U.S. stocks were hit hard Tuesday, partly due to political turmoil in Italy as
the country's President Sergio Mattarella rejected an economic ministry nominee who holds a "euroskeptic" stance.
Cramer: Italy Needs A 'Transformation'
Italy's economy and political system is in dire need of a "transformation" given the country's multiple "economic problems,"
CNBC's Jim Cramer said
Tuesday morning. The list of troubles include the following, Cramer said:
- An unemployment rate that stands at 11 percent.
- The worst "work records" across the European Union.
- One solvent bank in the whole country.
"Who can blame them [the Italian people] for looking for a new government," Cramer said, adding: "I would regard this as a
positive — not a negative."
Those who doubt the poor assessment of taly's economic situation simply need to
try and conduct business in the country and then realize that doing so is nearly impossible, the CNBC host said.
Related Link: Italy ETF Contends With
Election Results, Dour Social Climate
El-Erian: 'Miscalculation'
Mattarella's move to block the appointment of a "euroskeptic" minister was a "huge political miscalculation," Allianz chief
economic adviser Mohamed
El-Erian told CNBC Tuesday morning. Ironically, the Italian president cited a desire to avoid market turmoil in making his
decision, but the opposite occurred.
"The market would see right through this and ask 'what's next' — and when the markets ask 'what's next?' you get turmoil,"
El-Erian said.
The events also create a fair amount of "mispricing" in the market, specifically in government bonds, he said. Two-year Italian
bonds should not be wider than similar products from Greece, a country that would be in a "much worse" position should the Eurozone
cease to exist, El-Erian said.
"There is a lot of mispricing that occurs when you get a sharp move overnight," El-Erian said. "I would be looking at those
[misprices] that are taking place."
Italy's political struggle — coupled with concerning headlines from other areas of the world — makes it clear the American
economy is the "only economy with real legs to it," El-Erian said. Various emerging and first-world economies have merely seen a
"pick up in growth" as of late, he said.
Both American and European-focused banks were hard-hit at the time of publication:
-
Deutsche Bank AG (USA) (NYSE: DB): down 6.5
-
Morgan Stanley (NYSE: MS): down 5.83
percent.
-
JPMorgan Chase & Co. (NYSE: JPM): down 4.74
percent.
-
Goldman Sachs Group Inc (NYSE: GS): down 3.9
percent.
-
Financial Select Sector SPDR Fund (NYSE: XLF): down
3.73 percent.
Related Link:
Another
Political Test For This Italy ETF
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