By now you must have learnt what has happened in Cyprus. The tiny small Eurozone country is almost kaput as the banks in Cyprus are all burst in heavy debt. It is fun to see the talking heads debating how much impact this event will have for the Euro countries. I often heard such a moronic question: how can such a small country cause any meaningful financial impact in the world?
Yes, Cyprus banks only need $10 B to save them, which is less than a drop in the ocean in terms of the quantity. But the real problem is not the actual money amount, but the way the issue is handled, which has totally destroyed the confidence people have for the banking system in the Eurozone. If the precedent is set that people's bank deposits can be easily taken away in Cyprus, who can ever believe and trust other banks in any Eurozone countries that their money will not be stolen some day? This is how severe an impact this incident is causing. No kidding that a Spanish company — Micholochon — has designed the Ultimate European bank crisis safety net. They want you to — literally — put your money in their mattresses.
I think this will accelerate the dying process for Euro. A few months ago, I thought there was a good chance that Euro could go up as high as $1.40 before topping. Unfortunately there is no chance for it now to show any strength, given the Cyprus situation. It may struggle to touch back $1.30 but I don't think it can hold at that level and it will go down to $1.20 this year as the start of its ultimate downtrend. This is another great easy money opportunity if you know how to short Euro. Either shorting FXE or buying EUO call options will make you money in the rest of the year. This is also one of the critical reasons why one should buy precious metals, a lot!
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