Goldman Sachs On Italy: "What's Next"

Tyler Durden's picture

Some much needed clarity from the people who run Europe's printers. And, just as in the case of Credit Suisse, Goldman is desperately pushing for Italy to avoid precisely the outcome that Berlusconi has said is coming, namely early elections: "These could be held in mid-January at the earliest, although they would most likely be postponed until the Spring amid market turmoil. This would represent the worst scenario for markets, in our view. Since President Napolitano is aware of this, he will probably try to resist dissolving Parliament at this juncture. Also, most centrist parties would want to change the electoral law before a new vote takes place. All these scenarios will take some time to play out, a couple of weeks at least. In the meantime, the higher priced Italian government bonds will continue to be sold, as gradually higher margin requirements are applied. On our central case, intermediate to long-end bonds should continue to be supported relative to AAA-rated securities by the ECB."

From Goldman Sachs:

Italy - What's Next

After seeing his parliamentary majority decline further in a routine vote earlier today, Italian PM Berlusconi offered to resign once Parliament approves new austerity measures, possibly towards the end of next week. We see three possible outcomes at this delicate stage, with different implications for the BTP market and Italian risk premium more broadly:

Most likely scenario: In the coming weeks, the current centre-right coalition of the Northern League and PdL moves to rally round another candidate who can gain wider acceptance domestically and internationally. In order to broaden its support, the new government may reach out to smaller centrist parties which can advance their own political agenda.

A centre-right executive backed by a broader coalition and committed to implementing the ‘troika’s' economic platform could eventually stabilize markets. But the newly appointed Cabinet would need to prove itself first, and the protracted uncertainty would weigh on economic growth. Furthermore, reforming the pension system could meet resistance from the Northern League. Still, it would be hard for the ECB and Italy’s EMU peers not to stand by a new Italian government genuinely trying to pursue reforms. Under this scenario, thanks to the ECB’s interventions, we would expect BTPs to remain capped at around current levels (400-450bp) over the average of Germany, France and the Netherlands until measures are gradually approved.

Second most likely scenario: The centrist parties ultimately turn down the offer to join a broader coalition. In this case, more MPs from Berlusconi’s PdL party could join forces with formations at the centre of the political spectrum. This could pave the way for a government of national unity of sorts, led by a highly reputable ‘outsider’. Like during the crisis of the early 1990s, the advantage of such a ‘technocrat’ government is that it would be sworn in after some ‘initial contracting’ on its programme (economic reforms agreed with the ‘troika’, plus a new electoral law), which should lower the implementation risk. A technocrat government could use its credibility to introduce more growth enhancing measures that would pay off further down the road. Lastly, it could focus on improving governance (fiscal rules in the constitution, a smaller public sector, etc).

We view this as the most market-friendly outcome, as it would lead over time to a decline in sovereign spreads and in Italy’s risk premium more broadly. The front-end would re-price more than intermediate- and long-term maturity bonds because investors would likely take advantage of the rally to reduce exposure at higher prices. Nevertheless, we would expect BTPs to fall to around 350bp over Bunds in fairly short order.

Least likely scenarios: After Berlusconi’s resignation, general elections are called. These could be held in mid-January at the earliest, although they would most likely be postponed until the Spring amid market turmoil.

This would represent the worst scenario for markets, in our view. Since President Napolitano is aware of this, he will probably try to resist dissolving Parliament at this juncture. Also, most centrist parties would want to change the electoral law before a new vote takes place.

All these scenarios will take some time to play out, a couple of weeks at least. In the meantime, the higher priced Italian government bonds will continue to be sold, as gradually higher margin requirements are applied. On our central case, intermediate to long-end bonds should continue to be supported relative to AAA-rated securities by the ECB.

In conclusion, we are most probably approaching the highs in Italian yields (currently around 500bp over German Bunds in the bellwether 10-yr sector, and 600bp in 2-yr maturities), but a volatile and unsettled market remains our base case until Italy’s sovereign creditors can be reassured that long-awaited structural reforms to lift the country’s growth rate will be put in place.

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wang's picture
wang (not verified) Nov 8, 2011 4:29 PM

What's next is that our man Monti is in the casa

Ethics Gradient's picture

I can tell you that "What's Next" will not be a Italian Government of National Unity.

Sudden Debt's picture

I'm only interested in:

China next with it's 174% debt to gdp?

Ireland & Portugal defaulting?

5 more European banks being nationalized with 3 of them in France?

KBC in Belgium also defaulting pulling Belgium down the gutters?

Isreal launches preemptive nuclear strike against Iran, Syria & Egypt?

Who knows :)

 

NotApplicable's picture

Only three days until 11/11/11.

Place your bets!

Leopold B. Scotch's picture

11/11/11 officially kicks off the 12/12/12 season!

