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No news is bad news

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by Peter Switzer

Wall Street’s unwillingness to turn tail and run big time from negative developments underlines the fact that there is a willingness to hang in stocks but the question is how long can this last?

I suspect it won’t be long unless we see some actions out of Europe that suggest the European Central Bank will ride to the rescue of the debt-challenged EU members.

However, the Germans are dead against this and so maybe only a total market devastation along with a credit crunch where banks won’t lend to each other will be needed to change Chancellor Angela Merkel’s mind.

I bloody well hope we don’t have to see this for the Germans to learn a bit of flexibility!

Overnight, the Yank’s GDP growth number for the third quarter came in at two per cent rather than the earlier estimated 2.5 per cent rate of expansion. Given what happened in this quarter, the new figure makes more sense and while it’s lower, it’s still not a bad result.

Meanwhile out of Europe the IMF revealed a line of liquidity to help debt-embattled eurozone countries, which is no solution but buys some time and means creditors will be paid. That said, investors need to see a more permanent and credible solution to deal with the debt problem.

George Soros, the legendary investor and the chairman of Soros Fund Management, summed it up succinctly in an article co-written with Peter Bofinger of Würzburg University in the Financial Times: “As regulators still treat government bonds as the safe core of the financial system, this vicious circle threatens the stability of financial institutions, not only in the eurozone but also in the rest of the world.”

They believe only the ECB can stop the bond vigilantes playing havoc with European bond yields and they are right.

From Wall Street, the Dow was down 53.59 points, or 0.46 per cent, to end at 11,493.72, while the S&P 500 dropped nearly five points to finish at 1188.04. This was an important result as 1180 is seen as a critical support level and says the professionals have a glimmer of hope that some good news could come.

However, at the moment we are getting no news of substance and no news is bad news!

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Watch more from Peter on SWITZER TV.

Published on: Wednesday, November 23, 2011

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