Is Italy going bust?

Thursday, 1st March 2018 13:15 - by Ranjeet Singh

It’s been a while since I posted my last blog so before I tell you why I think that Italy might go bust (yes, it’s a serious as that) let me explain my absence. During the past year or so I have been writing a book which I’m hoping will be published later this year. It’s not a straight forward piece of literature unfortunately because it’s more of an expose than a book, and so it’s been a challenge to include everything that I wanted to without the risk of getting sued by the firms and people that it will be exposing!

I shan’t say any more than this for now but let’s just say that its all in the title – it’s called “The 13 Insider City trading secrets that will blow your mind!”. If you don’t see or hear me after it’s been released assume the worst.

One other thing to mention. In the past I have written quite detailed and long articles for this blog but that obviously takes time and so my blogs have been infrequent. However, the feedback that I have been getting from people who read my blogs including my own clients, is that they prefer more regular posts. So that’s what I’m going to try and do – less content per blog but more frequent blogs. The markets are hectic and trading obviously always comes first but I promise to do my best and keep the blogs coming so please bear with me.

Okay, so back to the blog and why I think that Italy is going to go bust. 

Italy has its elections on the 4th March (this coming Sunday) and by the polls it looks like a possible hung parliament with a meeting of the 5 Star movement party which is the populist movement and a coalition of mish-mash groups including that of old veteran bull Silvio Berlusconi. 

The issue is that Italy has massive financial instability and in my opinion it’s a ticking time-bomb. You see back in the good old days, Italy (and others like Portugal and Greece for example) were able to steer their economic ship from choppy waters through simply turning on or off the monetary and fiscal taps. In particularly the ability to cut interest rates to devalue the Italian lira was a great way to boost exports and strengthen the domestic economy. That vital tool has now been taken away from the Italians which has led to an eye-watering debt to GDP ratio of 130%! 

I studied Economics and Business Finance for many years before going into the City, but you don’t need to be a trained economist to know that borrowing more money than you earn and to do so at a rate of 130% can only end up badly.  Italian bonds are yielding over 15% also which seem attractive to the uninitiated and naïve, but a red flag to a bull for the savvy investor. It’s the same red flag that was present when Carillion was paying 7.4% to shareholders and we all know how that finished!

The fact is that the European experiment is exactly that - it was an experiment that hasn’t worked, doesn’t work and will never work. The Germans will of course benefit because they have a massively devalued euro to work with compared to the previous Deutschemark which was three to one against the pound sterling but for most of the peripheral countries, they are joining a club where the cost of membership is just too high. You probably can guess - I have never been a big fan of Europe, full of unelected bureaucrats making policy that has created mass unemployment for huge swathes of the general public. 

This year will also be the 64th change in Government in Italy since 1945, after World War II, so it’s not as if Italy was particularly stable before the Eurocrats came in. Worse still poor economics is causing social and political unrest which has obvious knock on implications for the wider community.

To be honest I feel that Italy only has one way to save itself from bankruptcy and that would be to leave the EU. And if it does, that will also almost certainly spell the end for the European experiment. 

Italy is one of the major political players in the European group which is why it’s important but it also suffers from being one of the least financially and economically reliable. Investors will eventually get fed up I believe of this paradox and when it comes to making money which is all that investors really care about, economics will always reign over politics. 

If you are interested I filmed a short video on my thoughts about Italy a couple of days ago which you can view. Just copy the URL link below into your internet browser.

https://www.youtube.com/watch?v=pRIymhINcZA&t=25s

I will be back soon with further blogs as promised!

Ranjeet Singh

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.