Cumberland Advisors’ Chief Investment Officer David Kotok highlights the plight of 4 banks in Italy rescued by the government, causing many to lose their life savings in the process .. “The bailout was carried out under the principles which governed Cyprus’ bailout. All of the stakeholders in the bank, including depositors, were at risk in the banks’ failure .. The Italian banking system is in serious trouble, and the failure of these four banks is simply the tip of the iceberg. Non-performing loans, loans that debtors are not paying off as agreed, but which have not yet been written off by the banks, have been rising. At this point 18% of all outstanding loans in Italy are non-performing. That is an extraordinarily high level, particularly when you consider that Italy is the eighth largest economy in the world and the fourth in Europe.” .. Kotok speculates that a contagion risk connection looms between the issues in Europe & the high-yield sector in the U.S. .. Kotok advises investors these words of wisdom to mitigate the risks: “If you cannot see it, don’t buy it. If you do not understand it, don’t buy it. It you cannot trade it with liquidity, avoid it. If you violate any of these rules, make sure you are getting additional compensation for the risk you are taking. In Italy, these are now proven to be three sound principles. In the U.S., the same rules apply.”

Article by David Kotok, Co-Founder and Chief Investment Officer of Cumberland Advisors

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