By William Davis




Handsome Rob: Where do we want it to go? We can’t have a shoot up without guns. We’d lose.”

Charlie Croker: “We do it like the Italian job.”

Start with the art works of Botticelli, da Vinci, and Michelangelo, the operas of Verdi and Puccini, the cinema of Federico Fellini, and the architecture of Venice, Florence, and Rome. Toss in large portions of corruption and political apathy, a pinch of stagnating economy, an extra-large measure of organized crime, then mix it all up with total political mayhem. What do you get? Hint: Don’t ask Bill Gross.

The official name of Italy is the Italian Republic

What you get is an astonishingly dangerous bond market. If you missed it, and for what it’s worth the manager of the Janus Henderson Global Unconstrained Bond Fund did not, the wheels nearly came off the Italian wagon last Tuesday, catapulting the nation’s cash equivalent yields more than 1.5 percentage points on the day. For his part, Gross, already trailing 96 percent of rivals in his space, somehow managed to lose 3 percent in performance, finally making it to the bottom of the lion’s cage. Folks in and around Newport Beach enjoyed the spectacle, with a number of well-managed funds recording their biggest one-day gains since 2009 on Wednesday. Et tu, Brutes?

Italy has had more than 60 governments since World War II

The trigger event for messy fall and rise in Rome was the oddly sudden recognition that the country had no government. While some would argue that’s not really a bad thing for nation whose leading political parties sound like they’re soccer teams, bonds tanked on the fear that the country would somehow re-denominate its euro bonds into its own devalued currency, default, or both. Hey, why not? The Greeks did!

Soccer fans in Italy are called “tifosi”, meaning “carriers of typhus

But, oh Momma Mia, after a week of high drama, Italy late Thursday gained yet another new government, this time an agreement between the anti-establishment “5-Star Movement” and the right-wing “League” to not beat up the country’s figurehead president. Italian bonds rallied with gusto on Friday morning, of course, and stocks rose 2.8%. Surprise, surprise.

It’s been estimated that the Italian mafia accounts for 7% of Italy’s GDP

Italy, they say, has stepped back from the brink, and its markets have too. But the unhappy fact is the country, which faces some of the most entrenched economic problems in the eurozone, is about to be led by a couple of mooks. Worse, as the nation’s enormous debt pile grows ever larger, its credit grade is descending lower and lower into the ratings inferno. The markets, and most portfolio managers we suspect, are still alive to risk. If they’re still alive at all.

Steve: “You’re out of moves Charlie. The game is over. Just give up already.”


What the equity markets have been doing…

INDEX Friday’s Close Two-Week Point Change Year-to-Date Change
DJIA 24,635.21 -(79.88) -(0.34)%
S&P 500 2,734.62 +21.65 +2.28%
NASDAQ 7,554.33 +199.99 +9.43%
Russell 2000       1,648.12 +21.02 +7.33%


What the fixed income markets have been doing…

FIXED INCOME Period Change YTD 12 Months Yield
U.S. Treasuries -(2.0)% -(1.5)% -(1.1)% 2.9%
U.S. Investment Grade      NC -(3.1)% -(0.3)% 4.0%
U.S. High Yield        NC -(0.2)% +2.3% 6.4%
U.S. Municipals    (0.1)% -(0.4)% +1.1% 2.7%
Non-U.S. Developed      NC -(1.0)% +3.4% 0.9%


What pundits who quote the Eagles have been saying…

“The euro is like the Hotel California. You can never leave.”

  • David Kelly, chief global strategist at JPMorgan Asset Management.


What the numbers are saying…

  • $3,300,100
High bid at this year’s charity auction to have lunch with Warren Buffet. The winner can invite up to seven friends for the meal at Smith & Wollensky in New York


What struggling lender bosses have been saying…

“It won’t do us any harm to be a bit more boring.”

  • Christian Sewing, CEO of Deutsche Bank AG, as the German bank announced thousands of job cuts






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