Watching the Markets Unravel with Vincent Truglia of Granite Springs Asset Management

Anyone in finance and/or media and/or with an active Twitter account witnessed the bloodbath that was all major asset classes today as money flowed out of equities and commodities across the board. I'm no economist, so I'm not going to say it was because of fears over the trouble roiling in Spain and Italy or the weak-sauce economic numbers we've been barraged with all week from the kind folks over at the NBER and the BEA, but Vincent Truglia is, so you should listen to his thoughts on the subject.
Yesterday we spoke with Truglia (principal and managing director of global economic research at Granite Springs Asset Management) about some of these "issues" on Benzinga Radio. On Europe, he made clear from the get-go that it is important to keep in perspective the fact that the eurozone is as ill-fated now as it ever was.
Here's Truglia, referring to the waffling and pontificating in the form of various "plans" from various Eurogroup politicians on how to keep Italy and Spain out of the bail-out club: "All of these measures will only act as band-aids. The structure of the eurozone is fundamentally flawed. We're just seeing the effects of the flawed fundamentals and it's not really a question of what Italy or Spain could do to stay in the zone, but really a question of when do the pressures become big enough for major changes in the structure of the eurozone to occur."
Truglia gives an in-depth explanation of how Italy is crippled not necessarily by its enormous share of public debt, but more by the inflexibility they have in dealing with said debt due to the fact that they're bound to the monetary whims of the European Central Bank, who at the moment seems dead-set on hiking interest rates. Bad plan for Italy. Further, there is the political question, which has, for some time now, been quite a big question when it comes to Italy.
Truglia: "The only way economic problems can be fixed [in Italy] is that they actually have to be passed by parliament, and that's proving to be extraordinarily difficult. Italian domestic politics are extraordinarily melodramatic by any measure. It's really like watching a soap opera." Which soap opera, we wonder? The bigger question, of course, is when this show gets cancelled, if ever, and that uncertainty is posing problems around the world right now as ratings plummet.
You're going to have to listen to the audio to hear Truglia's thoughts on the Spanish economy and the role it plays; it is well worth it, not least of all because it also segues into a discussion about the U.S. economy, which is in similarly bad shape. It's tough when the entire political debate is fixated on the nation's long-term debt to actually put things back on the rails, and as Trigly points out, "If you take a look at state and local governments, they have actually been a negative contributor to GDP for the first two quarters, and really quite significant negative contributors. Here now, we're adopting even more austerity."
His point being:

"Where are we going to get growth if we have more austerity in terms of the federal government? We're clearly going to have ongoing austerity by state and local governments; the housing market is still in the doldrums."
"On top of it, even if you are optimistic and assume that the second quarter [inventory] numbers are maintained for the rest of the year--which I find difficult to believe--you're still going to see a rise in the unemployment rate, and a rise in the unemployment rate is going to make consumers even less willing to spend money."
"The most important important barometer for consumer spending is not the level of unemployment, but rather the change in unemployment. Since it's really set to be rising again, I'm not optimistic that GDP is going to be growing very quickly. In fact, I would say that the risk of a double-dip recession is above 50% at the present time."

Truglia further goes on to state what everyone who is not in Congress already seems to understand:

"At the moment, there is very little we can do to maintain economic growth except to maintain deficits... For the moment, I don't think we should spend too much time in instituting austerity right now, because if we do, we risk Japan's long-term problem."
"It would be premature to undertake the kinds of austerity that some people are calling for. Just look at the GDP numbers. They show you that the federal government and the state and local governments are not being profligate. Theirs is an economic problem. If you start to do what some people are advocating--balancing the budget--this economy would go into a tailspin."

The obvious question then becomes what the Fed's next move is. Truglia's take:

"The Federal Reserve has a lot of mechanisms at its disposal to in fact try to stimulate the economy if Congress doesn't act. The Federal Reserve, although technically it's not supposed to be purchasing equities and other kinds of instruments, can in fact fund a lot of special purpose vehicles which could then undertake the heavy lifting that would be required. It's something that would be so confusing to most people that the Fed could probably get away with it. The reality is that it shouldn't be done; it shouldn't be the job of the Federal Reserve to be fixing what is basically a fiscal problem."

Find the audio here (Vincent Truglia on Benzinga Radio), and find us on Twitter @matthewboesler, @lukelavanway, @BenzingaRadio, @Benzinga