US STOCKS will open slightly higher this morning but Asia and Europe are lower again and we’ll have to see how this little bounce goes. Despite the sharp drop the last two weeks, markets are not deeply oversold. Volume has been heavy on selling and light on rally attempts.
GOLD – Gold is sharply higher again. According to the WSJ today, Central Banks (government banks like the Federal Reserve) around the world have started buying gold to diversify their holdings. Asian central banks have a lot of room. While the US and major European countries have 66%-74% of their reserves in gold, China has just 1%, Korea <1%, Japan 3%. Chinese consumers have started to be big buyers of gold, surpassing India. Most of my clients have 10% in gold.
ITALIAN BONDS– I quoted the Financial Times yesterday worrying about rising rates in Italy. However, according to today’s WSJ Heard on the Street column, while debt in Italy is 119% of GDP and they are adding to it by running large deficits, Italy’s debt tends to be long-dated debt with an average rate of 4%. So, Italy does not currently have the large refinancing need that Greece has and the effect of current high rates will take a few years to make a large impact. So, worry over the near-term effect of rising rates in Italy may be overblown.
On the other hand, Italy is one of the biggest bond markets in the world and any near-term help from its northern neighbors would require a lot of Euros.