It's Italy's turn to run for the exit

Italians will go to the polls on Sunday in the first step of determining the future of the country as part of the European Union.

Like Brexit, the Italians seem to be favoring leaving the EU over the lack of economic growth over the last 20 years partly due to the strength of the euro.

Italian Prime Minister Matteo Renzi is holding a referendum to change Italy‚Äôs constitution. A “Yes” vote essentially means Italians wish to stay in the EU, while a “No” vote can lead to the exit. The latest polls say the “No” votes have a 54% likelihood of passing.

Since Italy is the third-largest member of the EU, an exit-vote win will certainly have dire results in the market as global investors need to act as if the EU may dissolve over the next year as a result.

Certainly the cratering Italian banking system will be further impaired should the “No” vote carry the day. Monte Paschi bank in Seina will have a much harder time selling its bond offering which in needs to do in order to remain open.

Come Monday morning, the US futures markets will tell you very clearly how the vote went.

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Brexit is just the beginning

Welcome to Brexit and World War III.

It’s not a hot war, it’s an economic war, where debt is the new A-bomb.

The European Union has its seeds in post-WWII Europe, to draw the countries together economically so it would not be in their interests to go to war against each other, i.e. France and Germany.

Well that lasted 70 years, and now the grand experiment has run its course. The EU has no ability to keep the prosperous members from exiting over its socialist backbone. The bringing Germany and France down in order to fund its southern tier of willnots: Spain, Portugal, Italy and Greece.

How long will it be before Germany comes to the realization that it cannot continue to fund the EU members on its own? The disdain for immigrants creating ghettos in German cities and towns is out there on the web daily it many news stories and blogs.

Look no further than the stock reaction on Friday. Germany’s DAX was down almost 7% and France’s CAC lost more than 8%, while London’s FTSE only fell by 3.1%. The market knows who the real losers are. Spain, Portugal, Italy and Greece all saw double-digit loses on their exchanges.

The open borders policy that the EU has for immigration, which through Muslim terrorists acts, has left EU members open to attacks.

The nationalistic bent being pushed in Britain will spread through the continent, and those countries that can act, will.

So as EU bureaucrats say the parting of the ways with London must happen soon, they say that because Brussels does not want other member states to come to the understanding that the “Great Experiment” has run its course.

Unfortunately for Europe, there is no Marshall Plan for rebuilding the debt-ravaged countries on the continent, since America and Asia have their own debt problems.

 

The real deflate-gate saga

Tom Brady’s football was better inflated than this global economy.

Every day this week we have seen a sovereign nation cheapen its currency.

Russia today cut its interest rate by 2 percentage points to “ease” inflation fears. Not sure how a rate cut can subdue inflation, but leave that as it may.

Since the Swiss moved the franc off the euro peg, 10 countries (I may have missed one so forgive me, but its the trend, not specifics) have altered monetary policy to alter their currency.

There is not a major economic power on this globe that is seeing inflation fear. The deflation stagnation spiral is rearing its head across the globe as growth continues to slow.

The price of crude is the first indication of slowing growth. It has little to do with a glut of new sources coming online and everything to do with lack of demand.

The US 10-year note at 1.7% yield is low because we are the “cleanest dirty shirt”? No we are the high on the street. Germany, UK, Japan are lower in yield. Even Italy, Greece and Spain are lower.

The US GDP for Q4 2014 comes in at 2.6%, which means for all of 2014 the economy grew at 2.4%. That’s pretty anemic given the amount of funds injected into THE BANKS, not the economy in 2014.

There is far less likelihood that the Fed can move off the patience platform anytime soon given a holiday quarter at 2.6% after QE4 wound down. No escape velocity to this number. US can’t stand on its own without ZIRP.