Happy New Year!
2011 is here and I expect that the markets will once again treat us to an unpredictable showing. If there is one certainty about the market it is that it has no certainty. Remember the flash crash last year that wiped out 10% in a matter of minutes? There still is no assurance that it can’t happen again simply because no plausible explanation of what happened has been put forth. Volatility is at mutli-month lows in the markets right now, as measured by the VIX or Volatility Index. That means that investors are expecting stocks to move higher in the days ahead, following through on a super December for the markets. I hope they do. There are some reasons to be cautious though and not paying attention to the obvious ones could lead you to join that ever-growing mob of complacent ostriches.
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The Debt Crisis in Europe is not going away. In fact it could intensify as the biggest of the remaining Euro “problem” countries, Spain, Portugal and to some extent Italy are still lurking in the background as potential bailout candidates. These are no small issues. Spain could pose the greatest sovereign bailout threat since the days of the Russian and Asian meltdowns more than a decade ago. The reverberations will reach our shores as that is the way contagions work. It’s been relatively quiet on the European front over the past few weeks, as the Holiday season has masked the problems brewing underneath. Most investors aren’t aware that Portugal’s debt was once again downgraded. Ireland is in the news still, yet it’s story has passed. The Euro crisis is akin to a playing whack-a-mole. As one crisis is “solved” another pops up within a few weeks.
The German people are protesting en masse through the media. The call to action is for a return to the Deutsche Mark and abandoning the sinking ship that is the Euro Zone. It won’t happen, but it does show the lack of homogeneity that Europe faces when compared to the United States. Europe won’t fail as their printing press is well stocked and well oiled. But, before all is said and done, there might be enough damage done to the currency that it could prove to be an enticing alternative to the greenback at levels well below the current $1.32. Currencies are like stock markets when it comes to opportunity. They overact to bad news…just as they do when news is good.
Housing, Employment and the Debt
Employment numbers just released show a pickup up of sorts. Jobless claims are down a notch to levels of July 2008. One report does not make a trend, but if there truly is a trend that this economy needs more than anything else it is an improving jobs outlook. It holds the key to everything that is still ailing the system. Housing, which looked to many like it may have turned the corner in 2010 is still in the dumps and if anecdotal evidence is anything to go by, the trend there looks lower still. Numbers are all over the place and in reality nothing coming out of Washington or the housing organizations can be trusted. A recent scan of properties in my area that were for sale shows that the overwhelming numbers are either short sales or properties offered up for sale by the lenders. In both cases the prices have been slashed by a half or more and these homes are still not selling. What is worse is that the “real’ sellers are unable to unload their properties either or even refinance because of the depressed pricing levels in the area.
These pricing levels are not a reflection of what the market will truly bear. One might argue that the market is whatever homes are selling for in real time. That rings true in most cases except when there is a case of artificially contrived supply or demand. When there’s a Bowl Game in town, hotel prices can be double or triple the norm, but that is also not a reflection of long term averages. Such is the case with housing now. Prices are being pushed down by overbuilding, foreclosures, strategic defaults and short sales. Those conditions will not last forever, although it may seem that way now. Housing will rebound when the buyers meet the sellers and part of that equation is confidence and increasing employment. Until that time, prices will continue to be depressed and so will the economy for most people.
The deficit, the debt and entitlement spending are all continuing problems without much end in sight. They are also related to employment levels as those less fortunate invariably will turn to the government for relief. And this government and both parties have little in the way of fiscal or monetary discipline. This will hopefully be a year for change in the way the government spends. I’m not holding my breath, but there seems to be enough of a groundswell of opposition to the free spending ways of government that austerity might be the order of the day when the new Congress convenes in January. If not, then I see absolutely no reason for any long-term optimism about the economic future of the US. We don’t need a stronger currency, just one that doesn’t get weaker every day.
2011 could be the year when America truly rights the ship of state. It has a choice though. There are always choices. The choice is to condemn future generations to standards of living we once associated with countries whose names most people could not even locate on a map. A recent census survey showed that the number of households that housed more than one family has increased to levels not seen since the 60s. And, these aren’t illegal aliens or new immigrants slumming it. It is families once considered the American middle class. This trend is disturbing to say the least, but the increasing numbers over the past few years does make a trend. The other choice is to reduce unnecessary spending dramatically and voluntarily. If we don’t there truly won’t be a choice.
Join Me Next Week
Part of my job at the League of Power is to help guide our readers through these troubling financial times. And as long time readers will know we’ve been shockingly accurate with even our darkest predictions.
We believe there is still some economic danger on the horizon for 2011. Though there are actions you can take to put yourself in a position to be protected. Next week, I will be hosting a special teleconference with all of our paid League of Power members to help them prepare. If you’re already a member you should be receiving these details by email shortly. If not, there is still time to get in. Simply follow the link below to join the League of Power for just $27 a month.
With all the uncertainty on the horizon, I’m confident this could be the best $27 you spend all year. At $27 a month paid League of Power membership is an absolute steal. Though if you feel it is not right for you, you can cancel at anytime.
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