On the heels of Italy’s no vote and Renzi’s resignation, this is what the Italian vote really means and why commodities are set to continue to surge.
Here is what Peter Boockvar wrote today as the world awaits the next round of monetary madness: The Italians didn’t vote anti establishment I believe, they voted to keep the same sclerotic system in place. What a huge missed opportunity. Does this spell the end of the Euro experiment? Are we a step closer to a breakup? Maybe and I’ve heard all the scare stories but I still don’t believe it irrespective of the referendum outcome as the majority of Europeans still want it. Austria did not vote for the anti euro candidate and France may, and I emphasize may, elect a pro business President next year. This all said, if regulatory, labor and tax reforms don’t take shape in many European countries that have excessive debt levels and pathetic growth, then anything is possible…
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As for markets, a NO vote was well expected going into the weekend and clearly priced in as the euro is up on the day after teasing the $1.05 level overnight and European stocks are ripping higher ex Italy. Long dollar is an extremely crowded trade again. Italian stocks will remain in the doldrums and banks will still do their best to raise more capital. Unfortunately for banks though, key reform on bankruptcy laws that haven’t been updated since Mussolini where it could take 7 years to unlock collateral backing many non performing loans, will not go forward anytime soon. The Italian 10 yr yield is up by 14 bps to 2.04% but only after falling by 15 bps on Friday.
The hope and belief of many voters is that when deciding on a candidate, campaigning is different than governing and things said doing the former are implemented more practically under the latter or not at all. If the first month after the US election is any indication, there will be no difference this time around, for better or for worse. I say this after another Trump tweet storm over the weekend. Sticking only to the economic talk (and not the SNL comments), we’ll get a better regulatory and corporate/individual tax environment I believe but the trade talk was always the fear that apparently won’t go away after what I read yesterday. In case you missed it, the President elect tweeted
“The US is going to substantially reduce taxes and regulations on businesses, but any business that leaves our country for another country, fires its employees, builds a new factory or plant in the other country, and then thinks it will sell its product back into the US without retribution or consequence, is WRONG! There will be a tax on our soon to be strong border of 35% for these companies wanting to sell their product, cars, AC units, etc… back across the border. This tax will make leaving financially difficult, but these companies are able to move between all 50 states, with no tax or tariff being charged. Please be forewarned prior to making a very expensive mistake! THE UNITED STATES IS OPEN FOR BUSINESS.”
I so dislike politics and I’m going to no longer discuss it after today but I have to respectively disagree with anyone that tries to convince me that this sort of trade talk is somehow a good thing. I’m actually alarmed by it notwithstanding Trump’s good intentions of creating more US jobs . I wonder what Smoot and Hawley would say if they could tweet from their graves.
I want to talk about commodities for a moment and reiterate my positive stance. One thing that is noteworthy over the past month is that they continue to rally in the face of a stronger dollar. The Journal of Commerce index of raw materials on Friday closed at an 18 month high. The only area that lags is the food space but the CRB food stuff index is quietly up 4% over the past 3 weeks and I believe there is where the next commodity opportunity is as ag has lagged badly over the past 5 years.
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