Monday, August 29, 2011

If You Thought August Was Bad, Just Wait Until September!

Chris Puplava

Up until August, this year had been fairly dull as the S&P 500 was in a trading range somewhere between 1250 and 1350. The selloff was due to a slew of negative economic releases which led to lowered economic growth expectations as well as renewed concerns over European sovereign debt markets and banks. Since August 8th the S&P 500 rallied just under 10% before selling off once more. The S&P 500's trading range is now between 1205 and 1120, and unfortunately I think we may have another repeat in which negative economic releases and continued worries over Europe may see the current trading range broken to the downside with the markets erasing QE2’s entire rally from 2010.

"Only when the tide goes out do you discover who's been swimming naked" (Warren Buffett). The same issue we faced back in 2008 remains, too much debt. You can't solve a debt problem with more debt and while you can paper over debt with money printed out of thin air as Fed Chairman Bernanke has done, it's the lower economic end of society that feels the pain of higher commodity inflation. Rather than let bond holders and commercial banks take the pain for restructuring current debt imbalances, central banks continue their endless stream of bailouts. With the global economy slowing we are likely to see further financial stress ahead and yet an ever stream of bailouts. Expect a rough two-week period ahead as August economic data is very likely to show further slowing. Until the Fed enacts more money printing and the government more bailouts and fiscal stimulus, I would stress caution ahead as defense and capital preservation should remain the dominant investment theme.

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