Don’t Sit Under the Cyprus Tree

The Mock Turtle: Well, I never heard it before, but it sounds uncommon nonsense.
The Duchess : Take care of the sense, and the sounds will take care of themselves

Alice's Adventures in Wonderland   Lewis Carroll

Long time readers and CNBC viewers know I have advocated DEFAULT in several debt crisis regions. Cyprus being an obvious case. Russian oligarchs not enriching hipster lifestyles in Brooklyn have been bailed-in to the Cyprus problem The 9.9% depositor "tax" (6.75 for lesser folk) is merely the latest Kow-Tow to the new Bond Vigilantes - the bond holders. For their involuntary contribution, account holders get an as yet determined equity stake in their unsafe institution.

The confidence contagion risk will surely heat up. Financial system puppet masters no longer tolerate banks bidding for deposits when the plumbing clogs up, not a terrible policy. Vocally backing ZIRP-ish money then confiscating a piece of it over a bank holiday is curiouser and curiouser. Sangria sipping tapas lovers may be feeling a tad dyspeptic.

The bottom line is, after a several months of positive calm (and 2 quarters of US crisis hype-remember the fiscal cliff? the debt threat? fruit?) we wake up today reminded we are still in Wonderland. The policy bears (@mark_dow coined term) have been proven wrong but the world remains a seriously financially damaged planet. Our core case for a Structurally Trapped world is the political papering over of the problem. The vast majority of new credit creation goes to old debts.

Wonderland Bond Vigilantes can be "West Coast" managers squeezing repo rates or European institutions that can't tell a bank from a nation. Participants are more comfortable moving about but should not confuse that with "new" or "normal". The heavily buttressed stability of the first quarter has made financial geniuses of teenagers, celebrities and Fast-n-Mad traders alike; their misplaced Autumn fears (conveniently forgotten) now bordering on hubris. Funny, lil' old Cypress was never mentioned as reason to "take profits." Next week should prove interesting.

"But I don't go among mad people," Alice remarked.

"Oh, you can't help that," said the Cat: "we're all mad here. I'm mad. You're mad"

"How do you know I'm mad?" said Alice.

"You must be," said the Cat, "or you wouldn't have come here."

Alice's Adventures in Wonderland, Lewis Carroll

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