Will Europe Find Center Stage (Again)?

This morning’s trading is as expected, weak. The semi-euphoric, all is well in Dodge, 5 year highs, and stock buying humor from Scott Adams – the creator of Dilbert – gives any sane trader reason to wait for a resolution of 1500 on the SPX. I’ll quote his whole post (here).

Should you dive into the stock market? Absolutely. And if you have no money to invest, I recommend getting cash advances against your credit cards. And stop eating, entertaining, and saving for your kids’ educations. Sell your blood if you need to. Put all of that extra money in the stock market. My reasoning is simple: I own stocks and I want you to drive up their prices.

I have a feeling that the smart money is already in the market and those folks are crouching like sprinters, waiting for any sign of bad news. Meanwhile, we are way overdue for some sort of bullshit crisis like the Year 2000 bug, or California going into a death spiral, or an artificial debt limit, or North Korea testing a satellite-based death-ray. When the new fake crisis happens, sometime within the next month, the market will pull back 10%. That’s when I expect to go into a panic and start selling my stocks at a loss.

What the stock market needs – and what I need – is for lots of people who know absolutely nothing about investing to pile into the market and buy broad market ETFs. Then I need those people to poke out their own eyes and caulk their ear holes so they don’t accidentally encounter any news. I don’t think that is too much to ask.

The interesting thing today isn’t the weakness in the S&P or even the better than expected Factory Orders. It’s the weakness in Europe, across the board. Europe and the US has been highly correlated during this recent bull market. That correlation has broken down today – post-Draghi, post-Fed, post 75% taxes on the rich. So what’s been happening here in Europe? Might 18% of the world economy put a little fear into the bullish American mutual fund investors of late? Here’s a few of the reasons I think so.

  • Spain – Spain continues to face unsustainably high unemployment and a made for Europe corruption scandal is threatening to embroil Rajoy.
  • Italy – Berlusconi has thrown in his clown hat back into politics by promising billions in tax cuts if his party is elected.
  • France – The auto industry is in a serious mess, and that eventually means social unrest, strikes, etc. Mali is to France as Skeet Shooting is to the US.
  • Netherlands – A $14 Billion bailout of SNS Reaal and the prevailing fallacy that toxic assets have been purged from European banks.
  • Currency Wars – Everyone’s doing it… The best info I’ve read comes from Grant Williams (here).
  • The Bruce Willis is in the news supporting Belvedere’s restructuring (what?).
  • Oil is falling and Gold is waiting.

I could rant about each one of these distractions, but the point here is that Europe remains a risk and bullish investors should be very cautious!

Good Trading, Bruce.