Wednesday, November 02, 2011

How the Greeks Stole Christmas

Three of the best four months for the stock market are November, December and January.  Hence, there is a common belief in a Santa Claus rally and a January effect.  In 2011, I don't think investors will see the historical Christmas rally with the upcoming Greek referendum.   The uncertainty created by the referendum will increase volatility and likely eliminate the positive sentiment that leads to a Santa Claus rally.
Here are the two reasons that I think there will be no year end rally:
  • Misery loves company.  The Greeks have maintained their standard of living by continually borrowing without the ability to repay the loans.   Now that it's time to deal with the debt, the Greeks are reluctant to reduce their lifestyle.   It seems that Greeks would rather everyone else pay for the lifestyle to which they have become accustomed.  In essence, everyone should share the pain of their mistakes.

  • Not a bluff.  The Greeks realize that any scenario will be bad for them.  Why not negotiate to offload a greater portion of the pain in order to prevent a major financial meltdown for the entire world.   The Greeks don't have much more to lose, and therefore not much more to risk.

  • For now, the EU debt crisis and the likely Greek default will continue to be damper on the stock market.   I don't expect much upward potential until early next year when there is greater visibility of how the EU debt crisis and Greek default will be resolved.

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    This is not financial advice. Please consult a professional advisor.

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