Financial Headlines... and What They Mean

By Todd Harrison There's a lot going on as we edge through the summer heat, and it's easy to be confused by the headlines coming at us from all directions. As such, in an effort to demystify some of these confusing crosscurrents, we'll delve into the bigger stories that are making news. In no particular order:

• Italy bum-rushed the mainstream mindset and officially entered the sovereign debt discussion, as well they should. The Italian economy is bigger than Greece, Portugal, and Ireland -- combined -- and borrowing costs across the Eurozone trading are at all-time highs.

What it means: The financial markets -- the ultimate arbiter of variant views -- are dubious of a comprehensive European bailout, and the risk of contagion has increased in kind. (To read why Michael Comeau thinks it's time to get out ARM holdings, click here.)

• Stateside markets were buoyed by speculation that the Federal Reserve left the door open for the next iteration of quantitative easing, or QE3.

What it means: The economy (which is entirely different than the stock market) hasn't been able to stand on its own two feet since the financial crisis without a steady stream of synthetic stimulus, and policymakers are posturing for yet another fix with hopes that it eventually will. (To read Peter Prudden's article on blind policy makers, click here.)

• Earnings season is upon us as corporate America readies to share their second quarter results.

What it means: These reports represent rear-view assessments of the business climate, while the stock market is a forward-looking discounting mechanism. Be careful of reading too much into top-line results -- they're likely baked into current levels -- and pay more attention to outlooks, which will help shape their capital expenditures while respecting the top-down dynamic.

• IPO's are back!

What it means: Tech 2.0 is forming on the horizon, with the likes of Facebook, LinkedIn LNKD, Twitter, and Groupon seemingly destined to become the next four horsemen of tech, replacing Intel INTC, Cisco CSCO, Dell DELL, and Microsoft MSFT (all of which are all trading at levels lower than they were ten years ago -- after the first tech bubble burst). (To read Lloyd Khaner's thoughts on the threat of a debt ceiling bloodbath, click here.)

• Gold is trading at an all-time high!

What it means: One of two things -- QE3 or WW3. Investors (and central banks around the world) are flocking to the yellow metal as an alternative asset class ahead of another perceived stimulus package, or as a hiding spot with a wary eye towards geopolitical strife. While this trend can certainly continue, commodities have downside risk if either of these attitudes shift, or if perceptions of disinflation or deflation begin to percolate (remember, the stock market is a forward-looking discounting mechanism). R.P. To read the rest, head on over to Minyanville.