Remember that markets go down much faster than they go up. We are living through this reality right now, and everyone needs to stay aware of the risks in the markets.
Europe is still struggling with their debt and deficits, and Germany (the largest economy in Europe) seems unwilling to keep bailing out their fellow European Union members. Greece especially is in a great deal of financial trouble, and there is talk of Greece exiting the Euro. No one really knows how that would work, and if it does it will probably cause a lot of unrest in the market.
We think that international investments are not a wise move right now with all this uncertainty, but we are keeping an eye on developments around the world. Smart investors will have some excellent buying opportunities this year, but it’s critical to avoid getting caught in either an uneducated panic or place of comfort.
Over the weekend, we saw France select a new president - Nicolas Sarkozy, the incumbent conservative, lost to Francois Hollande, the socialist candidate. Hollande is pushing for less austerity and more pro-growth policies (a tactic which Germany disapproves of). This is why we saw a sell-off in French markets this week, and we’ll probably continue to see some downturn there as France transistions their government.
Elections also were held in Greece last weekend, in which many fringe political parties gained traction and no clear majority was found. This means that under Greek law, they will have to hold another election. Greece continues to have a lot of unrest and uncertainty about their economic situation, so that’s a section of the world that we still need to pay attention to.
Also, on top of this news from Europe, we believe that global growth is slowing. Europe is in a recession, China is slowing down and oil prices are falling, showing us that the global economy looks to be contracting. Slowdowns and sell-offs will likely create buying opportunities for savvy investors, but as always, be careful in the markets and stay informed about what’s happening domestically and globally.
Don’t forget to sign up for our next teleseminar, titled: Strategies for Growth in Uncertain Times, and will be presented by Doug Fabian, on Tuesday May 8th at 1:00 p.m. Pacific (4:00 p.m. Eastern).
While this teleconference is FREE, attendance is limited, so please be sure to register HERE and reserve your spot today.
Listen to Doug talk about the short-term and long-term trends, divergences between the U.S. markets and international markets, AAPL news, the Federal Reserve meeting and policy, European debt crisis, and volatility in the markets.
This week’s video covers a lot of ground, so watch it and remember to keep a close eye on the market for better buying opportunities later this year.
Doug Fabian’s next live public speaking event will be in Las Vegas at the Money Show, where we’ll have about six different opportunities to present, and a special opportunity for our subscribers. Please check out moneyshow.com to register or for more information.
It seems to us that right now, the U.S. is a bullish bastion of strength around the world. International markets are all in short-term down trends, and, in contrast, the U.S. is in a bullish up-trend. This is unusual – usually all markets move in similar directions, and because of this, we think that the markets might be topping out soon.
We are also seeing increased volatility in the markets – last week was the worst-performing week of the year in the markets, but we’re still also seeing some highs. This kind of up-and-down action, plus leaders like APPL and GOOG starting to wane, tells us that the market is a very risky place right now. We think that the market is about to top out and start to correct.
First, Europe represents 25% of the global economy. Spain is the fourth largest economy in Europe and it is in economic shambles. The Spanish government is cutting severely in entitlements (unemployment benefits, pensions, etc.) and there is no job growth in Spain. People in Spain are more conservative with their money right now, causing a contraction in their economy, looking to contract a total of 7% this year. (To put that 7% in perspective, that’s about how much the U.S. contracted in 2008 – we all know how that affected the markets and economy.)
Second, Apple Computer is a phenomenal company, and it’s almost a stock index in itself. Apple stock alone accounted for 36% of all the earnings in the S&P 500 in the first quarter. We bring this up because if APPL was to falter, we would see some serious issues in our stock market.
Lastly, we want to remind you that stock markets go down 3-5 times faster than they go up. This is an unfortunate reality, but one to keep in mind as you watch the fundamentals and the global economy in changing times.
Things are changing in the market. The concerns that we’ve had all year about the strength of the global economy are coming to fruition, especially in Europe.
Spain, Italy and Portugal are undergoing tough budget cuts, and this is causing some real pain in those economies. Spain, for example, has about 23% unemployment, and as much as 40% unemployment in young people – a circumstance which will likely lead to some significant civil unrest. Spain is the 12th largest economy in the world, and we believe that it will be the “new Greece” – a serious problem for investors to keep their eyes on.
The Federal Reserve meeting minutes this week revealed that QE3 is not coming in the near future, even though we expect a program of some kind to roll out soon. Obviously, we noticed a reaction in the market to this news. As always, pay attention to the risk factor and have an exit strategy for your capital.
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We think that if you don’t already have positions in the market, the prospects of having significant gains (meaning gains that are worth the risk of entering new money into the market) in the next few months are highly unlikely. We believe that the financial markets are likely to correct in the short-term, and the market is still very volatile.
The stock market is running on the psychological hope that the economy will grow at a greater rate than 3%, and we will see if that ends up happening this year. The sentiment in the market right now is very “bullish” even though we don’t agree with that perspective.
Regardless, remember that sentiment is a contrary indicator for the stock market. Meaning that, when everyone is feeling great about the market is probably not the time to jump in to an investment. We think that when investors start jumping ship and the markets correct once more, as we expect in the next few months, that is when savvy investors should think about placing their capital in the market, buying positions that are well-researched and on “sale”.
Growth is slowing in China. Auto sales are up 5% (but should be up about 8%). As the global economy slows, production is slowing and property prices are falling in China, and as the world’s second largest economy, we believe this is worth noting for savvy investors.
Europe
Europe’s debt problems are not solved, and people are pulling their money out of banks because of widespread distrust. This makes it very difficult for banks to loan to businesses, which forces even more contraction in the economy.
As this BBC article notes, it looks as though Spain might be the new Greece, and as we’ve said for a while now, Europe’s debt crisis is far from over.
U.S. Stock Market
Wall Street analysts are feeling bullish about the stock market, but we see some challenges with their optimistic analysis.
We have to contend with the slow-down in the global economy.
Plus high gasoline prices.
As we wrote yesterday, taxes are going up in 2013, and we also have an election year to contend with.
The moral of this story is: pay attention, and be ready to grab your gains and get out. As we mentioned yesterday, know your exit strategy, as we expect this market to change very quickly, and we still believe that risk is very high.
We are watching oil prices closely, and it’s interesting to note that almost every past recession has been associated with high oil prices. We’re not predicting a recession, but we do think that the U.S. economy will slow down in the second part of 2012, and this is a reason we think investors should be cautious with their capital.
Also, in February, the U.S. set a record on deficit spending. We believe this trend is a problem and a good reason for everyone to have their personal finances in order. You can read more about our perspective on budget deficits in this recent blog-post.
