This past Monday saw Italy’s state-rescued bank (and oldest financial institution in the world) Banca Monte dei Paschi di Siena report yet another loss for the the last quarter of 2017. The abysmal performance came from restructuring costs and weaker revenues. Despite the fact that Italy and the EU have poured massive rescue funds into the financial institution, it continues to sink.
Monte Paschi is a sad representation of Italy, yet it is only one of the many problems the country suffers from these days. Elections in less than a month are expected to produce a hung parliament. The situation is dire enough that the world’s largest hedge fund has taken massive short positions against major leading Italian companies.
It reminds you of why you need to invest in gold to help insure your retirement portfolio. Gold has a several thousand year track record of protecting assets in times of geopolitical stress like Italy is experiencing. Gold outperforms in times of market chaos. You need to be aware of storage requirements as well as the gold IRA rollover rules and regulations.
Monte Paschi Bank Continues to Struggle
Monte Paschi Bank is no stranger to plunging share prices like it demonstrated on the news of a last quarter 2017 501.6 million euros (or about $613 million) net loss Tuesday morning. The stock only resumed trading on October 25th following a 10 month long suspension. Now its share value is over 43 percent lower than the price of 6.49 euros that the country of Italy paid to rescue it.
It was only last year that the bank cried urgently for aid from the state when it could not raise the necessary funds out of private investors. The bank’s position had been severely undercut by its failing loan book along with derivatives trades that imploded.
The government of Italy intervened last summer to support this systemically important institution. It provided 5.4 billion euros (or about $6.6 billion) of rescue funds that totaled 8.3 billion euros. At the time they called this a precautionary recapitalization.
Despite this attempted rescue, the bank is still massively cutting back in a desperate effort to save itself. It is eliminating around 20 percent of its employees and closing branches throughout Italy. By year 2021, the bank intends to sell off 28.6 billion euros worth of its bad loans. With over 220 billion euros in other bad loans still on the books of banks in Italy, the question is who will buy these toxic assets? This chart shows how Italy compares to the rest of Europe for toxic bank loans:
World’s Largest Hedge Fund Is Massively Shorting Italian Stocks
It is not only Italian banks that are struggling these days apparently. The world’s largest hedge fund Bridgewater Associates is so convinced that Italian firms will suffer in coming months that they have massively shorted a range of Italian companies. They did this by borrowing shares which they sold and hope to purchase back at a less expensive price. The firm is able to keep the difference as a profit.
Major non-financial Italian companies Bridgewater is massively short include Intesa Sanpaolo ($791 million), Enel SpA ($693 million), and ENI SpA ($656 million). They have more than quadrupled the value of their short positions on European and Italian companies in February so far.
The real reason that they have been increasing these short positions counting on Italian shares declining comes down to the upcoming national Italian elections slated for March. Analysts fear that the results will not empower a clear cut winning party or coalition.
This would greatly restrict Italy’s ability to deliver the much needed economic reforms. Founder Ray Dalio of Bridgewater believes that the effects of Italian gridlock will be significant enough to impact other European shares outside of Italy. This explains the hedge fund’s additional short positions on construction, manufacturing, and energy companies found in Germany, France, the Netherlands, and Spain.
Italian Elections Next Month Set to Produce No Clear Winner
Since even before elections were announced for March 4th back in December, opinion polls in Italy have consistently shown that there will not be a clear or obvious winner of the contest. Instead analysts anticipate the result will lead to a hung parliament, significant instability in Italy, and even potential financial markets’ turbulence in what is the third biggest economy of the euro zone.
The current Prime Minister Gentiloni is the third one the country has endured since the year 2013 when last elections were held. That election similarly did not provide an obvious winner. Before Gentiloni, Matteo Renzi resigned back in December of 2016 when Italian citizens voted down his referendum on constitutional reforms.
The most likely result of this election is strange. The Five Star Movement party probably could win the largest percentage of the vote. Yet the coalition most likely to secure the greatest amount of seats in parliament is the Forza Italia (Go Italy!) headed by Silvio Berlusconi.
This center right alliance triumph would bring the four-time serving premier of Italy back to the stage of Italian politics. Yet even this scenario offers uncertainty as Berlusconi’s conviction for tax fraud means that he can not be prime minister again.
Italian Economic Problems Remain Substantial
Italy is not in a position that can afford instability now. It possesses the highest amount of public debt in the zone besides Greece. The unemployment rate is also among the highest in the EU. The country is still one of the slowest growth economies on the continent. This growth problem dates back to the 1999 beginning of the euro and monetary union.
Even though the country is suffering from its highest ever government debt, every main political party has promised that it will cut taxes and increase the budget deficit. Immigration has also become a flash point that now has taken center stage. The right wing parties have played on Italian fears by raising the specter of a migrant invasion. Over 600,000 illegal immigrants have arrived from North Africa to land in Italy during the past four years.
Only last week an Italian man fired on African immigrants and injured six individuals in Italian city Macerata. He claimed that the racial attack was retaliation for the recent dismemberment death of an Italian woman Pamela Mastropietro by a Nigerian immigrant. Since the one-time Northern League candidate Luca Traini engaged in the shooting spree, these events have become the focal point of the campaign for the upcoming March 4th national elections.
Gold Is Your Best Protection Against Italian Political and Economic Crises
Italy and its many political and economic problems are only the latest threat to your retirement portfolio. The third largest economy in the post-Brexit EU is too important to the world to fail or even to struggle. Its banks and mountains of debt are connected to important financial institutions and the markets around not only Europe but the rest of the world.
It reminds you of the reasons why you need a gold IRA. You can not stop geopolitical crises like the one brewing in Italy from happening. You are able to protect your own retirement funds from the havoc which they can cause in markets. Now is the time to learn how to invest in gold insurance for your IRA retirement accounts while you can still have the yellow metal for a reasonable price.