The demolition of Italian government bonds overnight and attendant flight to quality has triggered an astonishing reset of the mood in global markets.
Amid all the endless speculation and very reasonable questions about what is actually happening, Australian broker Marcus Padley had one of the best summaries we’ve seen:
The glass is moving from half full to half empty. You can endlessly analyse each of the individual issues as everyone will do but the bottom line is that this is simply a herd mood change. It is psychology rather than factual. The market commentary and media will now be dwelling on the daily negatives rather than the positives and that process will feed the mood and perpetuate the market sell down for the moment. Until it stops. We could easily be talking about something completely different tomorrow or next month. Or this could end up being the most dominant market theme this year. Who knows?
The problem with the Italian situation is there’s simply no way of knowing whether this will turn into a standoff between Europe and Italian voters and their political leaders. Right now, who knows what the 5-Star movement and Lega Nord might take to the country as a platform, and then in turn what the result of an election might be? Chaos in Italian politics is not unusual but right now the political calculus is impossible to map out. Hence the uncertainty.
Don’t be too smart, this is not the time to buy, it is a time to sell something (if you haven’t already), stand back and wait for the bottom. If you have sold the game is “looking to buy”. The next market low may well be today, but the odds are against it because the trend is down in the short term.
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