I told you to keep your eyes on Europe. On Tuesday, widespread panic shot through European financial markets and this deeply affected U.S. markets as well. The Dow Jones industrial average fell 391 points, and at this point the Dow and the S&P 500 have been down for three trading sessions in a row. But the big news is what is happening over in Europe. Tuesday’s crash represented the largest one day move for 2 year Italian bonds ever, and Italian bank stocks are now down a whopping 24 percent from their April highs. Overall, European banks have fallen a total of 11 percent over the last four days, and it isn’t just banks in troubled countries such as Italy and Spain that are hurting. The biggest bank in Europe, Deutsche Bank, just keeps on tumbling and is now just barely above all-time lows. A few days ago when I wrote that the next global economic crisis “could be just around the corner”, there were some people that criticized me for making such a statement. Well, as you will see below, now this fact has become so obvious that even George Soros is saying it.
Those that are ignoring what is going on in Italy are making a tragic mistake. Italy is the third largest economy in the eurozone, and even the Wall Street Journal is admitting that its bond market is “in meltdown”…
Risk aversion is back. Italy is the focal point, with its bond market in meltdown, its politics in crisis after President Sergio Mattarella blocked the formation of an anti establishment government, and its credit rating under threat.
That is all now making bigger waves: Europe’s deepening troubles and disappointing global growth signals are sparking a sudden rally in haven bonds like U.S. Treasurys.
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