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By Michael Snyder

Italian voters have embraced the global trend of rejecting the established world order, but the “no” vote on Sunday has plunged global financial markets into a state of utter chaos.  The euro has already fallen to a 20 month low, Italian government bonds are poised for a tremendous crash, and futures markets are indicating that both U.S. and European stock markets will be way down when they open on Monday.  It is being projected that Italian Prime Minister Matteo Renzi’s referendum on constitutional reforms will be defeated by about 20 percentage points when all the votes have been counted, and Renzi has already announced that he plans to resign as a result.  When new elections are held it looks like comedian Beppe Grillo’s Five-Star movement will come to power, and the European establishment is extremely alarmed at that prospect because Grillo wants to take Italy out of the eurozone.  In the long run Italy would be much better off without the euro, but in the short-term the only thing propping up Italy’s failing banking system is support from Europe.  Without that support, the 8th largest economy on the entire planet would already be in the midst of an unprecedented financial crisis.

I know that I said a lot in that first paragraph, but it is imperative that people understand how serious this crisis could quickly become.

This “no” vote virtually guarantees a major banking crisis for Italy, and many analysts fear that it could trigger a broader financial crisis all across the rest of the continent as well.

Just look at what has already happened.  All of the votes haven’t even been counted yet, and the euro is absolutely plummeting…

The euro dropped 1.3 percent to $1.0505, falling below its 1 1/2-year low of $1.0518 touched late last month, and testing its key support levels where the currency has managed to rebound in the past couple of years.

A break below its 2015 March low of $1.0457 would send the currency to its lowest level since early 2003, opening a way for a test of $1, or parity against the dollar, a scenario which many market players now see as a real possibility.

In early 2014, there were times when one euro was trading for almost $1.40.  For a very long time I have been warning that the euro was eventually heading for parity with the U.S. dollar, and now we are almost there.

Meanwhile, Italian government bonds are going to continue to crash following this election result.  This is going to make it even more difficult for the Italian government to borrow money, and that will only aggravate their ongoing financial troubles.

But the big problem in Italy is the banks.  At this moment there are eight banks in imminent danger of collapsing, and virtually all of the rest of them are in some stage of trouble.  The following comes from a Bloomberg article about the crisis that Italian banks are facing right at this moment…

They’re burdened with a mountain …read more

Source: Global Financial Markets Plunged Into Chaos As Italy Overwhelmingly Votes ‘No’

    

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By Tyler Durden

Submitted by Alice Salles via The Mises Institute,

As President-elect Donald Trump met with Kansas Secretary of State Kris Kobach — a potential pick for head of the Department of Homeland Security — the internet lit up with the leaked contents of their meeting, triggering another round of talks concerning a possible “national registry” of Americans or immigrants who subscribe to Islam.

While Kobach’s plan involves the George W. Bush-era National Security Entry-Exit Registration System (NSEERS) — a system that remained in place under President Barack Obama until 2011 (only to be replaced with a more comprehensive program) — few caught up to the fact NSEERS only involves the collection and crosschecking of data pertaining to immigrants coming to the United States from Muslim-majority countries. But as news sources ran with the story that Trump could eventually turn this into a registry of American Muslims and immigrants already living in the country, the president-elect’s spokesman Jason Miller reassured the public that no, a registry system targeting Muslims was not in the cards for the Trump administration.

Nevertheless, there is one event in our country’s history that serves as a precedent for a system that could effectively single out and help report on specific Americans and immigrants. But the US government would never be able to put it in place if it wasn’t for the presence of the Census Bureau, an agency that costs billions of taxpayer dollars yearly.

In a recent piece for USA Today, James Bovard explained that the Census Bureau sends “its hefty American Community Survey to more than 3 million households a year,” collecting personal information regarding the resident’s religion, ethnic background, employment history, and even if the resident in question has “difficulty remembering, concentrating or making decisions.”

While the agency threatens those taking the survey with a $5,000 fine for failing to comply with its demands, it never had to answer to its blatant disregard for the law in the 1940s, when the US government had access to information on Japanese Americans thanks to the data collected by Census workers. With detailed information in hand, the Army eventually rounded Japanese Americans up, throwing them in internment camps and making this period in the history of the country one of the most infamous legacies of Democratic President Franklin D. Roosevelt.

In his piece, Bovard added that the detentions are now “widely recognized … as among the largest civil liberties violations in modern U.S. history,” prompting Congress to vote to compensate victims in 1988. But despite the shame often associated with this episode, it wasn’t until the early 2000s that research unveiled documents proving that the Census Bureau had been an important part in this charade, prompting the agency to admit culpability — but only to a certain extent.

To this day, the Census Bureau claims it never provided names and addresses of all Japanese Americans. But despite the bureau’s claims, a …read more

Source: Don’t Want A Muslim Registry? Abolish The Census

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Financial markets are bracing for a bumpy Monday after Italy was plunged into political uncertainty. …read more

Source: Euro falls as Italian leader quits after losing reform vote

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By Tyler Durden

As was reported earlier, Prime Minister Matteo Renzi is expected to deliver a statement on the Italian referendum at midnight Italian time. According to Italy’s RAI, the statement has been delayed by 20 minutes. It is unclear what the topic of Renzi’s statement will be although speculation is rampant that the 41 year old prime minister may announce his resignation, opening the way for a new government and/or new elections.

