Italy Or USA - Where Would You Put Your Money?

Tyler Durden's picture

While at a glance this may seem like a straightforward question with a simple and obvious answer, troubled Italian bank UniCredit has released a ponderous article comparing and contrasting the two heavily indebted, politically challenged, and growth-retarded nations. Comparing debt-to-GDP ratios and trajectories, GDP growth, and unemployment (as well as funding needs), the answer actually becomes a little less obvious and boils down to the central bank (as does every trading decision in the world currently).

From UniCredit: Italy or the United States: Where would you put your money?

Obviously Italian interest rates are being driven by the systemic concerns in the Eurozone. What UCG considers - is the spread differential justified by fundamentals? As the super-committee grapples with the reality of the budget and Berlusconi's new boy faces austerity, IMF estimate for gross debt-to-GDP actually converge by 2016:


After discussing unemployment outlooks and growth, they find that indeed, the fundamentals (from an economic outlook) favor the US over Italy but their view is that the market's perception of the difference is misplaced.

Because at the end of the day investors are not concerned about GDP growth rates themselves, but about the implications of the economic performance for the health of the public finances. And while stronger growth rates undoubtedly help, they are no guarantee for lowering the debt. That is unequivocally shown by the latest IMF projections. While the fund expects the US to grow faster than Italy, it at the same time projects much higher deficits for the US. In five years time, the US is even likely to have a larger debt-to-GDP ratio, but right now the Italian government has to pay seven times as much for a 5-year bond than the US Treasury. How comes?

They summarize (and the full report is below) that the difference:

seemingly all boils down to the second explanation, which is of course the behavior of the central banks. While both the Federal Reserve and the ECB have been buying government bonds in recent months, it is obvious that the ECB has been much more reluctant to do so. In the (currently unlikely) event that the US Treasury will have problems to rollover maturing debt in the market at reasonable rates, it is probable that the Federal Reserve would step in again and buy even more government bonds. In combination with the direct demand effect, that implicit insurance puts downward pressure on Treasury yields, as investors are demanding only a very low risk premium. The situation in Europe is very different, and we simply do not know how many more government bonds the ECB is willing to buy. The reasoning behind the ECB’s more cautious attitude has repeatedly been articulated loud and clear: While additional bond purchases could help in the short-term, they might come at long-term costs, such as high inflation rates or a less stable EUR.


Leaving readers with an interesting question (and one we prefer not to have to answer, chooisng c) none of the above):

if you were a medium-term investor, where would you put your money: In a country that hopes things will miraculously improve on its own, or in a country that has realized that reforms are needed and that has shown the willingness to take the painful steps in the right direction?




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DarkAgeAhead's picture

c).  This bank's report is no different than your $2 wh@re on the corner.  Invest with me and I love you long time!

slewie the pi-rat's picture

<==== c) none of the above

<==== d) what money?

espirit's picture

Correcto slewie - what money?

On this coast, mine fell out of the boat in the Atlantic.

Pladizow's picture

Country of origin is irrelevent when making my gold purchases!

sqz's picture

At least with all that debt, the US is able to generate more than 1% GDP per year (excluding financial).

In addition, if the value of fiat currency is the ability to collect tax revenue, then with it's table-topping 4x military spending compared to the next country down, I'm betting the US can convincingly coax a lot more tax out of its poor subjects!

Being a European, I know where I'd put my money and its not in the land of olive oil, fruity wine, fast cars and hot brunette women (unfortunately)!

Lord Koos's picture

If push comes to shove, Italy has a lot of gold, probably more than the USA as a percentage of GDP & population.

Hugh_Jorgan's picture

Those charts would look significantly more alike if the US were being held to the same standards as Italy. Without the Bernank and the World's reserve currency, the economic sins of our ruling class become much more serious in the eyes of the world.

Jus' sayin'...

trav7777's picture

yeah, the 75% of world debt denominated in dollars is an infection that must be fed with exponentially increasing demand.

Desert Irish's picture

Small problem...their total gold holdings are worth $60 odd billion their debt is $1.9 trillion. Work the percentages and their gold holdings wouldn't even qualify them for a housing loan (post-subprime). Italy came out of WWII shattered - no way in hell is any European technocrat getting even close to their gold hoard. Now the flip side if gold hits $10,000 ounce we'll be on our knees begging them for economic aid.

