So, just in time for the start of the week, high-pressure negotiations with the Troika and Eurozone Finance Ministers have yielded a result in the Cyprus Crisis. Of the two main Cyprus banks, Laiki or the Popular Bank of Cyprus has proved not to be popular enough and is to be closed as it assumes the role of ‘bad’ bank. The other, Bank of Cyprus will survive in the role of ‘good’ bank. Customers of both banks with deposits of up to €100,000 will be protected from the ‘haircut’ of up to 40% which will be removed from larger deposits to be used to clear Laiki’s debts and to recapitalise the Bank of Cyprus. Furthermore, it is expected that senior bondholders of Laiki will lose out completely while those of the Bank of Cyprus will be obliged to incur some loss.

The uncompromising tone of yesterday’s statement from the European Central Bank concerning Cyprus that emergency funding would not be extended beyond next Monday 25th March unless a joint-European Union/International Monetary Fund programme was in place to ensure the solvency of the banks in difficulty has raised the stakes and the temperature. The Cyprus Government is to vote again on the situation today.

A read-through of the U.K. Budget leaves a sense that many of the potentially stimulative measures such as tax cuts and increased allowances will not come in until 2014, 2015 or even later. It’s almost as if time has stood still and, perhaps, that is precisely what has happened as sluggish economic growth – now halved for 2013 in the estimate from the Office for Budget Responsibility (OBR) from 1.2% made last December to 0.6% – forces everyone’s plans onto hold, seemingly indefinitely. Welcome, however, are more immediate measures intended to stimulate home ownership through Government-backed mortgages and, in turn, the construction sector through increased housebuilding.

It was not unexpected that the Government is sticking to its austerity plans, despite the weak economy. A big surprise was the NIC changes for small enterprises. As with a fiscal neutral budget the chancellor moved to alter the Bank’s remit and focus on inflation and growth. The BoE can now use unconventional tools and employ forward-looking guidance to influence interest rate expectations.

It’s quite difficult to ignore the drama unfolding in Cyprus even with competition for investors’ attention from today’s U.K. Budget and a strong performance in the Shanghai equity market (+2.66%). Following the complete failure yesterday of the Cyprus Government to garner any votes in favour of the E.U. bailout proposal, the options now on offer look uncomfortably bleak, including even ‘Cyprexit’ from the Eurozone.

So Cyprus is not only the tail that wags the Eurozone dog, it also has a bite. We were thrown back into the realms of extreme polarity again yesterday as markets were torn between shrugging off Cyprus as irrelevant to discounting a return to full-blown contagion across the Eurozone and beyond. Little wonder that it was the banking sector was the weakest constituent of the 0.5% fall in S&P 500 Index, in part on concerns of potential international exposure.

The weekend news that depositors in Cyprus banks are to be ‘taxed’ by up to 9.9% on savings balances has established a worrying precedent for Eurozone depositors elsewhere. The fact that European Union accounts are supposed to have protection up to €100,000 has gone out of the window for savers in Cyprus, subject to parliamentary debate scheduled for today. One argument is that, because Cyprus’s banking system is virtually bust, it wouldn’t have the money to bail out depositors anyway. Hence the sleight of hand which may unsettle depositors in other E.U. countries in financial difficulty.

Dateline Brussels – a line of gleaming black limousines and the prospect of a group photograph. Yes, it’s another European Summit, complete with crowds of anti-austerity demonstrators. Even though, according to the German Finance Minister, it is not on the agenda, the need to sort out a bailout for Cyprus may be difficult to ignore. It is intriguing to see how circumstances have contrived over time to make Cyprus attractive as a centre for money-laundering and, understandably, Eurozone members such as Germany are far from keen to bail out these groups in the course of any financial rehabilitation of the island state.

So, in Rome at least, the ‘fumata bianca’ has finally emerged, signifying the election of a new Pope for the Roman Catholic Church. For those market indices such as the S&P 500 hovering, seemingly indecisively, just below their all-time highs, it is still a case of ‘fumata nera’ although the outlook is not wholly black, except perhaps among some of the European economies.

As if to demonstrate in spades the comments here exactly a week ago about the Dow Jones Industrial Average Index hitting new all-time highs and the shortcomings of its composition and calculation compared with the S&P 500 index, last night’s Wall Street close saw the Dow hit a new high at 14,450 while the S&P went into sharp reverse, losing 0.2% to 1,552 to leave it now 1.5% below the all-time high of October 2007. It appears that the S&P Index needs to consolidate a little more before it can resume its upward push.

Rather like massed Roman legions marking time in camp ahead of the next battle, the hint of a lull in activity gives a sense that markets are preparing for the next assault on previous highs. According to Bloomberg data, the PER on the S&P 500 Index at 1,556 based on 2012 earnings stands at 15.4x (current) falling to 14.1 prospective for the 2013 and the historic yield is 2.1%. At 31st December 2007, around the time of the previous all-time high, the corresponding numbers coming out at the top of the earnings cycle were more demanding at 17.3x (current), 14.9x (prospective) and 2.0%.

As flurries of snowflakes surround the London office and temperatures drop, we must accept that Spring has yet to arrive in its entirety. A similar chill is running throughout Italy – and not just in the snowy North – as an alleged judicial/political plot attempts to put Mr Silvio Berlusconi behind bars for two years and further complicates resolution of the economic challenges there. Of course, silver-tongued Silvio is having none of it and he probably won’t. Ever.

As the Dow Jones Industrial Average of thirty shares, assisted by a following wind of Government cash which U.S. taxpayers haven’t even earned yet, hits an all-time high amid much fanfare, bells and whistles, it is perhaps worth questioning how much this genuinely reflects what is going on in the underlying economy. That the index has done this is not entirely surprising given the amount of liquidity that has been pumped into the system to make ‘riskier’ assets look more attractive to stimulate economic activity and reduce unemployment.

Mike Franklin, Head of Investment Strategy at Beaufort International, speaks about the time horizon for the move out of bonds into equities and why you should be cautious on investing in the United States. He speaks on Bloomberg Television’s “The Pulse.”