In Europe, it seems like whenever one issue is dealt with another one appears!
We are finally beginning to see Greece work through its political issues to be able to accept the bailout package outline by the European Union. That should have brought on a sense of calmness to the European markets.
Instead, the epicentre of the crisis seems to have switched over from Greece to Italy and the market remains on edge both in Europe and all around the world.
Many analysts and investors have been saying for quite some time that the number 1 fear would be Italy and their high debt levels.
Italy’s 10-year bond has risen all the way to 6.7 per cent in the past few weeks, indicating that the market does not believe that the country has their financial affairs in order.
The only thing that is keeping the rates Italy borrows at below 7 per cent, is the European Centrals Bank’s ability to buy their bonds on the open market. But borrowing money at rates at or above 7 per cent is unsustainable over the long run and so the large bailout plan that was created and agreed to by the European Union must begin to deliver on its promises as soon as possible.
Investors in general are very tired of Europe continuing to “drive the bus” when it comes to the equity markets (stock market). If investors would just concentrate on the earnings season we just had (70 per cent of businesses beat expectations in the United States); the stimulus central banks are injecting into the system and the growth we are starting to see out of the U.S. (2.5 per cent GDP growth), this market should move higher.
The next political debate out of the U.S. will come later this month when the committee in charge with reducing the deficit reaches their Nov. 23 deadline.
Will Republicans and Democrats finally agree on when they can remove to reduce the overall deficit in the country? The rumblings coming out of the committee responsible for reducing the deficit have indicated recently that they would like to cut the deficit by a lot more that just the US$1 trillion they were asked to cut. It will be very interesting to see if the U.S. government can come together to show the world that they can still get things done.
If investors were to take a step back from all the political theatre, I think many would say that many of the issues and the proverbial “wall of worry” the market faced back in the summer are slowly being dealt with.
I am not sure how long it will take before this market moves significantly higher however; you can clearly see that it truly is only a matter of time: the right policies are being put in place to deal with the European crisis and the issues in the U.S. that so many investors focused on during the past summer seem to be dissipating.
So, for investors and their portfolios, we will see more up days like we saw in October rather than the dreary stock market days we experienced in September.
If you have any questions regarding the above article or are looking
for an investment advisor to help you with your portfolio, please visit
my website at www.investmentadvisorgta.com. I will be glad to speak with you.
Allan Small is a Senior Investment Advisor with DWM Securities Inc., a
DundeeWealth Inc. Company. This is not an official publication of DWM
Securities Inc. The views expressed are those of the author alone and
are not necessarily those of DWM Securities Inc.