Italians Vote ‘No,’ Equities Shrug

2016 has been a year filled with surprises, confounded market experts and unconventional wisdom prevailing.

That description certainly applies to three of the biggest political developments this year, starting with UK’s Brexit vote this summer.

Recall that not many pundits predicted the "leave" vote would win. Fewer still said that stocks would surge shortly after that news.

Before the vote, JR Crooks recommended that you "Don’t Get Crossed Up by Brexit." He predicted that risk appetite would catch a post-vote bid.

And that’s exactly what happened.

The surprise outcome then rippled across the Pond in the fall. That’s, of course, when America elected Donald Trump as her 45th president. Also recall that most pundits thought that a Trump win would bring on a "yuge" sell-off in stocks, a surge in bonds and a shine in gold.

Well, the opposite happened.

Then yesterday, Italians voted "no" to Constitutional changes that would have altered a big chunk of that country’s governance. Most notably, the composition of Parliament and the way laws are passed.

Unlike Brexit or, to some extent, the Trump victory, the "no" vote in Italy was expected. What wasn’t as anticipated was the subsequent resignation of Italian Prime Minister Matteo Renzi.

What was even less expected? The virtual shrugging off of the news by the U.S. and global financial markets.

Stocks here at home opened up firmly in positive territory Monday morning. Then they quickly rose to all-time highs.

In Europe, stocks also climbed. They are essentially shrugging off news that has the potential to open the floodgates to what’s being called an "Ita-leave" — i.e., Italy voting to leave the European Union the same way the UK did.

If there is a vote at some point for just that, and if it passes, then that could be the move that puts the nail in the coffin of the European Union …

And that could very well be a major negative for equity markets around the globe.

Of course, the market may also look at that potential development and once again shrug off the news — the way it’s already done so many times this year.

Whatever happens here, you can bet all eyes — including ours — will be watching intently.

***

On Friday, we wrote about an interesting phenomenon called "The Politics of Investing in Gold."

In this piece, we told you about the thesis that gold could be getting a new political bid from an unlikely source … liberals.

Here we reported about people on the left side of the political aisle who have decided that Donald Trump will create havoc in the economy, and therefore gold stands to benefit.

Well, this article elicited numerous reader responses, and today I wanted to share a few. I also wanted to give you a few additional thoughts on this issue, and the gold issue at large.

Richard Fields writes:

A liberal who I know very well is, for the first time ever and as a direct result of the Trump victory, asking me about buying gold.

Steve H. writes:

Brad, an interesting thesis and an article I will remember and refer to in the future. My interest in gold however crosses party affiliation. I believe it always has been money and will continue to serve in that role. I believe as well that fiat money has a built-in ‘half-life’ that is inevitably corrected with a swing to gold and other ‘hard’ assets.

Dave S. writes:

As the typical serious gold-bug may also be a prepper and a purveyor of dark conspiracy theories of all sorts, as well as a wearer of a tinfoil hat to ward off the effects of chem-trails, I think I’d have to agree that he isn’t likely a lib. That’s a plus for libs, of course. But I doubt that merely being a lib means that gold is off the table … it’s all about making money, and anyone who takes seriously the idea of making money in the markets will very likely have considered gold regardless of political affiliation.

Brad response: I agree here with all three of these comments, in that there are many anecdotal stories of investors with left-leaning political ideas being afraid of the Trump administration’s economic plans.

Yet I think we should hold back judgement here, as the president-elect hasn’t even taken office yet. Let’s be a bit patient before we proclaim President Trump good/bad for the economy.

I think we also should keep in mind what Dave. S writes, and say that investing is all about making money. If we can make money in gold, regardless of the political or other tailwinds driving it higher, then that’s what we should do.

***

Do you think that Italy’s "no" vote is reason to worry about the EU? Are you surprised markets didn’t react negatively to the news? What about gold? Will there be an unlikely political tailwind pushing gold prices higher? I’d like to hear what you think about all of the issue we cover in the Afternoon Edition. Fortunately, doing so is easy. All you have to do is leave me a comment on our website or send me an e-mail.

***

The Dow enjoyed another record closing high today, gaining 0.2% to close at 19,216.24, after some 60% of Italians voted against PM Matteo Renzi’s plans to slash the power of its senate and Renzi announced his intention to resign.

• Financials helped to power the U.S. markets higher, with U.S.-listed European banks like UBS (UBS) gaining 3%, Barclays (BCS) gaining 2.5% and Deutsche Bank (DB) gaining 5.8%.

• Meanwhile, bank stocks in Italy took a big hit: Italy’s biggest bank by assets, UniCredit SpA, fell 3.4%. Banca Monte dei Paschi di Siena fell 4.2% on speculation that the bank could become nationalized. And Banca Popolare di Milano tumbled almost 8%.

• The euro dipped to a 20-month low against the U.S. dollar in early trade, but recouped some of its losses throughout the day. One of the next major tests for the euro will be France’s election, coming up in April.

• Austria voted against its far-right presidential candidate. Alexander Van der Bellen, who ran as an independent, won 53.3% of the vote. His victory is seen as a (narrow) defeat of the populism that’s been gaining strength around the world.

• Swiss stagnation: Luxury watchmakers reported that exports are down 12% this year, while the country overall reported slow consumption and fewer exports in the third quarter.

• Crude oil saw its best closing price since July 2015. Black gold continued to climb after last week’s deal, where OPEC members to cut production by 1.2 million barrels a day. WTI crude ended the day at $51.79 per barrel.

Good luck and happy investing,

Brad Hoppmann
Publisher
Uncommon Wisdom Daily

Your thoughts on “Italians Vote ‘No,’ Equities Shrug”

  1. Sorry, Brad, but your statements are disingenuous. A no vote was expected, was priced in in the markets, and Renzi announced he would resign if the result was “no”. So no surprises at all.

  2. People have to put their money somewhere? Forget all the rest- equities seem to me to be the easiest to cash? Therefore with such low interest rates, stocks will continue to climb?
    Is ‘bad news’ bad any more? What is bad news? The markets seem to be resistant to all ‘shocks’!

  3. The question has to be, Why didn’t Italy collapse under debt default long ago? It should have. It follows that it could go even higher and they will still stay in business.

  4. It isn’t the vote….it’s the forthcoming decisions that will steer the markets. Glad to see some sanity prevail.

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