Stay Short!
By Dan Amoss
09/08/11 Jacobus, Pennsylvania – The global economic backdrop continues to provide many reasons to sell stocks, but very few reasons to buy them — gold stocks being one of the few exceptions.
The weight of US economic data points to a recessionary environment over the next few quarters. Analysts have not cut their 2011 and 2012 earnings estimates far enough to reflect the recent dramatic deterioration in economic conditions.
The stock market may seem somewhat cheap, based upon overall valuation numbers. But that’s not necessarily encouraging. The stock market typically looks cheap on a trailing earnings basis ahead of a recession. So I would expect the stock market to remain week for several months, but probably not collapse. That’s because the very low yields available on bonds are unlikely to attract capital away from the stock market. On the other hand, low rates can’t really send stocks surging, either. In the coming months, I expect most stocks to slowly grind lower, interrupted by bursts of central bank-fueled rallies.
The euro crisis may come to a head in the next few weeks. Germany may need to suffer a 2008-style market sell-off before the public is scared enough to support the “Eurobond” concept. This fear catalyst alone could pull down the rest of the global stock market, given the size of the problem — at least until we see a fiscal transfer union and/or a much more aggressive European Central Bank.
And the Federal Reserve looks like it’s laying the groundwork for QE3. We have seen trial balloons floated in the press — most recently by Chicago Fed president Charles…Read more…
Read more: Economic News and Ideas on Debt, the Market, Gold, Oil, and Investing. http://dailyreckoning.com/#ixzz1XSukmKis
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