Italy's debt too big to bail out unlike Greece: Douglas Blake
The contagion effect from failure of Italy is too big to fathom unlike Greece which is much smaller problem, says Douglas Blake of Newbridge Sec.
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In an interview with ET Now, Douglas Blake, Sr Wealth Manager, Newbridge Securities Corporation, talks about the near-term outlook for global equities and the extent of Italy’s debt problem. Excerpts:
News from Europe seems to be controlling the way the global equities are panning out. How are the equity markets likely to pan out in the near term? Does it seem like we cannot do away from the current volatility?
Something very interesting is happening because the new term volatility persists as a result of the Eurozone debt crisis. The US market is drifting higher and actually substantially higher. We just booked probably the strongest corporate profit on record and that is happening at a time of great uncertainty across the globe, certainly great uncertainty here in the United States, but Wall Street keeps chugging along while main street is really languishing.
Last week Greece dominated global markets. This week Italy will dominate global markets. Do you think Italy is a bigger hole than Greece?
Certainly a much bigger hole to fill than Greece and a lot of bond traders are watching the 7% level because if yields get up to that 7% level in Italy, that is widely seen as unsustainable. We are talking about a country with a debt of 120% of their GDP that is going to grow to about 1.8%. So 7% yield will not work. So something has to give there.
Here in the US, we have a safety net in the form of US treasuries and that gives us a buffer from all of these states and their individual situations, but in Europe and in Eurozone, you do not have such a safety net.
The contagion effect from a failure of Italy is really too big to fathom. They are certainly too big to bail as we would say unlike Greece which is a much smaller problem despite the big headlines.
News from Europe seems to be controlling the way the global equities are panning out. How are the equity markets likely to pan out in the near term? Does it seem like we cannot do away from the current volatility?
Something very interesting is happening because the new term volatility persists as a result of the Eurozone debt crisis. The US market is drifting higher and actually substantially higher. We just booked probably the strongest corporate profit on record and that is happening at a time of great uncertainty across the globe, certainly great uncertainty here in the United States, but Wall Street keeps chugging along while main street is really languishing.
Last week Greece dominated global markets. This week Italy will dominate global markets. Do you think Italy is a bigger hole than Greece?
Certainly a much bigger hole to fill than Greece and a lot of bond traders are watching the 7% level because if yields get up to that 7% level in Italy, that is widely seen as unsustainable. We are talking about a country with a debt of 120% of their GDP that is going to grow to about 1.8%. So 7% yield will not work. So something has to give there.
Here in the US, we have a safety net in the form of US treasuries and that gives us a buffer from all of these states and their individual situations, but in Europe and in Eurozone, you do not have such a safety net.
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The contagion effect from a failure of Italy is really too big to fathom. They are certainly too big to bail as we would say unlike Greece which is a much smaller problem despite the big headlines.
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