There's a massive shit-low that's spent the last decade forming above the shit-riddled, steamy financial waters beneath the global financial system.  Yes -- the conditions are ripe for a Category-11 Shit Hurricane. It is now coming to shore

(Don't tell me the scale "only goes to 5".  This one goes to 11.  And not because we're nearing 11/11/11...  although that comes into play.)

CrazyCooter's picture

You mean, like this?

http://www.alaskadispatch.com/article/north-pacific-super-storm-makes-it...

I am at work, so I can't dig up that trailer park tv show with the drunk talking about shit-pressure from the shit storm and the goofy guy in coke bottle glasses is freaking out ... so I will defer to someone who can.

Regards,

Cooter

TruthInSunshine's picture

11/11/11

The Illuminati are so ingenious, with such a cynical sense of humor, also.

I can hardly await the trick or treat they're going to unwrap for the plebes.

If only I could break their code!

 

And on 11/11/11, as in many coded dates past, the Illuminati sayeth onto the plebes:

Trick or treat

Bow before our feet (since we [mistakenly] believe that we are all knowing)

We're going to shove up your asses something really neat

SMG's picture

I wonder if anything is really going to happen.   It's almost too obvious.  Seen 11/9 mentioned too.  Guess we'll see. 

 

d_senti's picture

Would someone mind explaining to me this 11/11/11 deal? I've seen it mentioned in a few places. I assume from the comments below that it has to do with Illuminati or somesuch? Or 11/9. Thanks.

SMG's picture

Part of the Illuminati religion in addition to Lucifer worship and you believing yourself to be a god, is a belief in "sacred" numbers.  3, 9, 11, 13, 33, 666  for example are believed to have special power.  There are sacred numbers hidden in some of the Illuminati controlled companies logos (see the three elevens in Bank of America's logo)  The modern illuminati religion is actually a patchwork of several different ancient religions.   One of those is Pythagoreanism http://en.wikipedia.org/wiki/Pythagoreanism.  That's where the numbers/mathematics have mystical meanings idea comes from.

They are devil worshipers after all, so they save the real evil events for dates or locations that correspond to mystical numbers.  11-11-11 could be one of those dates.   But we'll just have to wait and see, only they know what they're going to do and when.  That's the advantage of running the world via a secret closed society.

d_senti's picture

Interesting. Thanks for the response. Have any sites that demonstrate the connection to the numbers? Three is of course a sacred number in most religions (completeness/Trinity/trimurti/divinity). Nine is 3 squared, which is common in sacred numbers. Eleven...the faithful Apostles? Or perhaps the ten emanations of God in Kabbalah plus one (God)? 13, just one and three obviously, or Christ and the Apostles/Master and Disciples. 33, 11x3 or the age of Christ. 666 needs no explanation obviously. But can you demonstrate the connection between Illuminati beliefs and a particular obsession with these numbers? 

Mostly curious now, regardless of whether there's anything to 11-11-11. I always found Gematria (et al.) very interesting, as it's even quite prevalent in the Bible (the 3, 4, 7, 10, 12 scheme which fits virtually everything in there for various reasons).

The Big Ching-aso's picture

 

A Little Italian Nursery Rhyme (translated)

'This little piggy went to the bond market.

This little piggy worked with the ECB.

This little piggy ate gyros and rioted.

This little piggy had none, zippo, nada, bubkus, zilcho.

And this little piggy went wee wee wee and then Lira'd all over the Euro, the USD, and every other fucking currency in existence.'

WALLST8MY8BALL's picture

Do they want the Trevi Fountain or the Isle of Procida? Hmmmmmmm

Sudden Debt's picture

Trevi would look great in my back garden!

I wonder when they put it on Ebay!

Let's hope shipping costs won't be to much....

 

I am a Man I am Forty's picture

OT:  Does anybody know who provided the short term lending to MF Global; the primary player who pulled the plug on them?

sabra1's picture

the worst scenerio for markets is when the rumours stop coming!

hambone's picture

The "un-rumor" (reality) is"

Brent crude @ $115.28...so much for "transitory inflation"

CrashisOptimistic's picture

That is truly that.

The only thing that matters is a refinery has to pay $115 for a 42 gallon barrel of oil in order to make gasoline to push Italian cars and trucks and scooters around to the tune of 1.7 million bpd of consumption ($71 billion/year).

They are draining 4% of GDP out to whoever will sell them that oil.

The rest of this bullshit is handwaving.  Oil is all that matters.

Ruffcut's picture

Yes, that makes sense. Tylers, so when are you coming out the with zh rumor indicator available on TOS. Chickens flying, shit flying graphics.. that sort of thing. Xbox apps for trading.

A new trading platform is born...

