Italy Votes NO!, Stocks RALLY

The Italians went to the polls on Sunday and voted – NO! Italy rejects Renzi......   Now to  be clear - Italians did not vote for internal change, because if they did they would have voted YES, in fact the NO vote keeps the status quo which leaves the present constitution and political establishment in much the same place for now......What it did do though is give re-birth to the FAR RIGHT - The 5 Star Movement Party - led by Beppe Grillo - a party that is Anti Establishment -anti- EU, anti immigration and anti Euro......
 
Now what is interesting though is that 63% of Italians do NOT want to exit the EU....They are not rejecting the common currency etc.....but they did not want to cede power to the PM.  Their  constitution written in 1948 after WWII, was designed to prevent any one single party or person from taking control and potentially taking them down the road of Fascism*.  Think Benito Mussolini's National Fascist Party that ruled Italy from 1922 - 1943.  As a result - the current constitution gives both houses of Parliament equal power and this slows the wheels of progress and frustrates leaders - leaving Italy with 63 gov'ts in 68 yrs.....Renzi tried to change this - but Italians for the most part rejected him by a 60% margin.
 
*["Fascism is a political philosophy that exalts the nation and the race above the individual and that stands for an autocratic, centralized gov't headed by a dictatorial leader, with severe economic and social regimentation and forcible suppression of opposition" - as defined by Merriman Webster].
 
Look Italy is ‘hamstrung by constitutional procedure’ causing massive delays in legislation – which in the end hurts the country’s economy – leaving leaders frustrated and impotent.  A YES vote would potentially have changed all that while the NO vote leaves Italians in political and economic limbo as another year passes..... Investors are now preparing for another year of gridlock - which is not unusual for Italy......  

Asian mkts were the first to react –  and they took a hit – not hard, but they did get hit as they were not sure how the Europeans would react - so it was a 'shoot first, ask questions later' mentality.  Japan -0.82%, Hong Kong - 0.26%, China -1.2% and ASX - 0.8%.  US futures also came under pressure - initially selling off 10 pts as the votes were counted....only to find support and rally back during the night. 

The Euro immediately dropped to a 20 month low as investors/traders assessed the damage and the implications of the vote and the resulting resignation of PM Matteo Renzi. 

 As the day turned to night and the sun set over Rome – Renzi conceded the fact that Italian voters rejected his calls for legislative reform and made good on his promise to resign on Monday morning. 
 
The fear is that his resignation will leave a political void and cause financial instability among the Italian banks as global investors re- assess....  The political concern is now the possible rise of the (Far Right) ‘5 Star Movement’ – a party that supports an ‘exit’ from the Euro zone – thing BREXIT – potentially causing untold disruption to European mkts, the European Union and the common currency – the Euro.   Early trading has the Euro falling vs. the Yen at 120.22 and falling vs. the dollar to trade a 20 month low of 1.0563.  The financial fear is the the banks would collapse.....But that does not appear to be the case this morning - European equity mkts are not collapsing at all and in fact all of them are trading higher with the exception of Italy.....currently down 0.15% (which could be seen as a WIN!).  To be clear - no new elections have been called in Italy and investors are going bargain hunting...executing a similar Brexit/Trump style  “ strap in, buy the dip and chase” strategy.  FTSE +0.35%, CAC 40 + 1.08%, DAX + 1.5%, EUROSTOXX + 1.23%, SPAIN +0.84% .   
 
This NO vote had been priced into investor portfolio's and so the 'sell the rumor' mentality has been replaced with 'buy the news' mentality...... -  Italian banks as expected were under pressure but have mostly wiped out those early losses.....(the  vote was seen as a possible hindrance to the recapitalizations that are needed)-
 
Monti Dei Paschi (BMPS IM) - Italy's oldest bank and the one under the most pressure is off 85% ytd....and is now down 0.39% at 19.23 Euros.......as the referendum vote could result in the nationalization of Italy's oldest bank.  The question is - Will this negative tone in the Italian banks spread to the rest of Europe?  Will they be able to contain the contagion that many feel will spread like wildfire across the continent?
 
