Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Gold Price Trend Validation - 22nd Aug 19
Economist Lays Out the Next Step to Wonderland for the Fed - 22nd Aug 19
GCSE Exam Results Day Shock! How to Get 9 A*'s Grade 9's in England and Maths - 22nd Aug 19
KEY WEEK FOR US MARKETS, GOLD, AND OIL - Audio Analysis - 22nd Aug 19
USD/JPY, USD/CHF, GBP/USD Currency Pairs to Watch Prior to FOMC Minutes and Jackson Hole - 22nd Aug 19
Fed Too Late To Prevent US Real Estate Market Crash? - 22nd Aug 19
Retail Sector Isn’t Dead. It’s Growing and Pays 6%+ Dividends - 22nd Aug 19
FREE Access EWI's Financial Market Forecasting Service - 22nd Aug 19
Benefits of Acrobits Softphone - 22nd Aug 19
How to Protect Your Site from Bots & Spam? - 21st Aug 19
Fed Too Late To Prevent A US Housing Market Crash? - 21st Aug 19
Gold and the Cracks in the U.S., Japan and Germany’s Economic Data - 21st Aug 19
The Gold Rush of 2019 - 21st Aug 19
How to Play Interest Rates in US Real Estate - 21st Aug 19
Stocks Likely to Breakout Instead of Gold - 21st Aug 19
Top 6 Tips to Attract Followers On SoundCloud - 21st Aug 19
Holiday Nightmares - Your Caravan is Missing! - 21st Aug 19
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19

Market Oracle FREE Newsletter

The No 1 Gold Stock for 2019

The Stock Market's Next 1,000-Point Move

Stock-Markets / Stock Markets 2011 Oct 25, 2011 - 07:46 AM GMT

By: Money_Morning


Best Financial Markets Analysis ArticleKeith Fitz-Gerald writes: Stuart Varney, host of the aptly named and very highly rated "Varney & Co." program on Fox Business, put the following question to me in his usual direct style: "Will we have an agreement on Wednesday out of Europe and what will that mean for the markets?"

Yes, I began, we probably will - but for all the wrong reasons, and it will never last.

There are three reasons why:

1. You have 27 nations that now have to agree to review what, in effect, is the treaty that holds the European Union (EU) together. That's not conducive to anything even remotely resembling quick decision-making.

2. What's happening in Europe is much the same thing happening here, in that the debt situation has become government at the people rather than for the people or even by the people. That means politicians are still smoking in bed while the house is burning.

3. They have to say something to avoid contagion but that's already baked into the cake if you examine the cost of credit-default swaps (CDS). The data suggests traders are now turning their crosshairs on Italy, Portugal and Spain even as leaders work towards a solution. So recapitalizing the banks to the tune of a few hundred million euros is but a one-shot deal; the continued thing to focus on is the near-complete lack of fiscal discipline at the government level.
The bottom line: This is not over by a long shot. In fact, I expect it to drag on well into next year.

Still, in the short-term, the next 1,000 points the market moves in either direction are going to be the direct result of whatever "solution" comes out of Europe tomorrow (Wednesday).

The better we understand this situation as a nation and as investors, the better off we'll be.

A Misguided Mission
At issue is the very nature of the "recapitalization." The fact is Europe's debt has gotten to the point that it can no longer be sustained.

Much like our own debt situation here in the United States, there are many causes, including completely incompetent government, irresponsible decision-making, feckless leadership and paltry economic growth.

Citizens on both sides of the Atlantic understandably have had enough.

But the problem is that the policies that led Europe to this point were decades in the making. So it's unreasonable to expect them to go away any time soon even if the EU announces a solution on Wednesday.

Furthermore, the use of comparatively healthy public balance sheets to shore up irresponsible banks and speculative trading houses is a big mistake that removes the free hand of risk that is a required element of capitalism.

Now, this could come to a quick resolution - if the politicians would stop their meddling. Yes, companies would fail, banks would fail, and the markets would take the brunt of it on the chin.

But - like Iceland, which fabulously ignored international advice and undertook a complete reboot - the sooner we take our medicine, the sooner we can begin healing.

It's not too late, but whether it becomes too late is a question for the world's central bankers and policymakers who have yet to become serious enough about what's needed.

The Downward Spiral
Barring any sort of massive economic growth, neither the EU nor the U.S. can make a dent in the debt cycle and the stuff eventually will hit the fan.

When it does, there are four ways out:

1) Default. This lets the markets take care of the deleveraging process for politicians and by far would be the messiest alternative. Yet, in a way it would be the cleanest, since it would wipe out decades of ineffective policies while also cleaning the financial zombies up once and for all.

2) Austerity. I put this in the "yeah right" category. If tiny Greece, which accounts for about 2% of the EU, cannot do this without riots, imagine what will happen when the reality of sinking pensions, diminished benefits and higher taxes hits home in the world's primary economies. Nobody will be singing peacefully around the Occupy Wall Street campfires. Not in Paris, not in London, not in Berlin, and not in New York.

3) Repression. Mohammed el-Arian of PIMCO notes that America is intensifying repression by keeping interest rates low for an exceptionally long period of time. He speculates, as do I, that the U.S. Federal Reserve will attempt to engender unanticipated inflation. Call me skeptical, but this won't work. It has never worked throughout history and will not work now.

4) Growth through redistribution. Government stimulus is really an involuntary redistribution of wealth from the private sector to the public sector. New taxes, lower budgets and more failed government investments like Solyndra are all part of the terribly misguided policies we will have to endure. But until politicians are completely backed into a corner by unruly mobs, they will continue to order up.
Which course we end up taking is yet to be seen. But I do know this: Whatever comes out of Europe tomorrow will directly affect the markets to the tune of 1,000 points in either direction.

As investors, our most prudent course of action is to shield ourselves from the fallout.

Staying Ahead of the Game
So here are some things to think about.

This is a time to buy resources that will help preserve value and wealth - and not just metals, either. Jim Rogers and George Soros, two of the most famous investors of all time, are reportedly buying farmland.

This is a time when cash and bond equivalents, including the U.S. dollar, may be the best looking horses in the glue factory.

It's also the time to do some serious bargain hunting.

So what if we are not at a bottom, let alone the bottom. Stocks usually offer the greatest returns to those who buy them when everybody else is terrified to invest.

Companies like Caterpillar Inc. (NYSE: CAT) and Apple Inc. (Nasdaq: AAPL) prove that you can still knock the stuffing out of the ball even if the global economy is circling the drain.

Dividends are king when you can get them. On "sale" is even better, especially when it involves companies like the dividend royalty, which have increased payouts for at least 25 consecutive years.

Take issue with this if you want, but companies that are providing the stuff that people "have" to have still lead the way. Many actually have stronger balance sheets, lower debt ratios and report higher productivity than before the financial crisis.

T he only people who have made money over the past 15 years are those who invested through 2001-2004 and during the crash of 2008-09. That's why you must stay in the game if at all possible and even if it hurts like hell.

And don't forget the specialized inverse funds that I've mentioned so often in Money Morning that I feel like a broken record. If you're following along and use trailing stops as a means of selling into strength, you'll have plenty of cash available. So you might as well invest in something that profits even if stocks take their own "Greek Holiday" (again).

Source :

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules