Peer Steinbrück, the former German finance minister and the likely standard bearer for the Social Democratic Party in the German autumn elections, was undoubtedly echoing Chancellor Angela Merkel's thoughts when (discussing the results of the recent Italian election) he observed, "…two clowns won the election." Herr Steinbrück and Frau Merkel, normally on opposite sides of the political spectrum, are in agreement on this point: the election results pose a real set-back to the progress made in taming Europe's sovereign debt crisis.
The two clowns referenced by Peer Steinbrück are Silvio Berlusconi and Beppe Grillo. While Pier Luigi Bersani's center-left alliance prevailed in the lower house, it came second behind Berlusconi's coalition in the Senate. The comedian Beppe Grillo's Five Star Movement came in third in the Senate race. The two factions — Berlusconi's and Grillo's — can impede any economic reform bills which pass the lower house, the Chamber of Deputies. This is the reason why the FTSE MIB Index declined 5.9 percent on Tuesday (February 26th) as the votes were tallied and it became evident a legislative stalemate was likely.
On the face of it, Berlusconi and Grillo hardly seem kindred spirits; never-the-less, one should not discount marriages of convenience (connivance?) in politics. Both share an apathy — one probably genuine, one obviously calculated — to Brussels and the Franco-German entente which sets the agenda for the European Union (EU). Remember, the enemy of my enemy is my friend.
Such is the logic of politics everywhere. But this being Italy, what is on the surface masks the brittle state of the Italian nation. Regionalism in Italian politics is never far removed as a motivation. In the election just past, it was the support of the Northern League that gave Berlusconi's rag-tag coalition its Senate victory. So readers should not be surprised if there is more earnest talk of federalism on the Swiss model as a quid pro quo for supporting further rounds of austerity.
The markets fear Italy is too big to fail, but too big to bail. While this observation may be true, we suggest the fundamental problem is, Italy — in its current incarnation — is simply ungovernable. Nor, do we believe, is there any fervent desire to make it less so.
Italy has existed as a nation for just over 150 years. Before it was a nation, the Italian peninsula was populated with a number of republics, kingdoms, principalities and city states. So while Italian unification created a single, sovereign entity, the state's effective jurisdiction has always been somewhat circumscribed. In the north (the regions of Lombardy, Piedmont, Trentino and Emilia-Romagna in particular) have always been somewhat ambivalent about the practicalities of unity. While the Mezzogiorno (Italy's southern regions) is not without its charms (the Amalfi Coast prime among them) to Italians in the north, it is in their estimation ungovernable, corrupt and a sink hole for northern tax dollars.
A tourist to either Valle d'Aosta, Trentino or Lombardia could easily mistake these Italian regions as a canton or province in Switzerland, France or Austria. Increasingly, the citizens of the north look across their borders and find they have more in common with their Swiss, French or Austrian counterparts than they do with the inhabitants of the Mezzogiorno. To them, a bailout of the central government is tantamount to a bailout of the south. In this regards, Italy is a reflection of the European Union's current woes. For these reasons one cannot dismiss the possibility that the northern regions might decide to strike out on their own. Certainty the EU already provides the essentials in the form of a common currency and a common market. In this calculus, the Italian state may thus be rendered superfluous.
In Rome, the drama is far from over, but the circus has come to town.
Notes on Sources and Methods:
Nominal gross domestic product (GDP) is a widely used measure of the total goods and services produced (consumed) by a nation (or, state) over a period of time. Nominal GDP reflects the value of the aggregate goods and services at current price levels. Per capita income is the ratio of nominal GDP divided by the region or nation's population.
The FTSE MIB (Milano Italia Borsa) Index measures the performance of the 40 most liquid and capitalized stocks on the Milan stock exchange. It is for Italians what the Dow Jones Industrial Average is for Americans. As such, the MIB is the most quoted equity index in Italy. Remember you cannot invest in an index.
(Sources: Italian National Institute of Statistics; Lipper; AIFS estimates.)
American Independence is now on Twitter. Follow us at: www.twitter.com/AmIndependence.
About American Independence Financial Services, LLC
American Independence Financial Services, LLC ("AIFS") is the investment adviser and administrator for the American Independence Funds. The firm is a limited liability company founded in 2004. It is majority owned by its senior management, who average over 25 plus years of industry experience and achievement. Today AIFS offers eight different mutual funds and manages approximately $1.1 Billion in assets on behalf of its clients.
Our "partnership" culture and boutique size helps keep us focused on finding investment managers and strategies which offer a real choice in the marketplace. We strive to deliver active management which beats passively managed alternatives over time. We also seek strategies which are innovative and address investors' needs.
We believe our lineup of investment strategies reflects our unique worldview. We invite you to visit our website www.aifunds.com to learn more about us and to discover our independent perspective on investing.
© 2013, American Independence Financial Services (AIFS). All rights reserved. Redistribution and quotation permitted with attribution to the author and source.
The views expressed in this document are based on political, market, economic and other conditions subject to change at any time. Data are acquired from sources believed to be reliable. But no warranties are made to the accuracy, completeness or timeliness of the data and information presented. Opinions expressed are those of the author unless indicated to the contrary. Nothing in this document should be construed or taken as financial or investment advice. Please consult with your financial advisor to discuss how the subject of this research report may impact your unique, individual circumstances.
Certain indices, yields, exchange rates and other market and economic statistics may be quoted or mentioned in this report. You can not invest directly in an index; nor can you obtain many of the other yields or rates quoted. Please bear in mind such indices and other statistics do not include many of the expenses associated with investing in securities including (but not limited to) trading costs, custodial fees and management fees. All index results cited in this document reflect returns including the impact of re-invested dividend or interest payments expressed in US Dollar terms unless noted to the contrary.
Investors should understand and consider these and other risks they may face by investing in the Funds. These risks are discussed more fully in the Funds' prospectus. Investors are encouraged to read the prospectus.
For more complete information on the American Independence Funds, you can obtain a prospectus containing complete information for the funds by calling 1-866-410-2006, or by visiting www.aifunds.com. Please read the prospectus carefully before investing. You should consider the fund's investment objectives, risks, charges and expenses carefully before you invest or send money. Information about these and other important subjects is in the Funds' prospectus.
Income taxes may be due on all or a portion of the interest, dividends or capital gains received or realized through an investment in a mutual fund. Please consult with your tax advisor to discuss how different investments may affect your tax liability.
Shares of the American Independence Funds are distributed by Matrix Capital Group, Inc., which is not affiliated with American Independence Financial Services, LLC.
Not FDIC Insured - May Lose Value - No Bank Guarantee