AldoHux_IV's picture

Yields will go higher if a political party dares to confront the 3 stooges aka Troika aka GS et al.

Kitler's picture

"In conclusion, we are most probably approaching the highs in Italian yields (currently around 500bp over German Bunds in the bellwether 10-yr sector, and 600bp in 2-yr maturities)..."

The squid has spoken.

Now SELL SELL SELL!!!

common_sense's picture

I translate for everybody: BUY BUY BUY

 

(after Thanksgiving we can talk about selling...even of a crash!, december is good because NOBODY EXPECT A BIG SELL OFF IN DECEMBER...PLEEEEASE.....IS NOT POSSIBLE....HUMMMMM)

Ruffcut's picture

Sorry, I can't trade squid spew very well. THe slime gets into my keyboard and makes my fingers all a bunch of goo.  Damn, worse than good porn, without any feeling at all.

Manthong's picture

"although they would most likely be postponed until the Spring amid market turmoil."

What turmoil?

Things look awful boring and the PPT and rumour mill seem to be very effective market props.

youngandhealthy's picture

No shit....the most likely scenario on steroids...

 

"...In the coming weeks days/hours, the current centre-right coalition of the Northern League and PdL moves to rally round another candidate who can gain wider acceptance domestically and internationally..."

 

Gief Gold Plox's picture

Almost sounds like GS has already picked someone to step up to the plate. Hm...

NotApplicable's picture

They rally 'round tha family,

with a pocket full of shells.

WineSorbet's picture

And the markets roll along.  Yawn.

SwingForce's picture

Its time now to play, the NEW comedy show: "How Far Can YOU Kick The Can?"

Nothing To See Here's picture

Only thing Italian I am interested in right now is an invitation to one of Berlusconi's parties.

Jim in MN's picture

Be a great time for Northern Italy to bring up secession, doncha think?

Piranhanoia's picture

We get a common denominator.  Never let the people have a say. 

chump666's picture

Goldman the can kicking bullsh*t is coming to an end.  so forget about your clued up research on a region that you know nothing about, Europe is a zombie.  After Italy, Spains 10yr will blow out then portugal, the ireland again etc etc etc.  it's finished that and you a-holes will get squeezed.  so no running to obama this time.  you will take the pain...

here is the bet silvio says a big f*ck you to you, germany france  and everyone else holding his junk.  he brings back the lira, sends the bond holders to the cleaners, scales back austerity and smokes a fat blunt.  i don't like the guy, but over goldman and the bs from wall street.  l'll take the gangstar

jm's picture

Bunga didn't become a billionaire by being someone's bitch.  Merk, Sark, and the bureaucrats have a tough lesson coming.

Josh Randall's picture

Goldman rules the world incase you two din't know...OK that does it, you two are going on report, wait until Mr. Blankfein learns about this...

Leopold B. Scotch's picture

That's Lord Blankfein to you, Sir.

CrazyCooter's picture

And he has the gold reserves to do it too! Well, assuming Italy could keep their trade balanced...

Regards,

Cooter

Ragnar24's picture

Berlusconi is vaguely reminiscient of Enrico Mattei.  Mattei stood up to TPTB of his era and pushed hard for an independent Italy... CIA wasn't too pleased with his ambition though. I just wonder if the politician/mafia version of Mattei will have the balls to tell the Merkozy pussies to fuck off.

chump666's picture

Excellent point, I think they will. 

RobD's picture

"be reassured that long-awaited structural reforms to lift the country’s growth rate will be put in place"

Umm and just what "structural reforms" could possibly "lift the country's growth rate"????

What are these guys smoking?

Elwood P Suggins's picture

Well Old BungaBunga ain't actually resigned yet.

kito's picture

i just called in the bet with my bookie.....ol bunga bunga aint going nowhere. buying time to appease the markets and consolidate power. he is not g-pap.............remember g-pap is a pussy and berlusconi eats pussy. big difference in leadership.................

chump666's picture

i need a drink...scotch right now

quacker's picture

 

The reaction of Charles Krauthammer on the Greek referendum, yapping about what a good thing it was that the referendum was cancelled and how the markets dodged a bullet says it all.

They spent decades flapping their lips about people’s right to “self-determination” back when it was all about battling the Soviets. They’re ready to send troops all around the Middle East to knock off governments supposedly to free the poor oppressed Arabs.

But when democracy gets in the way of their stock portfolio and threatens bankster bailouts all bets are off, they’ll shamelessly look right into the camera and tell us what a good thing it is when it gets squashed.

 

SheepDog-One's picture

Lets see....we're all bankrupt...so we need to schedule ELECTIONS! Yea...thats the ticket.

wombats's picture

Does this really matter much?  Seems like same shit every day and nothing ever really changes and nothing ever really happens as a result.