What’s going on this week…


The 2 issues causing stock, bond, commodity, and currency markets to move :

  1. As you know, Europe has an issue called PIIGS (Portugal, Ireland, Greece, Italy, Spain). These countries have debt that is out of control (where we may be in a few years) and is causing tremendous angst in bond and equity markets. Greece is the worst case. You may say, so what… we’ve known about this (I’ve been writing about it) for 1.5 years. Today we had 2 catalysts. Public sector unions in Greece said they’d go on strike next week to protest the planned federal gov’t austerity measures. And the EU gave Greece until March 16th to present its plan to reduce debt. These 2 factors combined as a signal that Greece will have a problem meeting its commitment to lower their 13% of GDP deficit to 8.7% this year, and then to 3% in 2012. The issue is if Greece defaults (they probably will), we’re looking at a domino effect with the rest of the PIIGS. If this happens, this will be larger than the Russian debt default in 1998. When that happened, the S&P500 lost 18% in 7 weeks. And that was when our economy was humming, and a pre bubbles 1, 2, and 3 .
  • Because of this, all non-US assets took a beating today (stocks & bonds). Plus long-only commodities lost money today because the USD rallied.
  1. The second issue this week has been weak US unemployment data. In the past 10 months, less terrible has been accepted as good news by stock markets. Not any more. This week saw some data that was not less-bad. It was more-bad (nice English eh?). Tomorrow at 8:30am is the Bureau of Labor Stats (BLS) report for January unemployment. There are now a lot of nervous investors waiting to see if we get a +9.8% unemployment figure (call that good news), or maybe unemployment continues to climb (10.2% or worse).  Note: the feds are hiring a small army of census workers that will improve January’s unemployment number, but that should be baked into the reaction. Should be.
  • Because of this fear, US equity lost money today.
  • If tomorrow’s BLS data is 10% or worse, chances are we’ll see continued stock market sell-off —only the US will probably lose the same or more than international stock markets because this news will put downward pressure on the dollar.
  • The Dow flirted with dropping under 10,000 (-2.6% today). The S&P500 fell to 1063 (-3.1%). Both indexes are now down 7 -7.5% from their peak 2 weeks ago, and down 4 – 4.5% year to date. The Lehman 20 year Treasury index is up +2% year to date because of the flight to safety. That works until we get a bad week of US Treasury Bond sales. Then gold is the next stop in flight to safety.


Here is what we’re doing:

-          This sell-off comes as no surprise. That’s why we’re …..       Sorry Blog readers. Clients get to see the rest….