I'd Love To Be Bullish, But Can't...
The Dynamic Wealth Report
May 19, 2010
by Justin Bennett, Editor
Here are some things I would love to be, but just can’t…
An international rock star…
I’d travel the world singing in front of millions. My artistic talents
would be front and center for the world to see. My amazing musical
skills would make me an international celebrity. What a life it would
be…
But I won’t be the next Lady Gaga…
Why? I sound like a cat getting a bath when I sing. I have a singing
voice only a mother could love. My wife begs for mercy when I sing along
to the radio in the car.
I’d also like to be an NFL quarterback…
I’d throw 50 yard touchdowns like it was going out of style. I’d find my
receiver and deliver a laser guided missile. I’d take my team to the
Super Bowl. They’d retire my jersey and I would go down in team history…
But I won’t be the next Drew Brees…
Why? When I throw a football, it looks like a wounded duck flying
through the air. It’s more likely to quack than score points. Oh yeah,
my height might be a problem. I’m just tall enough to see the belly
button of the linebacker as he runs me over like a freight train.
I’d also like to be bullish on the stock market…
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As much as I would like to be positive on U.S. markets… I just can’t.
There’s been plenty of time in the last year to be bullish. Stocks have
had amazing gains. Trading with the upward trend has been very
rewarding.
I’m not saying I won’t ever be bullish on the stock market again. I just
can’t be bullish right now.
Things just don’t stack up for me. There are some big pink elephants in
the room.
Now don’t get me wrong. There are some good things happening in the
economy. We have corporate balance sheets looking better than they have
in a long time. We’re also “officially” out of the recession due to the
positive GDP readings. Recent earnings reports have been positive for
the most part.
But for me, the downside risks are bigger than the upside potential at
these levels...
The sovereign risks in the Euro Zone aren’t taken care of. The recent
750 billion Euro bailout of Greece and other European countries brought
calm to the markets… for a couple of days. But the markets realized
something important late last week.
The Euro Zone austerity measures will be tough. Things aren’t going to
magically go “back to normal” for Europe.
Bringing Euro Zone balance sheets back in line may cause some countries
to slip back into a recession… or worse. Greece, Spain, and Portugal
(amongst others) are already struggling with high unemployment. The new
austerity measures will cause their economies to be stagnant for years
to come.
But it’s the price they have to pay. Their politicians have been
overspending for years. And now the bills are due…
Unfortunately, the only certainty coming out of Europe is more
uncertainty. The issues in the Euro Zone are far from being fixed. There
are deep structural problems still to be resolved.
What other uncertainties are out there right now?
Well, the recent “flash crash” did a lot to ruin investor confidence in
the market. The recent 1,000 point plunge has put many investors on
edge. You can see it every day in the markets. The high volatility is a
sure sign of investor uncertainty.
Investors are unwilling to hold onto positions. The slightest negative
news and the markets drop on heavy volume. Triple digit moves in either
direction are now the norm. This is quickly turning into a “trader’s
market”.
The bottom line is this…
Much of the positive earnings and rebound in the U.S. economy has
already been priced into the market. In order for markets to head
substantially higher, we’d need some “game changing” news. Some-thing the
market hasn’t priced in yet.
Now, don’t get me wrong. It’s possible the markets could trade higher if
the uncertainties in Europe subside for awhile.
But when the European debt issues resurface, it will be another rush for
the exits.
Kind of like when I start singing…
• Oil (Under $70 a barrel)
Crude oil has been pummeled in recent weeks. Since topping out at over
$86 a barrel, crude has dropped over 15%. U.S. oil inventories are still
high, pointing towards poor consumer demand. The European debt problems
are also pointing towards demand destruction for the world market.
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