Saturday, October 29, 2011
The “Tug-a-war” of 2011 Continues between Market Bulls vs. Bears!
The Bulls have regained the momentum! Anticipation & initial good news from the European Debt crisis had markets rebounding from 5 straight months of losses in one of the better months on record. Europe’s take on its heavily indebted nations for the last 18 months has been really a policy of “kicking the can down the road”. The best analogy I heard was they were not only kicking the can down the road but when they ran out of road they began paving more road to continue the kicking! As is all too clear with our own politicians nothing ever seems to get done until there is a major crisis at hand. This is truly a step in the right direction for Europe as they are actually trying to restructure Greek debt with the “voluntary” 50% reduction. Coupled with other bullish winds of healthy corporate balance sheets, low interest rates, accommodative Central Banks, and Government intervention has given strength to the rally.
However one still has to be cautious in a market environment where a lot of the factors that gave us the summer downturn are still real & present. Sovereign nation debt is still growing at alarming rates in the Developed world as Economic Growth sputters behind. The little economic growth we have had has in fact been showing signs of slowing since summer. The recession threat might be greater then what most experts think. The stock & commodity markets have also shown an amazing amount of correlation to government and central bank intervention. It was relatively easy to predict this summer’s market downturn when the market was no longer supported by Federal Reserve Bank’s QE2 (Quantitative Easing). Lastly the lack of political leadership to make difficult/unpopular decisions from the developed world has been troubling. A lot of the structural imbalances built up over the years in our economy still have not been addressed.
Predictions of the future however are always difficult and unpredictable. A balanced approach with emphasis on “playing defense” during the next 6-18 months in my opinion is still the prudent move. I am happy to see the European leaders finally coming to the realization of needing to restructure Greek debts. This is a big start to dealing with the world’s debt problem but the details of the EU summit still need to be ironed out. In addition the Europeans will have to deal with the much larger debt problems of Ireland, Portugal, Spain, and Italy.Time will tell.