Stock Market Crash of 2011. Writing is on the Wall
Posted by Douglas Lenski on Mon, Oct 10, 2011 @ 09:39 AM
This weekend Anglea Merkel of Germany and Nicolas Sarkozy of France met and said they plan on having a plan. Last week the markets rallied on the news they were meeting. Today the markets are rallying because they said a plan should be ready in November. The problem in the Eurozone has been going on for months. Merkel ans Sarkozy have made similar pledges in the past. There is no substance in their plan.
We saw the same sort of pledge in the US regarding the debt ceiling debate. Both sides said for days that they were working on a plan. We all know now that the greatest Democracy and one government with 2 parties could not agree. Now we have to get 17 countries to join together. That will be no small feat.
My wife and I make homemade soup and being from Wisconsin, cheese soup is a favorite. My wife and I love the soup for its richness and smooth creamy texture. My son however, stopped eating the soup with us. He says that it tastes good but has no substance and leaves him wanting something different. That is what is shaping up in the European and US markets. The talk is creamy and rich but in the end it is all talk.
Earnings season starts on Tuesday after the bell. Analysts have said that this will be a good earnings season because companies have not warned of bad results. That is untrue. There have been a few companies that have warned and been taken to the wood shed and beaten. A company may hope on the day that it downgrades its outlook more companies may do the same. One chip maker saying that it will miss earnings could drop a stock 20 percent. The chip sector announcing a slow down might drop the sector 10 percent. If I am a CEO, I will not put a big spotlight on my company and say I am going to miss. I will go on stage with 30 other companies and hope someone trips and falls to takes the pressure off me. I heard this morning on CNBC from David Faber that companies are hiring people to help spin earnings misses.
The stock markets are rallying on hope. Hope is not an investment strategy. Europe has had months to figure out the solution to their problems. If it was as easy as stating we have a plan they would have implemented it already. The US has a new Jobs Bill or Economy saving measure up for debate all year. The problem is they are not easy fixes. There are still political position at stake here. The parties still believe they are correct. It will take a collapse of epic proportion to get the political will to solve our problems.
Real unemployment is at 16%. Poverty is as high as it was during the Great Depression. 25% of all homeowners are underwater on their mortgages. This does not account for the homes that are already foreclosed and sit vacant. Commodity prices are rising with the expansion of the World's population. The World is in a very bad place and the politicians are blind to it all.
The last time the politicians acted in a bi partisan way was when the banks started to collapse. That is when they got calls from their friends to do something as they were losing millions in the markets. The S&P hit 666 and is now close to 1200 just 3 years later. It will take that sort of meltdown to regain the political will to get the tough choices made. That is why I am thinking that a 30%-40% fall in the markets is needed and will happen.
Chairman Ben Bernanke said that they are seeing slow growth and rough economic signals ahead. That is a road map for lower markets. It is the Chairman's job to be a cheerleader for the markets. When the head cheerleader losses the team spirit, things are dire.
This all continues to keep interest rates low.