Gief Gold Plox's picture

I'd choose "c" if only selling shiny bars wasn't so depressing. Oh, wait.... nevermind.  *buys more gold*

Long-John-Silver's picture

physical bitchez


This is the only correct answer. Italy and the USA are headed for the same outcome.

Load up on Beans, Bullets, and Bullion.

FaithEqualsZero's picture

Gov Paper = aaannnd its gone..poof

Gene Parmesan's picture

The disparity between the yields reflects the sentiments of where each country is going to stand once everything shakes out. The kneejerk view is that Italy is doomed and the US is (relatively) untouchable. Time will tell, but "fundamentals" have nothing to do with it at this point.

MarkTwainsMustache's picture

The report smacks of desperation...Italy is on the gold standard (i.e. they can't print more euros themselves) That is the major reason why rates are staying behaved in the U.S. whilst getting destroyed in Italy

drink or die's picture

USA will always be AAA in my book, despite what any credit agency rates it at.

Raymond Reason's picture

Sean, you're a great American.

drink or die's picture

It's a paraphrase of Obama's speech after the downgrade, but Hannity says equally stupid buillshit in the same vein.

Raymond Reason's picture

Haha.  Knew i heard that somewhere.

LoneStarHog's picture

Put down your glass of booze (avatar) and go buy some municipal bonds, too.

jpalm's picture

Nothing valuable to add, just wanted to say it's nice to see a fellow Oath Keeper on the boards

Logans_Run's picture

Why? You got gold tucked away somewhere in the USA?

billhilly's picture

Money?  What money?  You mean PAPER? HAHAHAHA.

Sorry, no paper here, physical only.  IT INVESTS ITSELF !!!!!

BlueStreet's picture

Based on market action today I'd put money in both because everything appears to be fixed.  Even putting on the stupid hat to trade this market is not enough, you need a full body stupid suit.







LawsofPhysics's picture

+100 for the "full body stupid suit" comment.

fuu's picture

And a schmart helmet.

junkyardjack's picture

Italy's interest rate won't be enough to cover the 50% haircut, America Fuck Yea

GeneMarchbanks's picture

Red line = Peripheral Empire

Grey line = Core Empire


JPG101's picture

I guess go with the one with the more aircraft carriers makes sense?

If the grey line dumps the red line will another line (Euro or Chinese) come in and save the red line?

I like the aircraft carrier line better medium term but the red line might do very well short term if rescued by another creditor or printer. Then again the red line has just to much risk in it for me.

citrine's picture

Speaking of Italy. FT just published breaking news:

Italy to ban naked short-selling on whole regulated stock market from midnight December 1.


oddjob's picture

I'd rather burn my money, thanks.

Bam_Man's picture

Obviously the shorting opportunity of a lifetime is shaping up in 10- and 30-year US Treasuries.

Timing the entry will be anything but easy though and ruin those who jump the gun.


Deadpool's picture

I'm sure a lot of broke ass Japanese investors said the same thing 20 yaers ago. "The market can stay irrational longer than you can stay solvent". "the right idea a year too early is the wrong idea", "In the long run we're all dead".

Raymond Reason's picture

"Give a man a fish, feed him for a day.  Teach a man to fish, and he'll stay drunk all day in a boat."

Desert Irish's picture

+ 1,000 your obviously married also

docmac324's picture

What money?  You mean savings?  PMs at my house only.

espirit's picture

...and your IP address is___________?

Segestan's picture

What these clown socialist forget it's not a CB that should be looked at but rather which nation is looking forward by securing manufacturing and profitable business. Typical socialist crap.

lolmao500's picture

Nowhere. Gold bitchez!

midgetrannyporn's picture

The usa has a technology called a printing press which assures that I will get my nominal clownbux back. Italy does not.

ZeroPoint's picture

Can I get gold & silver instead?

fuu's picture

d) Gold & Silver bitchez!

Stuck on Zero's picture

It's a good thing Bank of America changed its name from "Bank of Italy."

alien-IQ's picture

That question is the economic equivalent of Sofie's Choice.