Experts on Cyprus

Upon hearing the last minute deal for the re-capitalization plan for the two troubled Cyprus banks, a Reuters article optimistically declared,"Cyprus deal to bring US stock rally, experts say."

The last-ditch effort to save the banking system in Cyprus should bring a rally when U.S. stock markets open on Monday, according to several investment managers.  

Cyprus secured a 10 billion euro ($13 billion) package of rescue loans in tense, last-ditch negotiations early Monday, In return for the bailout, Cyprus' second-biggest bank, Laiki, will be restructured, and holders of deposits exceeding 100,000 euros will have to take losses.

It was unclear just how big of a hit big depositors will have to take, but the tax on deposits was expected to net several billion euros.

U.S. investors won't care too much about who takes losses in Cyprus, as long as there's a bailout that stops the run on banks in the Mediterranean island nation and keeps the eurozone stable, said Karyn Cavanaugh, market strategist at ING Investment Management in New York.

"If this works out, regardless of the terms, this is going to be good for the market," she said Sunday night.

Around 10:40 AM east coast time, as the market turned negative, another Reuters article delivered the not so optimistic news, "Stocks cut gains, Dow turns negative."

NEW YORK (Reuters) - Stocks cut their gains on Monday, with the Dow turning negative as initial optimism over a deal to keep Cyprus afloat faded.

What has been called a rescue package were in fact a recapitalization package. The aid from EU to Cyprus were to be used for fiscal control, not bank rescue. The banks were recapitalized with money seized from uninsured depositors. The new capitalization plan merely shifted the source of seizure from both insured and uninsured depositors to uninsured depositors alone. The new plan achieved the goal of protecting small depositors, but will not succeed in the objectives of maintaining Cyprus's business model of international destination for attractive Euro deposit and the capital flight from Cyprus banks for those depositors who are not forcibly tethered by capital control. The idea that depositors including insured depositors can be seized has been released. It can not be put back into the bottle again. Should the financial condition of another European peripheral nation take a turn for the worse, bank depositors will remember that speed means safety.