The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK ( ETF Expert) -- Approximately one month ago, Standard & Poor's placed 15 European nations on review for potential credit downgrades. In spite of the implications, Italian bonds began to climb and their yields began to fall, as many were hopeful that an upcoming summit between European Union leaders might put an end to the region's spreading debt crisis.
Indeed, on Dec. 5, newfound enthusiasm pushed Italian 10-year yields down to manageable rates, somewhere below 6%. The S&P 500 benchmark for U.S. stocks also gained on hopes for the EU meet-'n'-greet, rising to 1257.
However, after European leaders concluded the weekend festivities on Dec. 11, investors feared that little had been accomplished. Stock assets around the globe took yet another pounding. And Italian 10-year yields climbed back above 7%.Here's the dilemma: Even as we celebrate an apparent breakout for U.S. stocks in the New Year -- even as the S&P 500 is now up to a friendlier level of 1292 (Jan. 10) -- the sovereign debt crisis isn't subsiding. One month after the EU summit, Italian yields are still above 7%. The 7% rate is considered the rate at which Italy's debts become unsustainable. At 7%, the government might find itself in the same place as Greece -- seeking a bailout. Unfortunately, Italy is the third-largest issuer of bonds in the entire world. A bailout might require assistance from more than Europe; it would probably include the EU, the International Monetary Fund, the U.S., the U.K. and oh, yes . . . the People's Republic of China. Follow TheStreet on Twitter and become a fan on Facebook. Granted, the U.S. Federal Reserve or the European Central Bank may decide to directly purchase Italian bonds, hoping that artificially lower yields inspire confidence. On the other hand, buying time and buying Italian bonds may fail to inspire confidence at all. When one buys time through quantitative easing, one is looking for the economy to gain traction. Few believe that Italy can gain the kind of economic traction that the U.S. can.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV