Yes, all the news about Prime Minister Berlusconi is pure puff and nonsense.

Notes From Underground ^ | 11.09.2011 | Yra

[Razzz42]

Yes, all the news about Prime Minister Berlusconi is pure puff and nonsense. The Italian economic situation will not change one iota when Silvio steps aside and, in fact, I would argue that the situation will become more volatile. Italy has seen so many governments come and go since the end of WORLD WAR II that it must be the role model for Japan. Mr. Berlusconi may be a scoundrel but the markets and the Italians know what they have and it seems that Berlusconi the known is better than what may come next. If the present government falls there is a possibility that a more leftist coalition will be formed and it is doubtful if it would be prone to pass an AUSTERITY plan.

For those investors and traders responding to the drivel that passes for TV analysis be cautious as the flawed comments will create misperceptions and the game will change. Yes, Italy is a problem but the situation is not nearly as bad as it is in Spain. The 10-YEAR BOND SPREAD BETWEEN SPAIN AND ITALY IS 114 basis points (Spain 10-year yield 5.57% versus Italy’s 6.71%). The problem for Italy is that it is the only PIIG with a listed BOND FUTURES CONTRACT, THUS MAKING THE ITALIAN 10-YEAR THE PISSING POST FOR ALL THE ANGST IN THE DEBT MARKETS OF EUROPE. Spain, with 22%-plus unemployment is a far greater problem regardless of what the media pundits blather about.

Also, Spain is debating further AUSTERITY MEASURES which will create larger deficits as the NEGATIVE FEEDBACK LOOP GRABS HOLD OF THE SPANISH ECONOMY. It is getting preposterous that the visual media is only concerned about the daily gyrations of the global equity markets. WELL, NOW I HAVE SAID IT.

***Notes From Underground has been on the European debt crisis for almost two years so it seems old and stale but there are times when changes are noticeable. The European YIELD CURVES have been good barometers of impending problems, especially as it has been 2-YEAR NOTES that reflect a sea change in sentiment. When the Greek 2/10 initially inverted, the DEBT CRISIS went geometric. The same with the IRISH and PORTUGUESE.

THE ITALIAN 2/10 has flattened fairly dramatically over the last month, from 180 basis points to a modest positive 50 basis points. If this curve inverts it will signal that the markets concerns are growing about Italy. As previously mentioned, the Spanish will also be on the radar screen. Today’s Spanish is still a positive 143.4 points and it actually widened 8 points today as the Italian narrowed almost 10 points. The action in Germany has settled down as its 2/10 curve is stable at 140. Germany and Spain at the same steepness. Oh where is the Spanish Bond futures contract??

[Razzz42]

Even if you don't trade, the underlying logic shown at the link for Euroland, Iran and a choice few other situations found amongst the comments section is worth the look besides the Euroland members' individual bonding costs. (The link seems to be dynamic, so could update to a newer headline.)

[SunkenCiv]

Thanks Razzz42.

If the present government falls there is a possibility that a more leftist coalition will be formed and it is doubtful if it would be prone to pass an AUSTERITY plan.