Cyprus, shmyprus. I don’t care what excuse the talking heads find — this overheated stock market badly needed to cool off. If it takes another icy blast from the never-ending European debt crisis to do the trick, so be it.
You see, I’m actually pretty positive on the outlook for stocks in 2013. Interest rates are low, housing is slowly healing, corporate profits are holding up (though no longer expanding vigorously). Under these circumstances, the headline indices should be able to log another year solidly in the green.
My main worry is that the market rises too far, too fast — and we get a severe reaction when a pin meets the balloon. An ounce of correction now could spare us a ton of crash later.
So I welcome the pullback we’ve had over the past few days. If it develops into a deeper retracement (perhaps 4%-6% on the major indices) during April and May, we might be treated to another fine, broad-based buying opportunity.
What about the Cyprus situation itself?
If I were a Cypriot, I too would be enraged that the European Union was trying to renege on its promise to honor all bank deposits of 100,000 euros or less.
I would also be infuriated that the EU wanted to protect bank bondholders (many of them foreign hedge funds), while confiscating a portion of bank depositors’ balances. Legally, depositors have always enjoyed a higher claim on bank assets than bondholders do.
This is a double-cross of historic proportions, and it will make depositors elsewhere (in Europe and around the world) doubt the word of their own local banking authorities.
I don’t envisage any immediate, discernible loss of U.S. citizens’ confidence in our banks. But in the next financial crisis — who knows?
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk “value” approach has won seven “Best Financial Advisory” awards from the Newsletter and Electronic Publishers Foundation.