Market View

The market is down pretty big today even though the debt compromise passed through smoothly. With yesterday’s bad manufacturing ISM number and bad GDP report from last Friday, market participants are worried that chances of a recession have increased. Another big issue weighing on the market is the rise in Spanish and Italian bond yields, raising the chances that these countries may have a  problem funding themselves. I think that is why gold has continued to climb, although some part of the rise in gold is attributed to announcement by the Bank of Korea that it purchased 25 tonnes of gold over the last 2 months.

I think we are at an important juncture in the market, if we are truly heading into a recession then you could see another 10-15% drop from current levels. If we just remain in a soft patch with very minor growth of 1%+, I think we might be able to rally and go back to highs of the year based on good corporate performance.  I am leaning on the side that we will avoid a recession and grow at a very slow pace.  I think the safe way to play that is to first wait for some more confirmation that economic data is not deteriorating any more before buying. Luckily we are not going to be faced with much political uncertainty for the next few months. I do think some of the weakness in the data is due to the uncertainty created by the debt limit talks.

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2 Responses to Market View

  1. Ahsan says:

    I have a strong feeling we are headed for a deeper recession than we have seen in our lifetime very soon. The following is coming down the road as soon as 2012:
    1) Dollar devaluation (inflation) and increase in PMs (Gold and Silver) price. I wont be surprised if Gold goes to $2000/ounce by end of 2011.
    2) Global economic slowdown since USA is 25% consumer of global economy.
    3) 15%-20% unemployment in USA very soon.
    4) Reduction in real estate by another 5-10% within a year.

    In summary…things don’t look good down the road for at least 2-3 years!

    Best way to protect current assets would be:
    1) Get out of US dollar completely and invest in Swiss currency (pegged by gold)
    2) Invest in Gold and Silver significantly
    3) Invest in stocks/funds related to livestocks/farmlands in foreign countries

    • austextrader says:

      My feeling at this point is that the Asian consumer is more important than the US consumer. All the growth is coming from Asia and if Asia starts slowing down
      then I can see the deep recession you are talking about. If Asia keeps going strong then I think we may be able to limp along.
      I am not sure if gold will rally if we get a strong recession. A deep recession will be deflationary and if you remember, commodities got hit real hard
      in 2008 when the recession started. I am just not very sure how Gold will react in a deep recession. It will depend a lot on how the government
      decides to deal with the crisis.

      Update: Regarding the Swiss frank, the link to gold officially ended in 2000.

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