The market should get a pop today. There is a good possibility we will get news that the U.S. government will avoid a partial shut down, and news that European leaders believe they can address their sovereign debt problems with minimal damage. It that doesn’t generate a rally, bargain hunting by institutional investors will push prices higher temporarily.
I STILL THINK THE MARKET CAN DROP FURTHER, below DJIA 10,000 (S&P 500: 1050). That would be back to mid-2010 levels, not an unreasonable conclusion based on new negatives (primarily political ) that seem to defy a quick resolution.
While current conditions are in many ways not as dire as in 2008, there appears to be a pattern that both have in common – economic and political issues beg solutions, but action is limited to rhetoric designed to buy time and delay responsible action. This is referred to as kicking the can down the road – please someone come up with another way to put it.
The result is volatility – one day the light is green, the next red, and amber now and then. This leads to ill-timed investments – paper losses. If the market has a lot further to drop, it can get painful.
By many measures, stocks are cheap, but the yardsticks most used are based on average valuations, and as I have noted frequently, these are not average times and an “average” includes levels below and above the average.
Valuations are part a matter of CONFIDENCE – in the future and the people running the show. Currently, there is no confidence in our government at any level and no one seems to be looking into the future where hopefully, the problems plaguing the market are history.
I expect October to provide an attractive buying opportunity, odds favor that will be at lower levels, but with interim rallies that stand to suck investors in prematurely.
12-member SuperCommittee timeline:*
Sept. 22: Deadline for Congressional consideration of resolution of disapproval for first $900 bn tranche
of debt limit increase.
Oct. 1- Dec. 31: Both houses of Congress must vote on a Balanced Budget Amendment.
Oct.: 14: Deadline for House and Senate Standing Committees to submit recommendations.
Nov. 23: Deadline for both houses to vote on a plan with a 10-year deficit reduction goal of $1.5 trillion .
Dec. 2: Deadline for committee to submit report and legislative language to President Obama and
Congress.
Dec. 23: Deadline for both houses to vote on committee bill.
Jan. 15, 2012: Date that the “trigger” leading to $1.2 trillion of future spending cuts goes into effect if
the committee’s legislation has not been enacted.
Feb. 2012: Approximate time when first $900 bn of debt ceiling runs out.
Feb./Mar.2012: Deadline for Congress to consider a resolution of disapproval for the second tranche
($1.2 – $1.5 trillion) of debt limit increase.
Fall/Winter 2012: When additional $2.1 – $2.4 trillion of borrowing authority from this law runs out.
Jan.2, 2013: OMB orders sequestrations for defense and non-defense categories of spending necessary
to meet spending cuts required by the “trigger.”
George Brooks
*National Journal
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The writer of Brooksie’s Daily Stock Market blog, George Brooks, is not registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.
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