3/18/13 4:30 PM – Tiny Cyprus Affects Markets

The tiny country of Cyprus, which as you know is just an island in the Mediterranean Sea, and is one of the countries in the Eurozone, made news this weekend by announcing a bailout plan for their government that included taxing bank deposits to the tune of as much as 15%. This is not a tax on income but a tax on assets.

The problem is that it calls into question the sanctity of bank deposits in a Eurozone member country and of course other countries and other banks have money in Cyprus. Fortunately, the idea seems likely to be scrapped as a bad one, but it reminded people that Europe still has problems deeper than its current recession, which aside from the Mediterranean countries, is rather mild so far.

European markets were down over 1% today and the U.S. market opened lower in sympathy but started a recovery almost immediately that got almost back up to breakeven and then sold off again in the last hour.

As I mentioned, I think the stock market and high yield bond markets are due for a pullback. The news that triggers it almost doesn’t matter. Technicians will sell because the charts tell them its about time. I doubt the drop, assuming we get one, will be more than 5%-10%.

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