For now - it appears that this is an 'Italian problem'  and as talk of imminent disaster subsides - do not be surprised to see some bargain hunting taking place in the banks as well as in the broader Italian mkt.....(the Italian equity mkt is off 21% ytd)  - by far the one European mkt that has suffered the most - as investors sold the mkt off ahead of this historic vote.....So now that it is over - is there a silver lining staring everyone in the face? 
 
US futures are now rallying nicely and are up 8 pts in early trading....the Italian vote is NOT causing untold heartache for US investors....the focus for us seems to be the 'strong' (that is debatable)  NFP report from Friday.....

The most surprising number was the unemployment rate at 4.6% - levels not seen since 2007...but is that really real?  Again - the labor force participation rate is the lowest it has been in years and the U6 - report - the Underemployment rate is still above 9% and this is really the number to watch.....as it defines the real state of employment in this country.....The only negative in the report was the fall in average wages - and while some on the FED will point to this decrease as a possible concern it will do nothing to stop the expected hike in rates next week.

Look for the S&P to remain in the current trading range of 2190/2215.....as we move  into the year end.  Unless we get hit out of left field with an unexpected event - there is no real reason for the mkts to break out or break down....the FED announcment is expected so unless she says something unexpected - the mkts wil continue to churn right here.

Oil is up again this morning at $51.98/barrel -  but this story is far from over - we still do not know what the NON-OPEC producers are going to do..will they take advantage and increase production to replace the cuts approved by OPEC and if they do - then we can expect the price of oil to stall its recent march higher. 

Gold as discussed is now coming under re-newed pressure as all is good in the world - there is not political or economic upheaval as a result of the Italian vote and so investors will shed Gold in favor of equities and that is what we are seeing this morning.  Gold is down $9  at $1169....on its way to $1100.  Unless the global picture changes - gold seen as a safe haven asset will fall out of favor until it finds support  - now it may find temporary support at $1150 ish...but there is nothing there to hold it very long...

Feast of the 7 Fishes 

Now as so many of you know – the holidays are upon us and Christmas Eve is the biggest holiday of the year in an Italian household.  Up in Boston – where I am from -  we celebrated Christmas eve with the feast of the 7 fishes.  Now there are many different explanations on why 7 -but no matter which explanation you subscribe to - the fact is -  it is the Feast of 7 Fishes and once again I will feature them here for you.   They are no special order at all - so enjoy them. 

Italian Style Filet of Sole -

This is also simple to make and is a personal favorite.....For this you need:  Filet of Sole, Eggs, Italian Style Breadcrumbs * (recipe below – these are also the breadcrumbs you use for stuffing the calamari), flour, Olive Oil and tartar sauce.

 Beat 6 eggs in a large bowl to make an egg wash.

 Place Flour on a separate plate, place Italian breadcrumbs on a separate plate. - Now make a production line.   Flour - eggs - breadcrumbs.

 Next - dredge in flour - shake off excess then introduce into the egg wash - remove from the egg wash and place on the plate with the breadcrumbs. Using a fork make sure that you cover the filet in breadcrumbs.  Place on a clean plate.  Repeat until you have breaded all of the fish.

 Next turn the oven to broil and pour olive oil in a pan - maybe like 1/8 inch in pan.   Heat the oil under the broiler....now be careful and watch - as the oil gets hot you need to make sure that you are ready to broil the filet.  Take a pinch of breadcrumbs and toss in the pan...do they sizzle right away?  If so - then you are ready.  Now place the filets in the hot oil and flip to the other side...now let them broil to a nice golden brown....Open oven door and with a spatula - carefully flip the filets over to brown the other side....Once browned - remove and place in a serving platter.   Serve this with tartar sauce and any leftovers make great “fish filet sandwiches the next day!” (Make sure you use toasted Italian bread, melt some provolone cheese - add a bit of tartar sauce).  

**Homemade Italian style breadcrumbs -

In a food processor - blend a bag of hamburger rolls (or hot dog rolls) and transfer to a bowl.  Add pepper, onion powder, garlic powder and some parsley for color.  The key ingredient is 3 or 4 handfuls of grated pecorino Romano cheese. Do not add salt...the cheese will make up for any salt you think you need.   Mix well and set aside.

 
Buon Appetito.