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Some Thoughts on the Grand Plan
With everyone waiting for the EU Summit statement, I find myself with some time on my hands. So, here's a question. What happens after the EU kicks the can down the road again?
By that I am asking, what about the economies of Europe, China, and the U.S.
CNBC ran two segments earlier this morning which I found myself pausing to consider a bit more closely.
First, Bob Pisani mentioned that this quarter's earnings season wasn't going as well as previous quarters. It seems that a significantly greater number of companies were including warnings about the future (4th quarter and/or 2012). Remember also that it has been previously noted that by some measures fewer companies were "beating" on the top line and on the bottom line.
To the above let's throw in the E.C.R.I. pronouncement that the U.S. is (not may) going into a recession, if not already in one. They could be wrong this time but just to recap:
- They have made 15 accurate global general economic calls.
- They have accurately called the last 3 U.S. economic recessions.
- They accurately warned that others were reading their publicly available work incorrectly when many were calling for a recession in 2010. No double-dip, just a slow down.
- They have not made any "false calls" during their history.
Now, the second CNBC segment. A comment was made that if the EU leadership does come up with a "solution" we will see the Euro rally further. Initially that could be positive for the U.S. markets as we all know that a strong Euro flips the "Dollar Carry Risk Trade Switch" into the "ON" position.
However, examining things a bit closer reveals a possible blemish or two. Remember I mentioned this could very well happen. (Excuse me while I pause a moment to pat myself on the back.) It seems that a strong Euro will make German (and other common currency countries) exports less competitive. That could impact their heavily export driven economy. I would note that recently Germany cut its 2012 GDP estimated to 1.0% from 1.8% previously. An economic contraction in Germany due to unintended consequences from a Euro-zone "Grand Plan" could have far reaching ripple effects.
At the present time analyst's estimates for S&P500 earnings growth in 2012 are still quite positive. In general, their outlook is for double-digit growth to new record levels. If this should prove to be overly optimistic then the market could come under extreme pressure.
Perhaps even a full-fledged Bear Market can't be ruled out.
Just a thought.
Have a good one...
Curtis Bergquist
Co-Manager: Daily Decision-PRO
P.S. Here's an unabashed pitch for Daily Decision-PRO Service - It's beaten the market handily for five months running now.
S&P 500 - Last 12 Month
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