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US stock market daily report (March 18, 2013, Monday)

Contributed by Millennium Traders

Cyprus, a little island in the Eastern Mediterranean Sea, 3,572 square miles in size with a population of just a little over 1.1 million people, is on the verge of financial collapse. News that Cyprus banks would seize account holders funds, triggered an immediate run on the banks and to add salt to the wound, ATMs are not working and, the Cyprus government has now made it impossible to transfer money out of the country. Depositors of Cyprus banks will lose some of their money and they are furious. Half of the depositors are said to be Russian oligarchs as well as other non-residents. In an attempt to explain the deal was better than the alternative which would consist of immediate bankruptcy and closure of major banks, depositors would lose a whole lot more money, businesses would go bankrupt with no access to their funds once in banks for safe keeping and, tens of thousands of people would be instantly thrown out of work. Some of the banks in Cyprus, like many banks in Europe, are bankrupt. On Thursday when the banks in Cyprus reopen, every depositor will have some of their money seized and the current plan is as follows: accounts under 100,000 euros will have 6.75% of their funds seized and accounts over 100,000 euros will have 9.9% of their funds seized. Since no bank in Cyprus has enough cash on hand to pay off all its depositors at once, runs on the banks will cause banks to go bust, the same thing that happened to hundreds of banks during the Great Depression. Next move, the Eurozone's emergency lending facility and the International Monetary Fund will inject 10 billion euros into the Cyprus banks to allow them to keep operating. Since the start of the global financial crisis in 2008, the Eurozone gave Cyprus a bailout that included the stipulation that depositors in the banks of Cyprus must pay part of the bailout tab, a shocking bailout condition that has never been imposed before on any major banking system. Is the move by the Eurozone part of yet a new era of bank bailouts, one in which bank depositors will lose some of their money? Is this the beginning of a new bailout trend? What's next, will depositors begin withdrawing money from their accounts, creating an early run on banks? Banks will follow by making a mad rush to their governments and/or the eurozone, to save them from financial collapse? The Eurozone does not have an endless supply of funds, nor does the International Monetary Fund.

Banks worldwide felt the wrath of the Cyprus debacle on Monday, most ending lower on the day. Steven Englander, Managing Director and Global Head of G-10 Strategy in a report said, “The issue is whether to believe that the Cyprus levy on depositors is one-off, but depositors and investors elsewhere could easily see this as another in a string of ‘one-offs’ and react badly.”

According to the National Association of Home Builders/Wells Fargo housing-market index released Monday, builder-confidence index decreased to 44 in March from 46 in February for a second month of declines. "In addition to tight credit and below-price appraisals, home building is beginning to suffer growth pains as the infrastructure that supports it tries to re-establish itself," said David Crowe, NAHB's chief economist.