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Posted by on Jul 13, 2016 in Market Insight

Italy: The Next Banking Bailout

July 13, 2016

Dennis Gartman is editor and publisher of The Gartman Letter, and strategic advisor of the AdvisorShares Gartman Currency Hedged Gold ETFs (GEUR & GYEN). He regularly contributes to AlphaBaskets and lends his institutional insight to educate advisors and investors about commodities and the forex markets, including about trading gold in different currency terms.

The Yen, finally, is materially weaker and follows the election results from the Upper House elections there that have ended with a resounding victory by Mr. Abe’s LDP and the LDP’s associates in the Komeito Party… more on which below. However, suffice it to say that this victory has given Mr. Abe the mandate to push ahead with his “Three Arrow’s policies, becoming more expansionary as far as spending is concerned and allowing the Bank of Japan to have the ability to become more expansionary also.

Further, the only other major currency that has moved materially vs. the US dollar is the Aussie, which has strengthened rather sharply, the result of a final accounting of the recent election there, ending with Mr. Turnbull and the Liberal Party.  We have more on this “victory” which has a few problems attached to it.

The EUR and most other currencies are weaker relative to the US dollar and as we write it does appear to us at least that 1.1000 for the EUR is about to be put under attack. Should that technically and psychologically important supposed support level be broken through definitively it shall open the possibility that 1.0500 will be put into everyone’s field of trading vision.

If we must give a reason for the EUR’s sudden weakness, we shall put forward the fundamental notion that Italy is about to move ahead on efforts to bail out her severely hurting banks and shall be doing do despite the antipathy toward those programs by the IMF, by the German leadership at the ECB and by “Old Guard” EU politicians and economists. Mr. Renzi, the Italian Prime Minister, has been at the fore suggesting that he shall have no choice but to bail out his nation’s banks, and now we find that the Bank of Italy’s Governor, Mr. Ingazio Visco, has joined Mr. Renzi in calling for such action.

Over the weekend, Mr. Visco said regarding the failing nature of Italy’s banks,

Facing that risk that in a context of high uncertainty defined problems can have an impact on the confidence of the banking system, a public intervention cannot be ruled out.

Nor should it be ruled out, in our opinion.

Last week, the shares of Italian bank stocks were plummeting, but today, following Mr. Visco’s comments, they are soaring, with the shares of that most wonderfully named bank, Banca Monte dei Paschi di Siena… the Bank of the Beautiful Mountains Overlooking the City of Siena and the oldest continually operating bank in the world…rising 8% thus far already today.

Regarding gold, it was trading all the way to $1372/oz. and to €1248/oz. earlier today but has since fallen back to $1260 and to €1232.oz. and we shall admit that we are a bit dismayed by that weakness from the peak in Asian dealing. We are further disconcerted by the continued upward spiral in open interest on the COMEX, which suggests to us that an interim peak may well have been forged earlier today.


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