Archive for the ‘U.S. economy’ Category
As I’m in Europe right now, talking to citizens of the wealthy European countries, I’ve discovered a consensus among financial types regarding the debt crisis that plagues the euro continent. As I’ve been writing, they too want clear action on the issue and most of the people I spoke with feel that Greece should not have been let into the European Union and euro currency. They also feel that Italy is too large a country (and economy) to treat similarly to Greece, Ireland and Portugal, who created their own various degrees of the sovereign debt crisis.
The sovereign debt issue in Europe is a direct threat to the U.S. stock market. It’s been like this for the last year, and it is likely to stay like this well into 2012. Prior to the European sovereign debt crisis, U.S. equity investors didn’t really care about what was going on over there, but times change—and they change quickly. That’s the one certainty in the stock market these days. Time horizons for investor expectations always seem to be getting shorter and unusual events like the sovereign debt issue seem to have a lingering effect on investor sentiment.
The great reckoning that’s going on is all about debt and the ability of entities, be they individuals or countries, to live within their financial means. The stock market hasn’t traditionally spent much time worrying about sovereign debt for the simple reason that the limits to all this debt haven’t reached the breaking point up until only recently. Precipitated by the subprime mortgage meltdown, large financial institutions and entire countries are now being forced to deal with their lack of prudence. The end result is a stock market that’s completely unsure of the future.
As I’ve been writing, it’s my firm belief that, if the sovereign debt issue in Europe did not exist, the U.S. stock market would be quite a bit higher than its current level. And not only this; but there would be a lot more hope towards the future. The U.S. economy is by no means in full recovery, but there are positive signs out there. Eventually, a new business cycle will take hold and investors will … Read More
Without getting too technical, investors have two ways to bet on the price direction of stocks. They can go “long” the market, which means they believe that stock prices will rise. Or they can go “short” the market, which means they are betting that stock prices will fall. Going “long” is easy; all investors need to do is buy stocks. And usually, when investors have a strong general consensus that the stock market will move higher, like they last did in October of 2007, stock prices go the opposite way and fall.
The upside potential is limited at this time. The problems are global in nature. You have the massive debt crisis in Europe and the U.S., along with deepening U.S. deficit situations. We are seeing state governments take days off here and there in order to save a few extra bucks. But this is merely a loose bandage strategy and not a remedy for the ailing U.S. economy. President Obama and the Fed realize the extent of the hurt. Obama introduced a $447-billion plan to drive job creation, but whether it will work or not is up in the air. It’s not going to be easy and everyone realizes this.
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