"Get used to disappointment." ~ masked man in The Princess Bride
The EU has promised a solution to the sovereign debt crisis by the end of this month. Timothy Geithner has promised support from the U.S. The global stock markets are cheering with major indices rising 5-7.6% last week. If a viable positive solution is offered next week, that would be big. The markets would soar.
I hope the market results of last week are correct in predicting a positive solution. However, I'm not betting on it. For now, the downside risk is much higher than the upside potential. In Europe, Greece may default or Germany may withdraw from the EU. But there are other non-European elements. The Occupy movement may move away from a peaceful demonstrations and start using force. The U.S. may fall back into recession. The upside potential from corporate earnings is not sufficient to offset these downside risks.
For now, I expect the conflict of upside potential versus downside risk to keep the stock market in a trading range until the big event happens. Hopefully, the big event will happen sooner rather than later so that I can get a better indication of the near term market direction. In the meantime, I plan to sell into this rally since I believe the big event is likely to be negative.
For more on New Beginnings, check back every Sunday for a new segment.
This is not financial advice. Please consult a professional advisor.
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2 comments:
Personally I decided to reduce my exposure to Euro, I was investing more in Euro than in USD. Now it will be in equal proportions.
However I do not think that Germany will withdraw from Euro zone - personally there is nothing wrong with it and any sensible country will do individually, what they are trying to achieve collectively.
Perhaps Greese what plunge their currency but the result would be the same 0 instead of cuts, all the country would loose their money. Inflation is tax on poor. The rich do understand that, hence will support Euro.
The other reason - I do not think they do have plan how to withdraw. Took them years to negotiate, I doubt that one of the members is secretly printing reichmarks...
Right now, I only see a tough choice and a very tough choice. When politicians only have these two options, the outcome usually isn't good.
Even Germany stays in the Euro zone and Greece doesn't default, I see the situation getting worse.
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