flow" program and discussed Cyprus as being the "mouse that roared." Cyprus geographically is a very small country and represents only .5% of GDP for the EU. However, the ramifications and the notoriety of what this small island country is/was trying to do by seizing savers bank accounts is a psychological bombshell that was heard around the world, especially in Europe. That leads us to Russia, which has a great deal of its money on deposit in Cyprus. It is also rumored that some of the largest deposited funds belong to the Russian mafia. If that is the case, we would not expect to see the proposed disastrous idea of stealing savings from individuals and companies get passed.
The key takeaway in my mind is the psychological damage that has been inflicted on the European psyche. When the banks reopen in Cyprus on Friday, we would expect it will be a rush to withdraw funds, and that could be the next shoe to drop in Europe.
If someone takes their money out of the bank, what are they going to do with it?
1. Put it under the mattress?
2. Buy gold, which pays no dividends whatsoever and is heavy?
3. Buy solid dividend paying US stocks and keep their money outside of Europe?
My guess is it could be the latter, providing the Fed continues to act as the market's biggest supporter.
The Fed Reports Today At 2PM
At 2PM today, Fed Chairman Bernanke speaks and hopefully gives us an indication of what the future course of action is going to be for the Fed. I expect steady Ben will remain on course with no changes, and that the Fed will continue to pump $85 billion into bonds every month. Do you think Chairman Bernanke will mention Cyprus?
A Nail In The Euro Coffin
Late yesterday, we received a new red monthly Trade Triangle signal in the Euro/Dollar relationship, indicating that the Euro is headed lower. All three of our Trade Triangles are now red, indicating that the major trend has turned negative against the Euro.
Big Shake Up Coming At Hewlett-Packard
Today, Hewlett-Packard (HPQ) is holding a shareholders meeting and there is a strong suggestion from CalPERS, the California Public Employees' Retirement System, that they want to replace at least five of the directors on the board. These very same directors are the ones that made three disastrous acquisitions, the last of which was Autonomy, which they just wrote off the tune of $9 billion. Today we will take a look at what the stock is doing.
POTENTIAL CHAOS AHEAD
March 27th - Budget Resolution Expires
May 19th - Debt Ceiling Suspension Expires
Have a great trading day,