Mike Zigmont Mike Zigmont, author of the Zigmont Report, is a partner at New York-based Harvest Volatility Management, a hedge fund with over $10B AUM, offering volatility management solutions to its investor base worldwide. Mike has been publishing his daily newsletter (Monday-Friday) privately for the firm’s investors and his personal contacts in the investment business

since 2008, sending it daily shortly after the market close.

The opinions expressed below are my own

Bellissimo! Remember all those Italian worries yesterday? Well forget them because risk-on is beautiful. Yesterday’s losses were erased today. Or so the market would have you believe.

Today’s market reaction is rooted in positive political noises out of Italy. The news was that maybe the Italians can form a coalition government, which would keep summer elections from being necessary.

Great. I say hurrah to that.

What if they can’t form a coalition government however? The risk is out there and there are maybes all over the place. For the market to think that it’s all better today is a bit silly. We’ve got a manic market where investors are extrapolating both positives and negatives too greatly. It’s resulting in bigger swings from smaller catalysts.

Some will think hey, look at the tape. Yesterday’s loss is gone. the Italian crisis is now over. The fear was yesterday and the rational thinking arrived today and

tomorrow

we’ll move on. That is crazy talk. I don’t know if Italy will rear its ugly head again or some other risk will pop up but the point I want to make is that the pot has been stirred. The worries, possibilities, and the negatives *

did not exist

* in the market’s consciousness four weeks ago. They exist *

now.

* That is a significant difference in the investing landscape. A potential crisis doesn’t become a non-crisis overnight without a massive change. A potential crisis could disappear slowly over time but time is the key ingredient.

If Italy is going to resolve itself slowly, i.e. without a central bank action, there are going to be good days and bad days along the way. Eventually the issues fade into non-issues. We didn’t just experience that entire process condensed into two days.

This is just chop. Maybe

tomorrow

is another good day. Maybe it’s a bad one. To think that the risk is behind us is a big mistake.

I trust each move in the tape as far as I can throw a piano. We don’t have the certainty about the summer that today’s risk-on behavior suggests.

-Mike