Italian Banking System: Revenge Of The Risotto by IceCap Asset Management
The Italian banking system is on the brink of collapsing – see how creative accounting and erroneous mathematics is being used to tighten the ship.
Meanwhile over in London, Britain prepares for the once and for all referendum on whether to STAY or LEAVE the European Union – see how creative arguments and erroneous economics is being used to dissuade the British from voting to leave.
RGA Investment Advisor 2Q20 Commentary: The Tale of Two Markets
RGA Investment Advisor commentary for the second quarter ended July 2020, titled, "The Tale of Two Markets." Q2 2020 hedge fund letters, conferences and more In our Q1 2019 commentary we expressed how “COVID-19 will kick off one of the most profound reshaping of our world any of us will see in our lifetime,” accompanied Read More
Italian Banking System: Inconceivable!
ITALY (Rome) – Soft opera soared through the vaulted ceilings. Brunello di Montalcino poured freely in every glass. And then there was the risotto – the exquisitely prepared dish bounded with wild mushroms, wild boar, and wild thyme. A perfect pairing for the wild bankers and even wilder, government officials.
It was only early evening, but the laughter and back slapping was certain to flow into the late morning hours – and deservedly so, after all the Italian overlords had just pulled the wool over not only their 60 million countrymen, but also their dreaded and despised monetary rulers in Frankfurt.
Revenge would be savoured.
GERMANY (Frankfurt) – There was no music, no wine, and worst of all – no risotto. Yes, the European Central Bank (ECB) is based smack dab in the middle of no-fun Germany, but the President of the ECB is 100% Italian. And after 5 years of continuously taping, gluing, and conniving to hold the European financial system together, Mario Draghi was approaching his wits end.
With the Germans, French, Spanish, Portuguese, Greeks, and now the Italians sharpening their knives, Draghi certainly isn’t tasting any love.
But what these countries don’t understand, is that you never go against an Italian central banker, when death is on the line – or worse still, when he is denied his risotto.
The Trend Continues
Here at IceCap, we have the privilege of speaking with investors from around the world. Our objective perspective is resonating with investors everywhere which has provided us direct contact with people in Asia, the America’s and Europe. This is an asset we cherish dearly.
And what we find the most interesting is that everyone we speak and email with, all have the very same concerns. Many of these people are every day, average people – they work hard for their money, and are saving for rainy and sunny days.
In the past 3 weeks alone, conversations with investors in Europe, America, Canada and India have all focused on the same topic – interest rates, and more specifically NEGATIVE interest rates.
Think about this for a minute – in normal times, the world’s economies are never in sync. Some are ebbing, while others are flowing, and others are simple standing still.
Yet, today it has become quite apparent that all economies have converged in the same direction – and this is a VERY rare feat.
At IceCap we begin every day the same – we scour data points and news stories to help us change our economic, monetary, and financial markets view. We are not looking for evidence to confirm our view, in fact it is the exact opposite – we want to discover reasons to change our view. April 2016 Revenge of the Risotto
I’m back baby!
We feel strongly, that adapting this approach will serve as our cross- check, and counter point.
Granted, as nothing moves in a linear line, there will undoubtedly be periods when it appears that our view should be changed. Yet, recognising an actual change in trend or fundamentals doesn’t happen overnight – in other words, the global economy and financial markets do not turn on a dime, quarter or even a tenner.
In fact, a dramatic change in one data point should be confirmed by the same relative change in other markets – otherwise, we must dismiss it as noise.
And as we continue to search the world for changes in trend, we must objectively report that there have been no changes to trends in economic growth.
Around the world, growth continues to GRIND lower. Countries that were once high fliers, have now become low fliers.
Countries that were once Steady-Eddies, have now become Wobbly Willies.
And Countries that were once Nervous-Nancy’s, have become Panicking Patty’s.
The overriding view, served by the big banks, mutual fund companies April 2016 Revenge of the Risotto and mutual fund sales people is that the USA is accelerating and it will save the day by pulling everyone else out of its economic funk.
We hear this story loud and clear. And, we too desperately want to believe it – after all, who doesn’t want the world to prosper?
Yet, when we look at US economic growth, we struggle to find any evidence of acceleration. GDP growth remains trapped at a 2% ceiling – failure to consistently break through this barrier is occurring time and time again.
But, this doesn’t stop the optimism. Professional economists – the very same group that has predicted ZERO of the last 7 US recessions, continue to see a cherry on top of every data pie.
In fact, just 4 months ago, this unvaried group predicted with confidence that the American economy would grow by up to +3% during the first three months in 2016. How could it not? Trade was booming, employment was booming, banker bonuses were booming – yes, the good times and +3% GDP were back baby.
But it wasn’t.
When GDP is released, the final surging, accelerating number will be around +0.5%. Hardly the recovery celebrated by Washington, Brussels, Tokyo and Beijing.
Faster, higher, stronger
America isn’t alone – and that’s the point being missed by the rose- coloured glasses wearing big banks and big media.
Instead of America pulling the rest of the world out of its economic decline, we must report to you that as we suspected – the opposite is occurring.
The United States is being dragged lower, and the trend is strengthening.
Singapore is a tiny city state, yet it is an elephant in the world of international trade. Practically every piece of Asian plastics, metals and fabrics touch this trade power house in one way or the other. If trade was booming anywhere it would show here.
But it isn’t. The latest trade data for Singapore shows the following:
To confirm this data point, we jump over to an even bigger link to the global trade puzzle – South Korea.
If Singapore is an elephant in Asian trade, South Korea is the blue whale. Its trade exports are roughly 30% larger than Singapore and consists of many high end electronic components – a sure sign of the “life is getting better” theme.
Yet again, we see no signs of recovery. In fact, with export trade declining for 15 consecutive months and youth unemployment reaching all-time highs, the exact opposite is occurring which naturally isn’t good news for the political establishment:
Next, we jump, run and swim over to Brazil – home of the XXXI Olympic Games.
Brazil is also an economic and cultural powerhouse. Not too long ago, it was seen as THE place to be. It appeared that everything good in the world, affected Brazil in a magnificent way.
Today, Brazil is quite the opposite story.
For starters, growth has plummeted from a recession, to a DEPRESSION.
And things are getting worse. Foreign investment is also fleeing the country which has caused the currency to fall 50% over the last 2 years.
And as a sausage has many links, this currency decline has caused inflation to soar to over 10%.
See full PDF below.