Blowing Up: The Italian Debt Crisis, The Experts That Missed It – And What’s Next

That is – until it’s Thanksgiving Day and the farmer takes the turkey out back and cuts its head off...

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The irony was that with each passing day, the turkey felt his risks decreasing as it became use to the daily routine. But, in reality, its risks are actually increasing as each day goes by.

So, looking back, the turkey was at peak well-being and confidence just as the risk was at its highest.

The takeaway from all this is: don’t ever be the turkey...

In regards to Italy – what I’m asking now is: “who’re all the ‘turkeys’ holding onto – and are exposed to – Italian debt?”

We know that when bond yields go up, the bond prices go down. And whoever owns all these depreciating bonds – mostly owned by banks – will suffer.

Problem is – the opportunity’s gone now. The bonds already crashed. Sure, they can fall further – but there isn’t much left to squeeze out without much higher risks.

To make huge gains, you need to have your positions selected well-ahead of time. Then once things unfold, you sell at a huge profit.

Now the real question is: “what’s the contagion from this Italian debt crisis?”

One potential opportunity right now is watching the Federal Reserve and what they do in June...

The U.S. yield curve is now at its flattest point since the end of 2007. Investors rushing into ‘safe’ 10-year Bonds because of Italy over the last couple days has killed the ‘bond bears’ and pushed yields far down.

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At this rate, the Fed risks inverting the yield curve if they hike again in June. 

And as I’ve written about before – an inverted yield curve has preceded the last 9-out-of-10 recessions in the United States. . .

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Disclaimer: The piece is from my original write-up @ - all ideas expressed and charts are my own. Sources and quotes are credited. 

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