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Monday, April 18, 2011

Market Thought... swimming in it

The past few days were  a sea of negativity, and we were all swimming in it, especially for Europe. Here is a break down of the news flow:

1. a German official publicly saying that Greece will most likely have to restructure its debts. (This was prepping the market for a negative expectation in June. Hopefully Greece sells a lot of its 'private' assets to get their house in order.)

2. The rise of the 'nationalists' (aka extremely right-wing, boarder-line prejudice, isolationists) in Finland. This has me a bit concerned on the geopolitical front. (We have all learned about how carried away Europeans can get earlier this century.)  But this could also hit the bailout strategy, which would have obvious negative consequences in Europe.

3. China Sovereign Wealth Fund head said the global economy will slow down or even enter a recession in 2012.  I do not think he realized how interesting those words are.  The only time the global economy actually showed a slight decline, for the last 20years or so, was during the credit crisis. Is he inferring another one? Or was he being a sensationalist?  Probably the latter, but regardless, the words cause uncertainty.

4. The SP500 put the US debt on negative watch.

5. The US needs to raise the debt ceiling or catastrophe will occur, as Geithner put it on the Sunday morning shows.

A slow down from the emerging economies does not merit a market free fall. A slow down is the natural progression of a growing economy.  The emerging markets need their currencies and rates to rise to reflect their growth, in turn slowing down their growth. (Which will tame their inflation.)  The emerging markets are already at that stage.

Markets are predicated on profits, and companies will still have healthy profits as countries control their economic growth.  But the sea of negativity highlighted above may cause concern, and drive the SP500 to re-test the 1260 level.

The 1260 level is a fairly strong support level. It is the level we bounced off of from the 'nuclear meltdown' threat, and is near the 150SMA, which has acted as support in the past.

Of the above issues, if the US does not raise the debt ceiling or the EU bailout is not allowed to continue, a global recession will take place, and the SP 500 will eventually test 1150-1200, if not lower.  But I think the US congress will realize they need to do the right thing and raise the ceiling, then work on serious budget cuts. Or the European right-wingers will see that EU countries are making progress with the bailout, and that it should continue until the little PIGies economic houses are in order.

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