Why does everyone care about Italy?

Well there’s this…4th largest debt load in the world

via visualecon
and then, there’s this…GDP in the entire Eurozone is only projected at .5% next year. Italy is trending even lower.

and then, there’s this…which is what happens when you try to solve a debt crisis via austerity


via reuters

 

 

 

 

 

 

 

 
 
 
 
 
and then, of course there’s this…Italian financing costs, which have come down in the last few days after hitting record levels. We suspect the most recent drop in yields was certainly due to ECB intervention. We would expect them to be under constant pressure as banks around the globe slash exposure.

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Well, this can’t be good….

On reality…

We hear a lot of people talk about “kicking the can” mainly in reference to political indecision and the unwillingness to make tough choices. Things have been coming to a head regarding the Eur-ocalypse and we’ve heard things like there’s “no more cans to be kicked” a few times in the last weeks/months. Some of the fringe have been saying the day of reckoning for fiat currency is upon us…and to that I say…

There are always cans to be kicked. G-pap will get thrown out of Greece, they’ll institute the agreed upon restructure, markets will go to the moon and then focus will shift to Italy. Italy will implement some watered down austerity(again), declare everything is under control and then in a month or two we’ll be writing this same thing again. Rinse and repeat. That’s how it works. volatility will continue.

being who he was, John Pierpont Morgan, was oft asked the question of what the markets would do…

 “It will fluctuate,” Morgan reportedly replied.

truer words were never spoken.

There is no fiat end game. Atleast not one that any of us will probably live to see. What is certainly possible and has obviously been occuring is the continuation of a slow protracted deterioration in wealth for most people, atleast in the US and some other developed countries. You can only fix debt problems in government a few ways. Inflate, cut spending, or increase revenues. Any of these options guarantee pain for the masses.

 -Cheers, 1689


Quick note on today…8/29/11

We think there is overwhelming evidence via the regional manufacturing surveys already released in August that the ISM due to be released 10am on Thursday will be below 50 representing a general contraction in US manufacturing. This will be the first below 50 print in almost 2 years. This is bad.

The euphoria today(index’s up 2%+) looks silly to us. As such, we are shorting the index’s and will see what happens by the end of the week.