"Molto Terribile!" is the Italian way of saying “Very Terrible!”. And that certainly describes the conditions now in Italy as bond investors are ratcheting up rates to uncomfortable territory.
As shared in the intraday note:
“When Portugal, Spain and Greece got above this level (7%) it was the point of no return leading to bailouts. Given the size of Italy this is a lot more serious than the other, smaller nations.”
Surprisingly I had no emails on this subject, but I still bet the idea is swimming around in your minds. And that is the following question:
Reity, yesterday you seemed to be a bit more bullish. In fact, you gave us a list of stocks that you might add to the portfolio. And then this morning you do a 180 degree switch on us with a 3X short ETF. What gives???
Great question…and glad you asked ;-)
Here’s the scoop. I thought that Berlusconi stepping down would mean the Italian situation would step back from the brink. Obviously I was not alone in that belief given how the stock market rallied on Tuesday.
Unfortunately bond investors are not as impressed…perhaps rightfully so. With that Italian bond rates surged on Wednesday. That created a clear sign to get more defensive with TZA.
Now what?
This is truly unchartered water for the world economy and the stock market. So I don’t want to prognosticate what the final resolution will be. Instead I will provide the most likely scenarios and what we would do if they prevail.
1. The Italy problem gets worse. European markets tumble leading to heavy losses in the US as well. Likely we see the S&P quickly retrace its steps back to the lows of early October at the 1100 level. I would immediately sell our most bullish positions and perhaps buy more TZA or other 3X ETF to enjoy more upside from a likely decline.
2. The Italy problem improves, and it’s back to Muddle Through Growth for the U.S. economy and higher stock prices. In this case, we’d promptly sell TZA and add more stock picks for the ride higher.
For the meanwhile I believe it’s best to stay neutral until a clear path emerges. Certainly I realize that might not be the most exciting approach, but given the potential landmines that could go off, it is a safer place to be.
1. The Italy problem gets worse. European markets tumble leading to heavy losses in the US as well. Likely we see the S&P quickly retrace its steps back to the lows of early October at the 1100 level. I would immediately sell our most bullish positions and perhaps buy more TZA or other 3X ETF to enjoy more upside from a likely decline.
What does he mean? He would sell at SP500 1100 or now?
发表于 2011-11-9 23:20
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发表于 2011-11-9 23:55
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