The Daily Update - Short Term Gain; Long Term Pain

An interesting report on Bloomberg this week looks at Italy and their outstanding corporate bond debt. Corporate bonds outstanding total Euro172bln and financial bonds outstanding total Euro 252bln so all sectors total Euro 423 Bln.

We have long warned about our concerns over the Italian banking sector and would not be holding any Italian debt at this juncture; however, many others do for so little reward. Only 8 of these bonds yields above the government curve, now you may expect that for ‘A’ rated bonds as Italy is a ‘BBB’ credit but the discount on ‘BBB’ corporates (not the premium you would normally expect against the sovereign curve) ranges from 28bp at the two year maturity to 65bp in the five to six year maturity and 60bp at the ten year sector of the curve. We believe the ECB has caused a false market in Italian debt not just in corporates but the government yields are far too low given the risks.

At some stage this will correct which will see an awful lot of burnt fingers from bond holders and bankruptcies from issuers. The timing however, is difficult as we expect a further round of bond buying by the authorities to make this situation even worse over the coming months. Short term gain; long term pain.

And … while many wealthy people ponder buying their own secluded island, President Trump may be thinking about something a bit bolder: Greenland. The President has asked advisers whether the U.S. can acquire the world's biggest island, attracted by its abundant resources, geopolitical importance and of course the prospect of cementing his legacy, the WSJ reported. Trump would need to broach the idea with Denmark, who controls the ice-covered autonomous territory.

With the world at such extremes it is hard to be surprised, however; maybe the President should consider Iceland. This may be a bargain ahead of the end October Brexit deal after which confidence may return to the high street. Iceland may be more attainable with some great bargains in their frozen food range, we are told, and that would really tie into the President’s legacy.

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