Gepost door: Victor Goossens | 24 november, 2011

Stock exchange update and expectations;

The month October:

We experienced a snap back rally in Oct, after losing nearly 15% in the AEX in Aug & Sept the market snapped back with even +13% during the month and to end up +9.8%.

Rumors of a big bazooka by the European politicians brought the markets higher from depressed levels. At the end of the month and in Nov lack of details and just 1.000bn for the EFSF fund and the question hop this will be financed, induced profit taking. European politicians are too slow to react and making things worse. In the mean time investors are voting with their feet (by selling) to tell the players we are near to the end game and ask for real action, not mere words. At the moment all rescue instruments are being discussed. Eurobonds (at last!) are now an option. Plus enlargement of the EFSF fund to 2.000bn is an option. It looks that the politicians have no clue what is actually happening and that they are near the end of the euro. By realizing they are so much overtime and recession will pop up in the coming quarters, the outlook is not bright and the risk of a sharp slowdown in the world economy is increasing.

Risks:

Further downgrades of individual countries and banks (France, Italy and now also Spain & Belgium) in Europe could trigger a Lehman effect on the European and American banks and stock markets.

Resurrection of US debt problems!

Double dip scenario building or more media coverage on double dip stories.

 

Upsides:

New plans for Quantative easing in Europe and USA?

A real solution to stem the PIGS contagion, 1 Huge European Bond market, substantial increase of EFSF?

Outlook:

If the European indecision continues, we risk getting sucked in a deflation scenario, making problems even bigger than we are in at the moment. Everything will decline and lose value, stocks, real estate, and raw materials. Debt will increase in value, making it impossible to pay back all the debt in the world. I worry now that highly regarded consultancy firms like the Boston consultancy group are publishing papers on debt write downs and starting afresh… If deflation hits, all printing presses of the world central banks will open up to save the world, induces high inflation within 2 to 3 years. Nice environment to invest in…

Volatility remains high and markets will move on rumors and note derivates are around 70% responsible for the moves, actual turnover in individual stocks remains subdued.

Macro date the coming months will tell us how deep the European recession will look like and if the USA joins the Europeans. Meanwhile individual companies remain in excellent shape, except for the financials. M&A activity is contributing to the positive side. The earnings visibility however is limited, like the fog we are experiencing in Holland currently. Investors need and look for confidence, which is a long way off at the moment.

The news coming from China isn’t encouraging either. Lately scenario’s changed from a hard landing to a soft landing. This morning PMI figures showed growth is stalling, 48 (means contraction) after 51 the previous month.

Strategy; I occasionally cover my portfolio with futures.

Technical Analysis; Gann expects (?) a surprise rally, but sees 1190 in the SPX as a (negative) critical level.

Key points to follow: US & Piggs debt problems, Unemployment (&Consumers spending), House prices & sales, Commercial real estate, Debt, ISM producers index, Health of the banks & Real growth of companies sales & earnings.

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