In looking at the market, it will suffice to say that concerns regarding the European Sovereign Debt Crisis remain ever present again this week. Even when it is not the top news story of a given day we should always be aware of the potential for "good" or "bad" news out of Europe to suddenly surprise traders and to exacerbate or terminate a market move. I marvel at the fact that we must now include in our trading calculations the political maneuverings taking place in countries that most would find difficult to locate on a globe. Nevertheless, that is the situation. News reports regarding the meetings of, or statements made by, European financial leaders and politicians will retain the potential to affect short-term trading.
Stepping back from the trees to look at the forest can provide us some perspective. And in my opinion the scene is rather scary. Despite all the claims to the contrary, it seems to me that the European Sovereign Debt Crisis will not be resolved painlessly. Also, as Dave M. and I discussed this morning, European leaders appear to be permanently behind the curve. The markets and traders (think "Bond Vigilantes") have been and continue to call the shots.
I would note also that the media doesn't even have the attention span of a 2-year old. Thus today, it was all about the passing of Steve Jobs with a nod here and there to some economic news. But when was the last time the business TV shows ran a segment discussing the situation in Ireland, or Portugal, or Spain. Italy has been mentioned somewhat but it has mostly been all about Greece. It's as if those other problem areas never existed. But they do exist and they haven't been resolved.
The European Sovereign Debt Crisis is a book with many chapters and we have only read perhaps the first half. It's my guess, and that's all it is, that there is much drama remaining to this tale of woe. I would wager that there are many plot twists and surprises yet to come.
My suggestion here is to keep your head up and your eyes open.
Closer to home, one phrase sums it up… “It's the economy, stupid.” (with credit and apologies to Pres. Clinton's 1992 campaign staffers)
In the end it's all about economic growth for the planet. The 4 key players are:
- The United States.
- The E.U. and Britain
- China
- Japan
The U.S. remains the "Big Dog" on the block and various U.S. economic data points retain the potential to trigger market runs, both up and down. The United States represents approximately 25% of the world's economy. As such, the future economic growth, or lack thereof, in the U.S. will ripple through the globe with respectively good or bad consequences.
In Europe, the Sovereign Debt Crisis has cast a pall over nearly everything. The generally prescribed austerity measures are having adverse effects. In some cases such as Greece and Spain the result is worsening recessions. We could possibly add Ireland and Portugal to that group. It seems that the long avoided day of reckoning may be at hand. The problem is that Europe was supposed to be a major market for the Chinese and for U.S. multi-nationals. If Europe does fall into a general recession then those entities will likely see reduced numbers.
And that brings us to China (and somewhat Japan). The Chinese government has been attempting to engineer a soft landing. But I don't believe they were factoring in a significant negative change in the economic outlooks for their major trading partners: Europe and the U.S. This raises the possibility that the authorities there will "over shoot" and trigger a not-so soft landing.
If that happens, then Japan, the rest of Asia, and the U.S. would be negatively affected. And that could lead to further problems for Europe. And thus the negative self-reinforcing feedback loop.
Turning back to the United States, recent economic data has come in waves. First we get a string of "bad" reports such as the regional manufacturing indices. Then we get some good (or at least not bad) reports such as the national ISM report and last week's Jobless Claims report. With each set of data the market seems to go on a 3-6 day run before once again reversing direction.
Overall the U.S. economic data seems to be softening. We must stay alert to the status of the economy and the potential for a recession. In this regard, the recent call by the Economic Cycle Research Institute as presented by Lakshman Achuthan should be of great concern to everyone. Here's why.
The folks at E.C.R.I. get it right.
One old saw of Wall Street is that the stock market has predicted 20 out of the last 12 recessions. The comeback to that has often been that economists have predicted zero of the past 12 recessions.
Well the E.C.R.I. people have gotten it right for the last three recessions. The firm was founded in 1996, but the key players and founders have been around for decades and have a very good track record.
Perhaps most importantly, they have not made false calls. In fact this is one of their main objectives. They will attempt to do all they can to ensure that they don't provide erroneous warnings. So far they have succeeded in this regard.
In my opinion, that means the probabilities now strongly favor the United States' economy turning down and going into a recession.
This may present a very attractive money making opportunity. But more on this subject later.
But on the subject of performance, let's talk our recent performance in the Daily Decision-PRO.
I have what I call an "Aggressive Portfolio" for my trading. I break up my aggressive trading activity into several "segments" throughout the year. This is done by periodically closing all my positions and going to a 100% cash status. The timing on this is determined solely by my personal need to step away from the game every now and then. Think of it as a brief period (sometimes a day or less) of "R&R" during which "the mind is cleared and the batteries recharged".
With that explanation in mind, I can report that the results for my last two Portfolio Segments have been pleasing to my banker. On April 29th I began a new trading segment. On September 9th I closed out all my trades and briefly went on "R&R" for a few hours. Later that morning a new trading segment was begun and is still in effect.
For those two Portfolio Segments my trading has been fairly good. My personal "aggressive money" accounts have managed to net a nearly 9% gain over those past 5+ months. During the same period the S&P500 Index (Cash basis) has fallen from a closing level of 1360.48 on April 28th to yesterday's (October 5th's) 1144.03 close. That's a decline
