Maybe there's something wrong with me.
I'm sitting at the top of a mountain in Lake Tahoe, on "vacation" reading the Financial Times in a Lodge overlooking the water. Before I left, I swore up and down I'd unplug from the world around me.
But the last time I really "unplugged" was the first week of March 2008. I had just quit Wall Street and moved to a small beach town in Florida to work on a novel.
Five days after I arrived, I was sitting at a bar working on the second chapter. Bear Stearns had just collapsed...
Things feel eerily familiar. I feel like my vacation may be interrupted by the imminent explosion of the European banking system.
Last Friday, I issued a warning about Deutsche Bank in particular and German banks as a whole.
That rickety sector won't be alone when it goes - there's another European country that could go bust at virtually any second now.
I don't want to be fishing when it happens; I want everyone to be in position to stay safe - and even better, make some profits on the explosion...
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Some Problems Never Really Go Away
Last October, the European Union rejected Italy's budget proposal and sent the Italian contingent back to Rome with a bit of a homework assignment: reduce their budgets, cut their debt, and fix their balance sheets.
The country's credit rating was, essentially, junk. Voters had just months prior elected the first populist and Eurosceptic government in a European G7 economy.
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That was then - hundreds of news cycles ago. A lot of people seem to have forgotten this very troubling development and moved on.
The media seems to be coming back around to Italy at last.
Last week, an author in the Financial Times argued that Italy must engage in a series of public administration and judicial reforms to address struggling investment inflows and stagnant productivity.
That author's thesis goes that reform would reverse the cultural and institutional failures that have plagued Europe's third-largest economy.
To a person who's been paying attention, such reforms are wishful thinking.
The EU is shouting mandates at Italian leaders.
But it's hard to find a scenario in the next year where the right-leaning populist League and the left-leaning Five Star Movement will find common ground.
Populism and nativism are on the rise, and not too much love exists for the EU leaders in Brussels.
I've traveled to Brussels before, to the Berlaymont building which houses the European Commission, to meet with EU officials on climate change. The building is like a museum of bureaucracy and slow-moving ideas.
Italy's leadership is fed up with the EU's call for Italy to get its finances in order. In fact, Deputy Prime Minister Matteo Salvini has promised a future without the Eurozone's budget rules... and quite possibly, one without the euro.
Last week, Italy's 10-year bond felt pressure due to speculation that the EU will let the country increase its deficit to bolster its economic growth. But then bonds rallied thanks to news of fresh stimulus across the continent.
Once they finished combing through the European Commission's June 5 meeting minutes, pundits came to the consensus that Italy had just six months to address its public debt.
But... then what?
Worst Case: Italy Could Thumb Its Nose at Europe
Italy must turn over a 2020 budget plan to the EU by October.
At that time, we could see another round of EU criticism and another possible downgrade to Italy's precarious debt.
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And if the country's populist leaders feel another round of lectures and threats of fines are in the mail, well - the reaction probably won't be kind. They could very well not submit that budget.
At that point, it will be clear if Salvini (who's perceived by many as the de facto head of the Italian government) and company are working toward debt reduction or acting on their previous statements that call the EU's fiscal rules "obsolete."
Straining relations with the EU will only raise new concerns about the stability of the nation's financial sector, its ongoing struggle to contain budget deficits, and ballooning public sector debt.
The EU also isn't happy with Italy's choice to sign on with China's "One Belt, One Road" mega-project initiative as the bloc attempts to protect Greece.
Instead, the Organization for Economic Cooperation and Development (OECD) would prefer justice and administration reforms aimed at strengthening laws, increasing productivity, and bolstering international investment.
Italy did pass a "growth decree," but that's already facing scrutiny among critics. The decree includes tax breaks and lower insurance payments. But it also canceled the legal immunity that its previous government had given to steel giant ArcelorMittal SA (NYSE: MT). The steel producer responded by saying it plans to shutter the production plant in the southern city of Taranto. (The immunity deal sheltered executives from prosecution over an environmental cleanup.)
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The growth decree will also give the government potentially disastrous discretionary authority to rescue struggling national airline Alitalia and back the bonds of embattled, Genoa-based Banca Carige SpA.
Unless confidence grows and investors believe that stability is possible, look for Italy to continue to be both the "instigator" and "victim" of market shocks.
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The bottom line: All of this is bad news for Italian bonds, the euro, and the broader continent as well. It's worse news for the investors with exposure there.
Oddly enough, Italy's banking sector has seen hedge funds wind down short positions and turn the attention to the other side of the continent. I think that's short-termism at its finest.
This story won't find its way onto front pages until it's all over but the crying. It'll be far, far too late. Do not - I repeat, do not - be surprised if Italy fades from international financial news altogether for the time being.
Just be confident that you're protected and in a position to make good money with this.
The iShares MSCI Italy Index (NYSEArca: EWI) has rebounded since the start of the year (priced to net asset value).
In fact, it's kept pace with the S&P 500. There's that short-termism again - the looming "Euro-stimulus" the continent's bankers are hell-bent on is essentially already priced in.
Now, I'll be making a specific research recommendation on this for my Quantum Tracker readers, complete with detailed get-in/get-out instructions on how to buy and sell. But anyone can make some money on this. (To learn how to get Quantum Tracker, click here.)
I don't think this is a short-selling opportunity right now, though the fund is liquid enough that you probably wouldn't be stuck without a parachute.
Rather, I think buying December 2019 put options is the safest way to play this, offering the most upside for the least risk, like the EWI Dec. 20, 2019 $28 puts (EWI191220P00028000), for example. If the stock declines by just $1, you’d be looking at an easy double-digit gain.
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About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.