U.S. Stock Market - March 22nd Week In Review

One quick look at the weekly changes to all the major U.S. stock market indexes below and you may come away with the impression that nothing much happened last week. From the bullish camp, you may hear that most U.S. stocks showed remarkable resilience in the face of the escalating financial crisis in Cyprus and weaker than expected earnings from heavy-weight market leaders like Federal Express and Oracle. From the bearish camp, you may hear that the current financial crisis in Cyprus represents just a microcosm of the potential disasters awaiting investors across most of the Euro zone immediately ahead. The truth is probably somewhere in between.

In a moment of reflection, which may be appropriate here, I have attached the monthly bar chart of Lehman Brothers from 1996 until it went bankrupt in September 2008. In early September 2008, I remember thinking that Lehman would be just like Bear Stearns in that a Government bailout would mostly wipe out shareholders, but bondholders would be made whole and Lehman would be absorbed by Barclay’s, Bank America, or some other mammoth financial institution. It never even occurred to me that the Feds would let Lehman go down. I remember thinking that Lehman was “too big to fail” and that precedent had already been set with Bear Stearns. Of course, we all know what happened now, but the lesson of the Lehman collapse has clearly been lost to the leaders of the IMF and the Euro zone (ECB & Germany) in the current Cyprus situation. In any banking system, confidence is everything! And confidence can be very FRAGILE! And without it, depositors demand their money back, AND THEN ALL IS LOST! As much as the leaders of the Euro zone would like to believe that Cyprus is just “a pimple on an elephant’s ass” and that confiscating (large) depositor money (mostly Russian money) will just be a “one time” event exclusive to Cyprus, a dangerous precedent will be set that may very well sow the critical seed for complete disaster across Europe at a later date. If depositor funds are “taxed” (confiscated) as part of the final solution to the banking crisis in Cyprus, which now appears likely, then depositors across Europe will slowly and quietly begin to drain their accounts in troubled nations like Italy and Spain (among others) on fears that the same troubled debt "solution" may be executed there. And ALL MAY BE LOST because Cyprus wasn’t given reasonable terms on a bailout of paltry sum of 10 billion euro! What’s the definition of “all may be lost”? The European Union may never be the same again, and it may not survive at all!

Here are Friday’s closing marks, with changes from Thursday’s close, and also with changes on the week, respectively:

                                                                          Friday’s Change                       Weekly Change

Dow Jones Industrial Average      14,512.03        +90.54        +0.63%         -  2.08              -0.01%

S&P 500 Index                                 1,556.89       +11.09         +0.72%        -  3.80              -0.24%

NASDAQ Composite Index              3,245.00       +22.40        +0.70%        -  4.06              -0.13%

Russell 2000 Index                              946.27       +  2.35        +0.25%        -  6.21              -0.65%

Bottom Line: Early next week, central bank and political rhetoric in Europe, the U.S., and elsewhere (except in Russia) will be reassuring regarding the resolution to the Cyprus situation, which will almost certainly involve a major tax levy on large depositors. And the bullish camp on U.S. stock prices will probably gain a temporary boost. However, the bearish camp will prevail in this argument, and a serious global stock market downturn will soon get underway.

Lehman Brothers Monthly Bar Chart to Sept 2008

NASDAQ Weekly Bar Chart with Computer-generated Buy & Sell Signals