Italian Bank Bailout Bears Watching

The Market Gage - Dillon Gage's Precious Metals Newsletter

If you are looking for a catalyst to get the price of gold in rally mode look no further than the Italian banks for help.

Reported by Bloomberg on Wednesday, the Italian banks need at least 52 BILLION Euros to clean up their balance sheets. That figure is much more than the rescue package proposed Monday by the Government.

One bank in particular, Monte Dei Paschi, was bailed out today with an infusion of 20 billion Euros by the Italian government as it failed to secure backing from private investors. The bank indicated it could run out of funds by April if help did not come soon. Established in 1472, Monte Dei Paschi, according to some historians, is the oldest bank in the world. Just as a reminder, back in July this bank failed a stress test miserably with a significant amount of uncollectable loans. And things just kept getting worse day by day. There are other banks in Italy with similar problems.

One must realize that Italy is the eighth largest economy in the world and has already issued the third largest amount of sovereign bonds. My worry is that a large amount of Italy’s sovereign bonds are held outside of Italy.

So as we have all seemed to be transfixed on the equity markets here in the U.S. and the promise of all the wonderful proposals by the Trump transition team, one should not be blinded to what’s going on in the rest of the world. We must watch VERY closely what’s occurring in the European community, because let us NOT forget, this is a global economy and one bank and one county has the potential to cause a big problem for investors and banks holding their paper.

About a year ago in my January 2, 2016 comment I said the Fed president’s plan for 4 rate hikes in 2016 would never happen; I will take the same stance this year saying three rate hikes are out of the question, because I believe there are SO many issues facing the European community from Brexit to terrorism to the potential bank failures (especially in Italy and possibly Greece). These problems can affect our economy, so I can’t get too excited that the new administration has all the answers.

Even with great intentions, outside influences can derail any good plan.

Now to more important things in our lives. Let me and the Dillon Gage family wish all of you the most wonderful holiday ever. And remember that the most important word the whole world needs to adopt is “PEACE.”

Have a wonderful Friday.

Disclaimer: This editorial has been prepared by Walter Pehowich of Dillon Gage Metals. This document is for information and thought-provoking purposes only and does not purport to predict or forecast actual results. It is not, and should not be regarded as investment advice or as a recommendation regarding any particular security, commodity or course of action. Opinions expressed herein are current opinions as of the date appearing in this editorial only and are subject to change without notice and cannot be attributable to Dillon Gage. Reasonable people may disagree about the opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. All investments entail risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate its ability to invest for a long term especially during periods of a market downturn. No part of this editorial may be reproduced in any manner, in whole or in part, without the prior written permission of Dillon Gage Metals. This information is provided with the understanding that with respect to the opinions provided herein, that you will make your own independent decision with respect to any course of action in connection herewith and as to whether such course of action is appropriate or proper based on your own judgment, and that you are capable of understanding and assessing the merits of a course of action. You may not rely on the statements contained herein. Dillon Gage Metals shall not have any liability for any damages of any kind whatsoever relating to this editorial. You should consult your advisors with respect to these areas. By posting this editorial, you acknowledge, understand and accept this disclaimer.