1 Thing Investors Need to Know About Italy's Debt Crisis

What's happening in the headlines can affect you as an investor. Here's what's going on, what you need to know, and what you should do.

The cold, hard facts
After opening slightly lower, the Dow (INDEX: ^DJIA), the S&P 500 (NYSE: SPY  ) , and the Nasdaq (INDEX: ^IXIC) all ended the day essentially flat as Italian sovereign-debt woes and the country's political turmoil continue to weigh heavily on investors' minds.

Some context
Last week it was Greece casting a black cloud over markets on both sides of the Atlantic, and now it's Italy, seen as potentially the next shoe to drop in the European sovereign-debt crisis. With an economy that rivals Germany and France in size, however, an Italian default would have much more wide-ranging effects than a Greek one.

And with Italian Prime Minister Silvio Berlusconi's coalition government teetering on the edge of disintegration, markets are more on edge than ever. Italian government bond yields, for example, rose to their highest since 1997, approaching levels regarded as unsustainable.

One thing you need to know
"The volatile spillover impact from sovereign debt is now approaching the highs we saw in July during the second Greek bailout discussion," Mandy Xu, an equity-derivatives strategist at Credit Suisse in New York, told Reuters.

As earnings season winds down, and with a light U.S. economic calendar this week, equities have been very sensitive to headlines from Europe. In other words, with no acute crises going on here, investors are looking across the pond for trouble.

As good and proper Fools, however, we know better than to obsess over the day-to-day gyrations of the market. You're in it for the long term. Since the European sovereign-debt crisis isn't going anywhere, anytime soon, take a few well-spent hours and check in on your investments' fundamentals. Make sure the companies you're invested in are still living up to your original investment theses and are managing their financial affairs well.

And then hold on to your hats, as well as your stocks, for what will continue to be a bumpy ride.

Fool contributor and newshound John Grgurich loves his Reuters feed so much he wants to marry it, but he owns no shares of any of the companies mentioned here. The Motley Fool has sold shares of SPDR S&P 500 short. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a scintillating disclosure policy.


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  • Report this Comment On November 07, 2011, at 8:10 PM, Icutchacokov wrote:

    Of about 355 billion euros in outstanding Greek debt, about 127 billion euros is held by the European Union, the International Monetary Fund and the ECB, while about 90 billion euros is held by European banks, led by Greek lenders, according to estimates by Open Europe, a research group based in London and Brussels. About 80 billion euros is held by foreign non- banks such as hedge funds and insurers. Data is scarce, making estimates difficult, according to Raoul Ruparel, an economic analyst at Open Europe.

    BNP Paribas SA and Commerzbank AG are unloading sovereign bonds at a loss, leading European lenders in a government-debt flight that threatens to exacerbate the region’s crisis.

    BNP Paribas, France’s biggest bank, booked a loss of 812 million euros ($1 billion) in the past four months from reducing its holdings of European sovereign debt, while Commerzbank took losses as it cut its Greek, Irish, Italian, Portuguese and Spanish bonds by 22 percent to 13 billion euros this year.Weakness in leading economic indicators has become so pervasive the Economic Cycle Research Institute now predicts a new recession is unavoidable.

    "The vicious cycle is starting where lower sales, lower production, lower employment and lower income [leads] back to lower sales," co-founder Lakshman Achuthan declares in the accompanying video.

    "What was debatable a few months ago is unquestionable today, and that is we are in the midst of a decelerating economic growth environment,” said Matthew Rubin, director of investment strategy at Neuberger Berman Group LLC, which manages nearly $200 billion in global assets. “These economic downturns are typically measured in quarters, not weeks, and investors seem to be accepting that and, at some level, are pricing in a probability of another recession.''

  • Report this Comment On November 17, 2011, at 12:00 PM, XMFGrgurich wrote:

    That's quite an epistle. Thanks for checking in, but I don't think I know exactly where you're going with it. Feel free to comment again.

    Cheers, TMFGrgurich

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