A better measure of investor sentiment towards Italian debt were today’s longer term auctions where 10 yr and near 10 yr debt were sold at yields of 6.98% and 6.7% respectively. The shorter term 3 yr auction yielded 5.62% vs 7.89% last month. To compare, nominal GDP in Italy may not grow more than 3%, thus these yields Italy is paying is unsustainable for any long period of time. Monti is speaking today, stating his case for the steps his gov’t has taken and saying there is “no justification” for the high yields of Italian debt relative to Germany. Really? The euro continues to weaken mostly vs the US$ and yen. Gold is selling off again and is now down 20% from its record high but the recent action in the US$ should be viewed as euro weakness rather than US$ strength as the US$ continues to languish vs healthier economies such as Canada and Australia with both still at about parity with the US$. This pullback in gold is nothing more than a correction in a long term bull market as the fundamental backdrop of currency debasement (especially with the recent explosion higher in the size of the ECB balance sheet) has never been greater. European banks parked 437b euros with the ECB overnight vs 452b yesterday. Much was made about the amount yesterday after all the borrowing banks did for 3 yr’s but its more yr end noise than anything. With this said, the money European banks borrowed for 3 yrs from the ECB will likely go more to refinancing their Q1 maturities than anything else. Italian business confidence fell to the lowest since Dec ’09 and Germany inflation in moderated in Dec.

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