This morning, the US stock market reacted to PM Renzi’s lost Italian referendum with a gigantic IDGAF, the Dow printing a new all-time high within minutes of the open. Hell, even the euro gained on the news – which is hilarious if you’re in the camp that says the odds of a Euro Zone break-up increase with every populist victory at the polls.
I call this phenomenon “crisis fatigue”. If everything is a crisis, then nothing is. BTW, Italy has now had 63 “new governments” since WWII so IDGAF is perhaps the most appropriate of responses, historically speaking.
Here’s a highly prescient tweet from Barbarian Capital I want to share with you:
Brexit: sharp dip, few days to recover
Trump: sharp dip, few hours to recover
Italy: probably just straight up
— Barbarian Capital (@BarbarianCap) November 28, 2016
Some smart people are telling the story that the market reacted positively to the news because “a euro without Italy and its debt burdens is actually a stronger currency / economic union.” Perhaps they’ll feel the same when Le Pen sweeps through France like a hurricane. Is a euro without France stronger? How about without the Netherlands? Should Germany leave to really make it rock-solid?
Another story being told is that the Italian referendum’s ‘no’ vote was extremely well-telegraphed and that, on its own, it doesn’t mean an exit from Europe – all it means is a caretaker government through 2018 where very little gets done or changed.
One more story – US stocks are now the safety trade again for global fund flows, so that chaotic happenings elsewhere serve to make the S&P 500 more desirable for those pulling money out of geopolitcal harm’s way. This is probably the most absurd one.
I would just say to be careful with narratives. Like sentiment – or Greek mythology for that matter – they are always ad hoc, and designed to explain the inexplicable.
Besides, a price reversal later this week (or later today!) will invalidate any of the stories above immediately. Best not to get emotionally invested in any of them.
You kids get to bed, I’ll get the story book…