Why no Greek rally?
by Peter Switzer
On a positive note, the Yanks got a positive home builder sentiment report and any good omen for the US housing sector has to be a good thing, as housing brought the US economy down and it will help to rebuild any future boom.
The Dow ended 23.35 points or 0.2 per cent lower to 12,741.82, while the S&P 500 gained 1.94 points or 0.14 per cent to 1344.78.
Another good sign was the VIX or fear index dropping from around 21 to 20, which indicates that investor fear is waning.
That said, the outcome on Wall Street shows that Greece could have caused a big sell-off if it voted the anti-bailout, extreme socialists in but it’s only a part of a bigger European problem that needs to be sorted.
Personally, I think the Spain problem is being exploited by the bond vigilantes and hedge funds, but they are in charge of market reality and so the Spanish Government has to pay a huge 7.18 per cent yield on its 10-year bond.
This says unless the European Union bites the bullet and comes up with a bailout for the PIIGS countries, then this ‘crap’ will spook stock markets. Of course, it will eventually come and that’s when the stock market will go sky high but until then it is a waiting game.
World leaders will meet at a G20 summit in Mexico and are expected to pile pressure on European leaders to find a lasting solution to the eurozone debt crisis.
Here’s hoping the current G20 meeting, which Prime Minister Julia Gillard is now attending, will kick a bit of European butt, however the history of this forum has not been all that impressive. Against that the US president, Barack Obama, really needs a stronger US economy and stock market to help his re-election and Europe is hurting his chances of re-election. This could be a strong force for the G20 to put more pressure on the EU to lift its game.
In the US the Fed’s meeting on interest rates over the next two days is important but I can’t see a move on QE3 just yet.
Meanwhile that homebuilder sentiment figure came in at 29 but is a long way short of 50. This indicates poor conditions are behind the industry but the reading was the best in five years and CNBC says it hasn’t been above 50 for six years!
Given what Wall Street has done, it will be surprising if our market goes higher today.
Invest in Europe?
One final point — the really brave investment experts say Europe is the place to invest now! These people are punting on the eventual solution coming and when it does, stocks there will go through the roof and the world stock markets will go with them.
This is the ultimate guts play and there are some brave smarties out there now doing exactly that but remember it’s a risky play in the short run.
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Published on: Tuesday, June 19, 2012
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