Tuesday, November 8, 2011 8:48 am EST
DJIA: 12,068.39 S&P 500: 1261.12
This is beginning to look like one of those old tag-team wrestling matches with Italy’s Silvio Berlusconi and Greece’s George Papandreou featured as the villains. Does this drama, comedy, or tragedy ever end ?
How many times do we have to go to the brink of possible international financial contagion ?
All this is destructive, frustrating, and counter productive as the European banking/sovereign debt crisis threatens to plunge Europe into recession depriving more leveraged countries of the revenues needed to service and reduce their debt burden, and ultimately adversely impacting our economy.
YET, the stock market hangs tough.
Shouldn’t this market be tanking with this relentless barrage of Euro-bombshells ?
Let’s step back for a moment, and look at a brighter side.
The stock market draws its strength from several important sources.
-the average price/earnings ratio (P/E) of the S&P 500 is historically low, though it’s important to note these are not “average” times. By some measures it sells at a 20% discount from its 60-year average P/E and 9% below its 5-year average P/E. There is room to run,
-common stocks offer the only opportunity for a return on invested funds, but of course not without risk.
- many companies are profitable and liquid, some very liquid.
-we are in the very early phase of the “Best Six Months” for owning stocks (Nov. 1 to May 1).*
-When will the managers of the huge reservoir of institutional cash be able to envision a stable international financial scene and sustainable economic recovery here and begin to reach for stocks rather than patiently buying on pullbacks ?
WARNING: Yes, the stock market seems to be telling us Europe’s problems will be solved, but investors cannot overlook the possibility European leaders’ have waited too long, missed the opportunity to nip this crisis in the bud. Is this situation just out of control ? What stops Greece from taking the bailout money then folding its tent ? I find it hard to believe all these intelligent and well-meaning leaders would blow it, but maybe the dike has too many leaks to plug.
The bullish case has a lot going for it – a lot. The longer our economy bumps along without slipping into recession, the better the bullish case gets. It’s not yet a coiling spring, but the combustible tinder is there. Only fear of financial and fiscal contagion in Europe stand in the way. As we have seen, that is a huge obstacle to hurdle.
The SUPERCOMMITTEE in the on-deck circle:
With a key deadline looming on November 23, the actions of the SuperCommittee will soon come to the forefront.
The SuperCommittee has been lost in the shuffle, upstaged by international financial worries and the state of our economy here at home. Nevertheless, it will raise its ugly head to remind us whether our government is, or is not, dysfunctional.
12-member SuperCommittee timeline:*
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 andCongress.
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.”
Recent blog headlines:
Oct. 14, DJIA: 11,478, “Europe Still the Key – Q3 Earnings Run a Close Second”
Oct. 17, DJIA: 11,644, “Snags En Route to Euro-Solution to be Expected”
Oct. 18, DJIA: 11,392, “Test of the October 4 Rally’s Strength”
Oct. 19, DJIA: 11,577, “Best Six Months Looms, But Volatility to Continue”
Oct. 20, DJIA: 11,504, “All Eyes on Euro-Summit this Weekend”
Oct. 21, DJIA 11,541, “DJIA 12,000 “IF” the Europeans Can Get It Right”
Oct. 24, DJIA 11,808, “Euro-Solution Announcement After Wednesday’s Meeting”
Oct. 25, DJIA 11,913, “Short-Term Euro-Solution Doesn’t Cut It”
Oct. 26, DJIA 11,706, “Ball’s in Europe’s Court”
Oct. 31 DJIA 12,208, “Buyers on Dips. Euro-Deal to Hit Some Snags"
“Doomsters and Shorts Out in Force”
Nov. 2 DJIA: 11,637, “Risk-Taker’s Buy Shaping Up”
Nov.3 DJIA: 11,836, “Again – It’s All About Europe”
Nov.4 DJIA: 12,044, “Easy Does It ! Traders to Take Some Profits”
Nov. 7 DJIA: 11,983, “SuperCommittee Will Soon Take Center Stage”
*Stock Trader’s Almanac
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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