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ZERVOS: There's No Going Back, We Might Have An STD Situation Brewing ...

Mar 19, 2013, 22:23 IST

Jefferies strategist David Zervos has been known for a long time as a bull on markets, in large part due to the steady hand of policy makers.

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But he was quick to go negative on the Cyprus haircut, characterizing the news as a "nuclear war" on savings and wealth.

In an interview yesterday on Bloomberg TV he came down decidedly cautious on markets.

And now he's sounding even more nervous.

The die is cast. There is no going back for the Cypriots or the Eurozone leaders. As soon as the banks open in Cyprus there will be billions in withdrawals. The question of course is - "where will the money come from?". Well, if the parliament votes YES, then the Euros will have to come from the Eurosystem. But there is a glitch. The Cypriots have already borrowed 10b euro via the ELA and Target2. How can Mario just wire over 20 billion more (less the 10 to 15 percent haircut) for the Russians, and another 20 to 30 billion for the wealthy Greeks. What collateral will an economy with 20b in GDP post to get this cash? Unless Mario violates every collateral rule at the ECB, the Cypriot financial system will collapse even with a YES vote. Its a wonderful life - Cyprus style.

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Again, this all assumes a deal is passed, which is not clear at all.

He concludes that this time, things may really turn for markets.

This is not a BTD opportunity (yet), rather we might actually have an STD (sell the dip) situation brewing. Good luck trading.

Find more Zervos at Markit Hub --- >

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