Moments ago, the Twitter-loving prime minister, sent out the following tweet to his nearly 2.8 million followed: “Thanks to all of you. In a few minutes I will be speaking to you directly from Palazzo Chigi. Long live Italy. PS Am coming, am coming’

Grazie a tutti, comunque. Tra qualche minuto sarò in diretta da Palazzo Chigi. Viva l’Italia!
Ps Arrivo, arrivo????

— Matteo Renzi (@matteorenzi) December 4, 2016

Watch Renzi’s speech live below:

Among the key headlines, Renzi says “I have lost, and adds that, despite the result, the high turnout and the vivid
electoral campaign, the referendum has
been a “feast of democracy.” He takes full responsibility for the defeat and says “No” leaders now have great responsibilities. Other highlights:

• RENZI CONCEDES REFERENDUM DEFEAT, SAYING PEOPLE HAVE SPOKEN
• ITALY PM RENZI SAYS I TAKE FULL RESPONSIBILITY FOR DEFEAT
• RENZI: “NO” LEADERS NOW HAVE GREAT RESPONSIBILITIES
• RENZI: WE HAVE FAILED IN CONVINCING CITIZENS, WE WANTED TO WIN

And there it is: Renzi says he intends to resign and adds that his government ends here:

• RENZI SAYS HE WILL OFFER HIS RESIGNATION TO PRESIDENT
• RENZI: MY GOVERNMENT ENDS HERE

Renzi also said that he is not ready to stay on as the head of a caretaker government, saying “I look forward to greeting my successor with a smile, whoever he is.”

* * *

So now that Renzi has stepped down here are three possible scenarios, via the WSJ:

1. New Renzi Government – this is now unlikely after Renzi’s farewell speech:

Italian President Sergio Mattarella could ask Mr. Renzi to reshuffle his cabinet and form a new government. However, Mr. Renzi has said in recent days that he is unlikely to accept such an option, given that he would be in a much-weakened position following the vote.

2. A Caretaker Administration:

Mr. Mattarella could ask someone else to lead a new government with a limited mandate to oversee the drafting of a new electoral law and pass the 2017 budget. One candidate is Economy Minister Pier Carlo Padoan, who could help soothe markets that have been nervous about political instability following a no vote. Others include Pietro Grasso, speaker of Italy’s Senate, and Dario Franceschini, the current culture minister.

3. Electoral-Law Snarl:

Major political parties are pushing to change an electoral law passed last year that would give extra seats in Parliament to any party winning 40% or more of the vote. That measure was intended to make for more stable governments. Establishment politicians now worry that it could help the populist 5 Star Movement gain power and want to rewrite the rules before any new national election.

* * * …read more

Source: Matteo Renzi Says He Will Resign After Losing Referendum

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…read more

Source: Exit polls: Italy says ‘No’ to Renzi’s reforms

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By Tyler Durden

Three down, two to go…

Denial…

Source: Townhall.com

Anger…

Source: Townhall.com

Bargaining…

Source: Townhall.com

Just depression and acceptance left until the five stage of grief are complete.

…read more

Source: The Recount Explained (In 3 Simple Cartoons)

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By Tyler Durden

While the big move higher in the US stock market following the Trump victory – a move which it is safe to say virtually every so-called expert, with a few exceptions, called wrong – has been duly noted, and has since started to fizzle, the real story is what has happened below the market’s surface, where the rotations from one sector to another in the past three weeks have been unlike anything seen in years.

As David Kostin observes, divergences in sector performance following the election reflect an environment with noticeably higher return dispersion. Although the S&P 500 index level has risen just 2% since Election Day, sharp rotations have taken place under the surface of the market. The disparate returns of Banks (+19%), Utilities (-6%), and High Tax stocks (+7%) are just a few examples. Whether or not the market has accurately foreseen the implications of the incoming government’s policies, the magnitude of these price movements suggests return dispersion will be higher in 2017 than it was in 2016 as President-elect Trump’s new policies are implemented.

Of course, high dispersion is something hedge fund managers should be delighted about: having underperformed the market for 8 years, and facing historic redemption requests and outflows, the volatility that results from a spike in dispersion should finally allow these “smart money” managers to prove their worth… assuming, of course, they still remember how to do their job after years of bickering on twitter and posting motivational quotes by other hedge fund managers. Here’s Goldman: “Years of weak relative performance and fund outflows have directed investor and media attention to the struggles of active management. We expect 2017 will witness increased return dispersion among fund managers in addition to increased dispersion among stocks.”

However, as Kostin also admits, “more alpha opportunity does not guarantee better performance if fund managers fail to capture that alpha. Large and growing mutual fund outflows (more than $200 billion from equity mutual funds in 2016) as institutional and retail investors move to passive strategies will only slow if active managers move nimbly to take advantage of the rising dispersion environment.”

One thing is certain: if recent moves persist, only the dumbest of the smart money will fail to generate alpha. Oh, and another thing: while it remains to be seen if Trump can “Make America Great Again^TM“, one look at the charts below proves that Trump certainly made Domestic Cyclicals Great Again.

Some more charts showing the significant rotations under the surface by sector…

… and factors:

Some good news for value vs growth investors: the tide is finally shifting your way.

Finally, the current state of the market:

Source: GS

…read more

Source: How Trump Made Domestic Cyclical Stocks Great Again

    

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Posted December 4th, 2016 in Uncategorized.

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