Weekend reading: Italy pushes me to the tipping point

Great reading from around the web.

Europe hasn’t bothered me much these past few years – unless you count my terror this summer when I was quizzed by a tussle-haired French waiter in jeans (even scarier than the old-fashioned variety) in a hip Parisian eatery1.

No, I’ve carried on investing despite more prophecies of doom than you’ll find in a Tolkien trilogy.

That’s not to say Europe’s problems aren’t immense. However:

• I wasn’t surprised by them, because I never supported the Euro. It’s the flaws of the original currency union – not the particulars of any one country – that are ultimately threatening Europe.

• I believe it’s in Germany’s interest to save the Euro, and that it can do so.

• I can’t do anything about it, anyway.

But my measured bonhomie towards Europe’s woes was pushed to breaking point this past week.

First Italy’s Silvio Berlusconi turned away the IMF because the restaurants in Rome were full (really). Then he didn’t quit when I bet he’d have to. Next Italian bond yields soared after margin requirements by a key broker were increased – and the ECB at first stood by and did nothing. Finally, numerous ECB officials ruled out intervention by Europe’s Central Bank.

Meanwhile the idea of Greece leaving the Eurozone began to be discussed as a plausible option by the core decision makers. Greece doesn’t matter much – it amounts to 1% of European GDP, and most of its debt has already been written down – but the dangers of precedent setting loomed large.

I was so bothered that I finally sold out of some of my defensives in the trading portion of my portfolio on Tuesday. They are well up over six months and didn’t look likely to go much higher in a surprise rally, and I wanted some cash to buy bargains in a rout.

Happily, however, Europe, the ECB, and me all stepped back from the brink.

Berlusconi got the boot in Italy, austerity measures were approved, and a new technocratic government is on the way. Germany’s big bluff against Greece worked, too – it called off its referendum and it’s getting a wise council of wonks to push through reforms.

Best of all, the ECB stepped back into the bond markets and pulled the Italian 10-year bond rate well under 7% again. Having proved it can do it once, the clamour for it to do so again will surely be irresistible.

On Friday morning I bought back in with the cash I’d raised, roughly equal on the deal and without tax consequences thanks to glorious ISA protection.

I still believe market timing is a mug’s game, incidentally, even though being more active has helped me over the past 3-4 years. Regular meddling looks clever until a big surge one way or the other wipes out the profits you made (after expenses) by fiddling – and that’s assuming you’re even good at it in the short-term, which most people aren’t.

I far prefer to remain invested at all times (though I actively tinker with asset / geography / sector allocation, even in my passive portfolio). My going part-liquid on Tuesday was a measure of how much risk Vs. reward had finally tilted for me.

Now I’m back to a watchful vigilance. While I read as much about Europe as the most avid doomster, I still believe this sort of drama is more likely to yield opportunities for equity investors with a sufficient time horizon. Time will tell.

Here’s some special cuts on Europe to help you make your own mind up:

• Martin Wolf: Thinking through the unthinkable – FT
• Eurozone turmoil: Enter the technocrats – FT
• Leaving the Euro is hard to do – Planet Money
• Darling: What Europe must do, now, to avoid calamity – Independent
• Staring into the abyss – The Economist
• Sorry, there is no Euro break-up plan (yet) Telegraph
• Germany will rethink its views on printing money – Independent
• Seven reasons Italian shares could fall further – Market Watch

From the money blogs

• 10 ways to destroy your portfolio – Investing Caffeine
• Perception: Looking into the mirror – I heart Wall Street
• It’s how big, not how often, that counts – The Psy-Fi blog
• When to use a financial adviser – Oblivious Investor
• The entrepreneurial trend – Consumerism Commentary
• Past the point of no return – Simple Living in Suffolk
• Active, passive, or hybrid – The Munro Blog
• (US) ETF Deathwatch at record high – Invest with an Edge
• A Ben Graham speech from 1963 [Old, but new to me!] – Jason Zweig

Deal of the week: The new Steve Jobs biography is less than half-price at Amazon. There’s also a Kindle edition.

Mainstream investing news

• 3 wealth-sapping myths about the ‘best buy’ tracker – Motley Fool
• Most diversified stock portfolio on the planet – CBS News
• How a financial pro lost his house – New York Times
• The extraordinary delusion of believing what you read – WSJ
• The market is catching up with the Santa Claus rally – Market Watch
• Former richest man in Ireland declared bankrupt – BBC
• The inequality map – NY Times
• Beware the high TER of private equity funds – FT
• Flexible drawdown pensions have IHT benefits – FT
• The case for solar after the government slashes FiT’s – Guardian
• Aussies going home – Guardian
• Investing in a 7 billion-strong world – Telegraph
• War hero gives winter fuel allowance away – Independent

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1. Sorry, there is no other word for this place. [↩]